-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HaFibPr79C0qsG2BrCz7b5onjaTOYUjbPq1FLNlmcc4ekVeMYG3I+XD0nSqX7uTV wqMPy0k2LEOG8jcSBve8NQ== 0000950146-95-000765.txt : 19951130 0000950146-95-000765.hdr.sgml : 19951130 ACCESSION NUMBER: 0000950146-95-000765 CONFORMED SUBMISSION TYPE: 485B24E PUBLIC DOCUMENT COUNT: 31 FILED AS OF DATE: 19951128 EFFECTIVENESS DATE: 19951201 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MFS SERIES TRUST X CENTRAL INDEX KEY: 0000783740 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MA FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 485B24E SEC ACT: 1933 Act SEC FILE NUMBER: 033-01657 FILM NUMBER: 95596951 FILING VALUES: FORM TYPE: 485B24E SEC ACT: 1940 Act SEC FILE NUMBER: 811-04492 FILM NUMBER: 95596952 BUSINESS ADDRESS: STREET 1: 500 BOYLSTON ST CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 6179545000 MAIL ADDRESS: STREET 1: 500 BOYLSTON STREET CITY: BOSTON STATE: MA ZIP: 02116 FORMER COMPANY: FORMER CONFORMED NAME: MFS GOVERNMENT MORTGAGE FUND DATE OF NAME CHANGE: 19930408 FORMER COMPANY: FORMER CONFORMED NAME: MFS GOVERNMENT INCOME PLUS TRUST DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: MFS GOVERNMENT SECURITIES HIGH YIELD TRUST DATE OF NAME CHANGE: 19891119 485B24E 1 MFS SERIES TRUST FORM N-1A As filed with the Securities and Exchange Commission on November 28, 1995 1933 Act File No. 33-1657 1940 Act File No. 811-4492 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 POST-EFFECTIVE AMENDMENT NO. 13 AND REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 AMENDMENT NO. 14 MFS SERIES TRUST X (formerly, MFS Government Mortgage Fund) (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, MA 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: 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 July 31, 1995 on September 29, 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 OFFERING PRICE REGISTRATION SHARE FEE - ------------------------------------------------------------------------------- SHARES OF BENEFICIAL INTEREST (WITHOUT PAR 58,685,834 $6.73 $290,000 $100 VALUE) - ------------------------------------------------------------------------------- Registrant elects to calculate the maximum aggregate offering price pursuant to Rule 24e-2. 90,173,490 shares were redeemed during the fiscal year ended July 31, 1995. 31,530,746 shares were used for reductions pursuant to paragraph (c) of Rule 24f-2 during the current fiscal year. 58,642,744 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 $6.73 per share on November 14, 1995 is the price used as the basis for calculating the registration fee. While no fee is required for the 58,642,744 shares, the Registrant has elected to register, for $100, an additional $290,000 of shares (43,090 shares at $6.73 per share). MFS GOVERNMENT MORTGAGE FUND CROSS REFERENCE SHEET (Pursuant to Rule 404 showing location in the Prospectus and/or Statement of Additional Information of the responses to the Items in Parts A and B of Form N-1A) ITEM NUMBER STATEMENT OF ADDITIONAL FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION 1 (a), (b) Front Cover Page * 2 (a) Expense Summary * (b), (c) * * 3 (a) Condensed Financial Information * (b) * * (c) Information Concerning Shares * of the 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), (d) Management of the Fund - * Investment Adviser (e) Management of the Fund - Shareholder * Servicing Agent; Back Cover Page ITEM NUMBER STATEMENT OF ADDITIONAL FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION (f) Expense Summary; Condensed * Financial Information (g) Investment Objective and Policies - * Portfolio Trading; Information Concerning Shares of the Fund - Purchases 5A (a), (b), (c) ** ** 6 (a) Information Concerning Shares of * the Fund - Purchases; Information Concerning Shares of the Fund - Exchanges; Information Concerning Shares of the Fund - Redemptions and Repurchases; Information Concerning Shares of the Fund - Description of Shares, Voting Rights and Liabilities (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 - Distributions; Information Concerning Shares of the Fund - Tax Status 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 ITEM NUMBER STATEMENT OF ADDITIONAL FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION (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) Expense Summary; Information * Concerning Shares of the Fund - Purchases; Information Concerning Shares of the Fund - Distribution Plans (f) Information Concerning Shares of * the Fund - Distribution Plans 8 (a) Information Concerning Shares of * the Fund - Purchases; Information Concerning Shares of the Fund - Redemptions and Repurchases; Shareholder Services (b), (c), (d) Information Concerning Shares of * the Fund - Redemptions and Repurchases 9 * * ITEM NUMBER STATEMENT OF ADDITIONAL FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION 10 (a), (b) * Front Cover Page 11 * Front Cover Page 12 * 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 of Distribution Plans the Fund - Distribution Plans (g) * * ITEM NUMBER STATEMENT OF ADDITIONAL FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION (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 of Description of Shares, the Fund - Description of Voting Rights and Shares, Voting Rights and Liabilities Liabilities (b) * * 19 (a) Information Concerning Shares of Shareholder Services the Fund - Purchases; Shareholder Services (b) Information Concerning Shares of Management of the Fund - the Fund - Net Asset Value; Distributor; Information Concerning Shares of Determination of Net the Fund - Purchases 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 ITEM NUMBER STATEMENT OF ADDITIONAL FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION 23 * Independent Accountants and Financial Statements * Not Applicable ** Contained in Annual Report MFS(R) GOVERNMENT MORTGAGE FUND (A member of the MFS Family of Funds(R)) PROSPECTUS December 1, 1995 Class A Shares of Beneficial Interest Class B Shares of Beneficial Interest
Page ------- 1. Expense Summary 2 2. The Fund 3 3. Condensed Financial Information 4 4. Investment Objectives and Policies 6 5. Management of the Fund 10 6. Information Concerning Shares of the Fund 12 Purchases 12 Exchanges 15 Redemptions and Repurchases 16 Distribution Plans 19 Distributions 20 Tax Status 20 Net Asset Value 21 Description of Shares, Voting Rights and Liabilities 21 Performance Information 21 7. Shareholder Services 22 Appendix A A-1 Appendix B B-1
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 GOVERNMENT MORTGAGE FUND 500 Boylston Street, Boston, Massachusetts 02116 (617) 954-5000 This Prospectus pertains to the MFS Government Mortgage Fund (the "Fund"), a diversified series of MFS Series Trust X (the "Trust"), an open-end investment company presently consisting of four series. The primary investment objective of the Fund is to provide a high level of current income. The secondary objective of the Fund is to protect shareholders' capital. The Fund seeks to achieve its objectives by investing, under normal circumstances, at least 65% of its total assets in obligations issued or guaranteed by the Government National Mortgage Association ("GNMA") (including pass-through certificates of GNMA) and in obligations fully collateralized or otherwise fully secured by obligations issued or guaranteed by GNMA (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 Fund that a prospective investor ought to know before investing. The Fund has filed with the Securities and Exchange Commission (the "SEC") a Statement of Additional Information (the "SAI"), dated December 1, 1995, as amended or supplemented from time to time, which contains more detailed information about the Fund. The SAI is incorporated into this Prospectus by reference. See page 24 for a further description of the information set forth in the SAI. A copy of the SAI may be obtained without charge by contacting the Shareholder Servicing Agent (see back cover for address and phone number). Investors should read this Prospectus and retain it for future reference. 1. EXPENSE SUMMARY
Class A Class B ------------------- ----------- Shareholder Transaction Expenses: Maximum Initial Sales Charge Imposed on Purchases of Fund Shares (as a percentage of offering price) 4.75% 0.00% Maximum Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable) See Below(1) 4.00% Annual Operating Expenses (as a percentage of average net assets): Management Fees 0.45%(2) 0.45%(2) Rule 12b-1 Fees 0.35%(3) 1.00%(4) Other Expenses 0.24% 0.29% ----------------- --------- Total Operating Expenses 1.04%(2) 1.74%(2)
(1) Purchases of $1 million or more are not subject to an initial sales charge; however, a contingent deferred sales charge (a "CDSC") of 1% will be imposed on such purchases in the event of certain redemption transactions within 12 months following such purchases (see "Information Concerning Shares of the Fund--Purchases"). (2) Effective January 1, 1996, "Management Fees" will be reduced from 0.65% to 0.45% of the Fund's average daily net assets on an annualized basis. Therefore, through December 31, 1995, "Management Fees" will be 0.65% and "Total Operating Expenses" for Class A and Class B shares of the Fund will be 1.24% and 1.94%, respectively (see "Management of the Fund"). (3) 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"). Distribution expenses paid under this Plan, together with the initial sales charge, may cause long-term shareholders to pay more than the maximum sales charge that would have been permissible if imposed entirely as an initial sales charge. (4) The Fund has adopted a Distribution Plan for its Class B shares in accordance with Rule 12b-1 under the 1940 Act, which provides that it will pay distribution/service fees aggregating up to 1.00% per annum of the average daily net assets attributable to Class B shares (see "Distribution Plans"). Distribution expenses paid under this Plan, together with any CDSC payable upon redemption of Class B shares, may cause long-term shareholders to pay more than the maximum sales charge that would have been permissible if imposed entirely as an initial sales charge. Example of Expenses An investor would pay the following dollar amounts of expenses on a $1,000 investment in the Fund, assuming (a) 5% annual return and (b) redemption at the end of each of the time periods indicated (unless otherwise noted):
Period Class A Class B --------------- -------- ---------------------- (1) 1 year $ 60 $ 60 $ 20 3 years 85 91 61 5 years 112 125 105 10 years 190 208 (2) 208 (2)
(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. 2 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 Fund expenses are set forth in the following sections: (i) varying sales charges on sale purchases"Purchases"; (ii) varying CDSCs"Purchases"; (iii) management fees"Investment Adviser"; 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 four series, each of which represents a portfolio with separate investment objectives and policies. Shares of the Fund are continuously sold to the public and the Fund then uses the proceeds to buy securities for its portfolio. Two 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 a 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 a distribution fee which is greater than the Class A distribution and service fee. Class B shares will convert to Class A shares approximately eight years after purchase. 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 Fund also offers to buy back (redeem) its shares from its shareholders at any time at net asset value, less any applicable CDSC. 3 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 SAI in reliance upon the report of Deloitte & Touche LLP, independent certified public accountants, as experts in accounting and auditing. FINANCIAL HIGHLIGHTS
Eight Year Months Ended Ended July 31, July 31, Year Ended November 30, -------------------------------------- 1995 1994 1993 1992 1991 1990 - --------------------------------------------- -------- ---------- ------ ------ ------ -------- Class A ---------------------------------------------------------------------------------------------------------------- Per share data (for a share outstanding throughout each period): Net asset value - beginning of period $ 6.49 $ 6.85 $ 6.82 $ 6.95 $ 7.01 $ 7.86 ------ -------- ---- ---- ---- ------ Income from investment operations # - Net investment income (Section) $ 0.45 $ 0.29 $ 0.34 $ 0.46 $ 0.48 $ 0.53 Net realized and unrealized gain (loss) on investments 0.14 (0.36) 0.20 0.09 0.25 (0.40) ------ -------- ---- ---- ---- ------ Total from investment operations $ 0.59 $(0.07) $ 0.54 $ 0.55 $ 0.73 $ 0.13 ------ -------- ---- ---- ---- ------ Less distributions declared to shareholders - From net investment income $(0.42) $(0.20) $(0.47) $(0.42) $(0.44) $(0.49) In excess of net realized gain on investments -- -- (0.04) -- -- -- From paid-in capital -- (0.09) -- (0.26) (0.35) (0.49) Tax return of capital (0.01) -- -- -- -- -- ------ -------- ---- ---- ---- ------ Total distributions declared to shareholders $(0.43) $(0.29) $(0.51) $(0.68) $(0.79) $(0.98) ------ -------- ---- ---- ---- ------ Net asset value - end of period $ 6.65 $ 6.49 $ 6.85 $ 6.82 $ 6.95 $ 7.01 ====== ======== ==== ==== ==== ====== Total return++ 9.60% (1.51)%+ 8.11% 8.25% 11.00% 2.05% Ratios (to average net assets)/Supplemental data (Section): Expenses 1.25% 1.27%+ 1.38% 1.42% 1.44% 1.40% Net investment income 6.99% 6.46%+ 6.30% 6.57% 6.91% 7.29% Portfolio turnover 87% 37% 167% 484% 731% 507% Net assets at end of period (000,000 omitted) $ 534 $ 424 $ 522 $ 715 $ 886 $1,068
+Annualized. #Per share data for the periods subsequent to November 30, 1993 is based on average shares outstanding. ++Total returns for Class A shares do not include the applicable sales charge (except for reinvested dividends prior to October 1, 1989). If the charge had been included, the results would have been lower. (Section) The investment adviser did not impose a portion of its management fee 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 -- $0.29 $0.34 -- -- -- Ratios (to average net assets): Expenses -- 1.28%+ 1.46% -- -- -- Net investment income -- 6.45%+ 6.22% -- -- --
4
Eight Year Months Period Ended Ended Ended Year Ended November 30, July 31, July 31, Nov. 30, -------------------------------------- 1989 1988 1987 1986* 1995 1994 1993** - --------------------------------------------- -------- ------ ------ ------ -------- ---------- --------- Class A Class B - --------------------------------------------- -------- ------ ------ ------ -------- ---------- --------- Per share data (for a share outstanding throughout each period): Net asset value - beginning of period $ 7.82 $ 8.34 $ 9.82 $ 9.53 $ 6.49 $ 6.84 $ 6.97 ------ ---- ---- ---- ------ -------- ------- Income from investment operations # - Net investment income (Section) $ 0.59 $ 0.64 $ 0.75 $ 0.72 $ 0.41 $ 0.26 $ 0.38 Net realized and unrealized gain (loss) on investments 0.48 (0.06) (1.08) 0.43 0.14 (0.35) (0.44) ------ ---- ---- ---- ------ -------- ------- Total from investment operations $ 1.07 $ 0.58 $(0.33) $ 1.15 $ 0.55 $(0.09) $(0.06) ------ ---- ---- ---- ------ -------- ------- Less distributions declared to shareholders - From net investment income $(0.58) $(0.64) $(0.82) $(0.65) $(0.38) $(0.18) $(0.07) From net realized gain on investments -- -- (0.01) (0.21) -- -- -- From paid-in capital (0.45) (0.46) (0.32) -- -- (0.08) -- Tax return of capital -- -- -- -- (0.01) -- -- ------ ---- ---- ---- ------ -------- ------- Total distributions declared to shareholders $(1.03) $(1.10) $(1.15) $(0.86) $(0.39) $(0.26) $(0.07) ------ ---- ---- ---- ------ -------- ------- Net asset value - end of period $ 7.86 $ 7.82 $ 8.34 $ 9.82 $ 6.65 $ 6.49 $ 6.84 ====== ==== ==== ==== ====== ======== ======= Total return++ 14.72% 7.39% (3.37)% 13.75%+ 8.81% (1.97)%+ (3.91)%+ Ratios (to average net assets)/Supplemental data(Section).: Expenses 1.37% 1.38% 1.34% 1.00%+ 1.96% 1.94%+ 1.87%+ Net investment income 7.57% 7.88% 8.34% 9.54%+ 6.28% 5.80% 5.92%+ Portfolio turnover 489% 285% 212% 169% 87% 37% 167% Net assets at end of period (000,000 omitted) $1,380 $1,295 $1,129 $ 593 $ 812 $1,229 $1,628 *For the period from the commencement of investment operations, January 9, 1986 to November 30, 1986. **For the period from the commencement of offering of Class B shares, September 7, 1993 to November 30, 1993. +Annualized. #Per share data for the periods subsequent to November 30, 1993 is based on average shares outstanding. ++Total returns for Class A shares do not include the applicable sales charge (except for reinvested dividends prior to October 1, 1989). If the charge had been included, the results would have been lower. (Section).The investment adviser did not impose a portion of its management fee 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 -- -- -- -- -- -- $0.38 Ratios (to average net assets): Expenses -- -- -- -- -- -- 1.94%+ Net investment income -- -- -- -- -- -- 5.85%+
5 4. INVESTMENT OBJECTIVES AND POLICIES Investment Objectives--The Fund's primary investment objective is to provide a high level of current income. 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 objectives. Investment Policies--The Fund seeks to achieve its investment objectives by investing at least 65% of its total assets, under normal circumstances, in obligations issued or guaranteed by GNMA (including pass-through certificates of GNMA which are described below) and in obligations fully collateralized or otherwise fully secured by obligations issued or guaranteed by GNMA. The Fund may also invest in other securities that are issued or guaranteed as to principal and interest by the U.S. Government, its agencies, authorities or instrumentalities ("Government Securities"). Such Government Securities include (1) the following U.S. Treasury obligations, which differ only in their interest rates, maturities and times of issuance: U.S. Treasury bills (maturities of one year or less), U.S. Treasury notes (maturities of one to 10 years), and U.S. Treasury bonds (generally maturities of greater than 10 years) all of which are backed by the full faith and credit of the United States; and (2) obligations issued or guaranteed by U.S. Government agencies or instrumentalities, some of which are backed by the full faith and credit of the U.S. Treasury; some of which are supported by the right of the issuer to borrow from the U.S. Government, e.g., obligations of Federal Home Loan Banks; 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"). No assurance can be given that the U.S. Government will provide financial support to these agencies and instrumentalities because it is not obligated by law, in certain instances, to do so. The primary types of Government Securities in which the Fund invests are described in Appendix B. The Fund may invest in pass-through certificates of GNMA. These certificates are mortgage-backed securities which represent a partial ownership interest in a pool of mortgage loans issued by lenders such as mortgage bankers, commercial banks and savings and loan associations. Each mortgage loan included in the pool is either insured by the Federal Housing Administration or guaranteed by the Veterans Administration. For a further description of these and other such obligations and of the consequences of the prepayment of mortgages underlying these certificates, see "Mortgage Pass-Through Securities" below and Appendix B. When and if available, Government Securities may be purchased at a discount from face value. However, the Fund does not intend to hold such securities to maturity for the purpose of achieving potential capital gains, unless current yields on these securities remain attractive. Depending on market conditions, the Fund may temporarily take a defensive position by investing a substantial portion of its assets in cash, short-term Government Securities and related repurchase agreements. Government Securities do not generally involve the credit risks associated with other types of fixed income securities, although, as a result, the yields available from Government Securities are generally lower than the yields available from corporate fixed income securities. Like other fixed income securities, however, the values of Government Securities change as interest rates fluctuate. Therefore, the net asset value of the shares of an open-end investment company such as the Fund which invests in fixed income securities changes as the general levels of interest rates fluctuate. When interest rates decline, the value of a portfolio invested at higher yields can be expected to rise. Conversely, when interest rates rise, the value of a portfolio invested at lower yields can be expected to decline. Although changes in the value of the Fund's portfolio securities subsequent to their acquisition are reflected in the net asset value of shares of the Fund, such changes will not affect the income received by the Fund from such securities. While the Fund seeks to maintain a relatively high, stable dividend, no specific level of income or yield differential can ever be assured since available yields vary over time. The dividends paid by the Fund will increase or decrease in relation to the income received by the Fund from its investments which will in any case be reduced by the Fund's expenses before being distributed to the Fund's shareholders. Mortgage Pass-Through Securities: The Fund may invest in mortgage pass-through securities that are Government Securities. Mortgage pass-through securities are securities representing interests in "pools" of mortgage loans. Monthly payments of 6 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 from 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. Repurchase Agreements: The Fund may enter into repurchase agreements in order to earn income on available cash or as a temporary defensive measure. Under a repurchase agreement, 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 SAI, the Fund has adopted certain procedures intended to minimize risk. "When-Issued" Securities: Some Government 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 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. Although the Fund is not limited as to the amount of Government 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 30% of its total assets to such purchases. The Fund does not pay for the securities until received, and does not start earning interest on the securities until the contractual settlement date. While awaiting delivery of the securities purchased on such bases, the Fund will hold cash, short-term money market instruments or Government Securities in a segregated account. 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. Zero Coupon Bonds: The Fund may invest in zero coupon bonds, which are debt obligations issued or purchased at a significant discount from face value. The Fund will only purchase zero coupon bonds which are Government Securities. 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 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, 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. Collateralized Mortgage Obligations and Multiclass Pass-Through Securities: The Fund may invest a portion of its assets in collateralized mortgage obligations ("CMOs") which are debt obligations collateralized by mortgage loans or mortgage pass- through securities (such collateral collectively hereinafter referred to as "Mortgage Assets"). Mortgage Assets underlying CMOs purchased by the Fund must be issued or guaranteed by the U.S. Government, its agencies, authorities or instrumentalities. 7 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. Unless the context indicates otherwise, all references herein to CMOs include multiclass pass-through securities. Payments of principal of and interest on the Mortgage Assets, and any reinvestment income thereon, provide the funds to pay debt service on the CMOs or make scheduled distributions on the multiclass pass-through securities. In a CMO, a series of bonds or certificates is usually issued in multiple classes with different maturities. Each class of CMOs, often referred to as a "tranche," is issued at a specific fixed or floating coupon rate and has a stated maturity or final distribution date. Principal prepayments on the Mortgage Assets may cause the CMOs to be retired substantially earlier than their stated maturities or final distribution dates resulting in a loss of all or part of the premium, if any has been paid. Certain classes of CMOs have priority over others with respect to the receipt of prepayments on the mortgages. Therefore, depending on the type of CMOs in which the 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 and the risks related to transactions therein, see the SAI. 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 usually structured with two classes that receive different proportions of the interest and principal distributions from an underlying pool of mortgage assets. The Fund will only invest in SMBS whose mortgage assets are issued or guaranteed by the U.S. Government, its agencies, authorities or instrumentalities. For a further description of SMBS and the risks related to transactions therein, see the SAI. Swaps and Related Transactions: The Fund may enter into interest rate 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, 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. 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. Swaps, caps, floors and collars are highly specialized activities which involve certain risks. See the SAI for further information on, and the risks involved in, these activities. Lending of Securities and Short Sales: The Fund may make loans of its portfolio securities. Such loans will usually be made to member banks of the Federal Reserve System and member firms (and subsidiaries thereof) of the New York Stock Exchange (the "Exchange") under contracts calling for collateral in U.S. Government securities, cash or an irrevocable letter of credit. 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). The Fund may pay finder's and other fees in connection with securities loans. The Fund may also make short sales involving either securities retained in the Fund's portfolio or securities which the Fund has the right to acquire without paying additional consideration. Indexed Securities: The Fund may invest in indexed securities whose value is linked to 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 8 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. Portfolio Trading: The Fund intends to manage its portfolio by buying and selling Government Securities, as well as holding selected obligations to maturity, and by engaging in transactions involving related options, Futures Contracts and swap transactions. In managing its portfolio the Fund seeks to maximize the return on its portfolio by taking advantage of market developments and yield disparities. For a description of the strategies which may be used by the Fund in managing its portfolio, see the SAI. The primary consideration in placing portfolio security transactions with broker-dealers for execution is to obtain and maintain the availability of execution at the most favorable prices and in the most effective manner possible. Consistent with the foregoing primary consideration, the Rules of Fair Practice of the National Association of Securities Dealers, Inc. ("NASD") and such other policies as the Trustees may determine, the Adviser may consider sales of shares of the Fund and of other investment company clients of MFD, the Fund's distributor, 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 SAI. Options on Fixed Income Securities: The Fund may write (sell) covered put and call options on fixed income securities and purchase put and call options. The Fund will write such options for hedging purposes and to increase its return; however, it will not write such options for the purpose of attempting to pay out a pre-established level of dividends or distributions. The Fund may also write combinations of put and call options on the same security, known as "straddles." The Fund may purchase put or call options in anticipation of declines in the value of fixed income portfolio securities or increases in the value of securities to be acquired. For hedging purposes, the Fund may also enter into options on the yield "spread," or yield differential, between two securities. This transaction is 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 securities rather than the actual prices of the individual securities, and is settled through cash payments. Accordingly, a yield curve option is profitable to the holder if this differential widens (in the case of a call) or narrows (in the case of a put), regardless of whether the yields of the underlying securities increase or decrease. Yield curve options written by the Fund will be covered as described in the SAI. The trading of yield curve options is subject to all the risks associated with trading other types of options, as discussed below under "Risks of Investment in Options, Futures Contracts and Options on Futures Contracts" and in the SAI. In addition, such options present risks of loss even if the yield on one of the underlying securities remains constant, if the spread moves in a direction or to an extent which was not anticipated. In certain instances, the Fund may enter into options on Treasury Securities. This type of option is referred to as "reset" options or "adjustable strike" options. These options provide for periodic adjustment of the strike price and may also provide for the periodic adjustment of the premium during the term of the option. The Fund may purchase and sell options that are traded on U.S. exchanges, and options traded over-the-counter, with broker- dealers who deal in these options. The ability to terminate over-the-counter options is more limited than with exchange-traded options and may involve the risk that broker-dealers participating in such transactions will not fulfill their obligations. The Fund will treat assets used to cover over-the-counter options as illiquid unless the dealer is a primary dealer in U.S. Government securities and has given the Fund the unconditional right to close such options at a formula price, in which event only an amount of the cover determined with reference to the formula will be considered illiquid. 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. See "Investment Objectives, Policies and Restrictions--Options on Fixed Income Securities" in the SAI for a further discussion of options on fixed income securities, as well as the associated risks. 9 Futures Contracts: The Fund may enter into futures contracts on fixed income securities ("Futures Contracts"). Such transactions may 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 Government 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 Futures Contracts or may realize a loss. The Fund may also enter into Futures Contracts for non-hedging purposes, to the extent permitted by applicable law, which involves greater risks. See "Investment Objectives, Policies and RestrictionsFutures Contracts" in the SAI for a further discussion of Futures Contracts, as well as the associated risks. Options on Futures Contracts: The Fund may also purchase and write options on Futures Contracts ("Options on Futures Contracts") for the purpose of protecting against declines in the value of fixed income portfolio securities or against increases in the cost of such securities to be acquired, as well as for non-hedging purposes to the extent permitted by applicable law. Purchases of Options on Futures Contracts may present less risk in hedging the portfolio of the Fund than the purchase or sale of the underlying Futures Contracts, because the potential loss is limited to the amount of the premium paid for the option, plus related transaction costs. The writing of such options, however, does not present less risk than the trading of Futures Contracts, and will constitute only a partial hedge, up to the amount of the premium received, less related transaction costs. In addition, if an option is exercised, the Fund may suffer a loss on the transaction. See "Investment Objectives, Policies and RestrictionsOptions on Futures Contracts" in the SAI for a further discussion of Options on Futures Contracts, as well as the associated risks. Risks of Investment in Options, Futures Contracts and Options on Futures Contracts: The Fund's use of options, Futures Contracts and Options on Futures Contracts involves certain risks. For example, a lack of correlation between the instrument underlying an option or Futures Contract and the assets being hedged, or unexpected adverse price movements, could render the Fund's hedging strategy unsuccessful and could result in losses. The Fund also may enter into transactions in such instruments for non-hedging purposes to the extent permitted by applicable law, 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. There also 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 SAI contains a description of the nature and trading mechanics of options, Futures Contracts and Options on Futures Contracts and includes a discussion of the risks related to transactions therein. The investment objectives and the policies described above may be changed without shareholder approval. The SAI 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 SAI may be changed without shareholder approval unless indicated otherwise. The Fund's investment limitations and policies are adhered to at the time of purchase or utilization of assets; a subsequent change in circumstances will not be considered to result in a violation of policy. 5. MANAGEMENT OF THE FUND Investment Adviser--The Adviser manages the assets of the Fund pursuant to an Investment Advisory Agreement, dated December 19, 1985, as amended (the "Advisory Agreement"). The Adviser provides the Fund with overall investment advisory and administrative services, as well as general office facilities. James J. Calmas, a Vice President of the Adviser, is the Fund's portfolio manager. Mr. Calmas became the portfolio manager of the Fund in January of 1993. Mr. Calmas joined the Adviser in 1988 as an Investment Analyst. 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, equal 10 to, commencing January 1, 1996, 0.45% of the Fund's average daily net asset value; through December 31, 1995, the Adviser will be receiving a higher management fee equal to the lesser of (i) 0.65% of the Fund's average daily net assets or (ii) 0.30% of the Fund's average daily net assets and 6.1% of the Fund's gross income (i.e., income other than from the sale of securities, short-term gains from options and futures transactions and premium income from options written), in every case on an annualized basis for the Fund's then-current fiscal year. For the Fund's fiscal year ended July 31, 1995, management fees paid to MFS under the Advisory Agreement amounted to $9,450,684 equivalent, on an annualized basis, to 0.65% of the Fund's average daily net assets. 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 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., also provide investment advice to substantial private clients. MFS is America's oldest mutual fund organization. MFS and its predecessor organizations have a history of money management dating from 1924 and the founding of the first mutual fund in the United States, Massachusetts Investors Trust. Net assets under the management of the MFS organization were approximately $39.8 billion on behalf of over 1.8 million investor accounts as of October 31, 1995. As of such date, the MFS organization managed approximately $19.6 billion of assets in fixed income securities and $15.9 billion of assets in equity securities. 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 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 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 Fund. W. Thomas London, Stephen E. Cavan, James R. Bordewick, Jr., and James O. Yost, who are officers of MFS, are also officers of the Fund. 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, it may produce increased investment opportunities for the Fund. 11 Distributor--MFD, a wholly owned subsidiary of MFS, is the distributor of shares of the Fund and 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 and other financial institution ("dealers") having a selling agreement with MFD. Dealers may also charge their customers fees relating to investment in the Fund. The Fund offers two classes of shares (Class A and B 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 as a Offering Net Amount Percentage of Amount of Purchase Price Invested 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 then 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 SAI. 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 12 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 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 Appendix 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. 13 Waivers of CDSC. In certain circumstances, the CDSC imposed upon redemption of Class B shares is waived. These circumstances are described in Appendix 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 same 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. 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 for sale 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 and Class B 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 14 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 at net asset value (if available for sale). Exchanges among MFS Funds (excluding exchanges from 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 15 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 above in this paragraph. General: A shareholder should read the prospectus of the other MFS Fund and consider the differences in objectives, policies and restrictions before making any exchange. 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 Exchange (generally, 4:00 p.m., Eastern time), the exchange will occur on that day if all the requirements set forth above have been complied with at that time and subject to the Fund's right to reject purchase orders. 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. 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 a 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 16 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 may be liable for any losses resulting from unauthorized telephone transactions if it does not follow 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 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 shares from his or her account by check. The Bank will provide each Class A 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 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 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 the Class A 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 fluctuation 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. 17 CONTINGENT DEFERRED SALES CHARGE: Investments in Class A or 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 basisall 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 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 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 Appendix 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 twelve 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 SAI 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 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 "PurchasesGeneralMinimum 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. 18 Distribution Plans The Trustees have adopted separate Distribution Plans for Class A and Class B 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. 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 or Class B 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 SAI. 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. While the amount of compensation received by MFD in the form of distribution fees during any year may be more or less than the expense incurred by MFD under its distribution agreement with the Fund, the Fund is not liable to MFD for any losses MFD may incur in performing services under its distribution agreement with the Fund. 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. 19 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 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 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). Current Level of Distribution and Service Fees. The Fund's Class A and Class B distribution and service fees for its current fiscal year are 0.35% and 1.00% per annum, respectively. Distributions The Fund intends to pay substantially all of its net investment income 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 over a longer term, rather than its actual net investment income for the period. If the Fund earns less than projected, or otherwise distributes more than its earnings for the year, a portion of the distributions may constitute a return of capital. 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 class with respect to which the distribution is made. See "Tax Status" and "Shareholder ServicesDistribution 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 shares because expenses attributable to Class B 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 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. 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 additional shares. Shareholders 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 receive a statement setting forth the federal income tax status of all Fund dividends and distributions for that year, including the portion taxable as ordinary income, the portion taxable as long-term capital gain, the portion 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. 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 a 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 law or 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 to payments which have 20 been subject to 30% withholding. Prospective investors should read the Account Application for information regarding backup withholding of federal income tax and should consult their own tax advisers as to the tax consequences of an investment in the Fund. Dividends of the Fund that are derived from interest on obligations of the U.S. Government and certain of its agencies and instrumentalities (but generally not from capital gains realized upon a disposition of such obligations) may be exempt from state and local taxes in certain states. Shareholders should consult their tax advisers regarding the possible exclusion of such portion of their dividends for state and local income tax purposes. 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. 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 day as of the close of regular trading on the Exchange by deducting the amount of the Fund's 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 SAI. 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 has two classes of shares, entitled Class A and Class B Shares of Beneficial Interest (without par value). The Fund 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 would 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 Fund does not intend to hold annual shareholder meetings. The Declaration of Trust provides that a Trustee may be removed from office in certain instances (see "Description of Shares, Voting Rights and Liabilities" in the SAI). Each share of 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 described above in "Information Concerning Shares of the Fund--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 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 Fund is an entity of the type commonly known as a "Massachusetts business trust". Under Massachusetts law, shareholders of such a trust may, under certain circumstances, be held personally liable as partners for its obligations. However, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which both inadequate insurance existed (e.g., fidelity bonding and omission insurance) and the Fund 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 Weisenberger Investment Companies Service. Yield quotations will be based on the annualized net investment 21 income per share of a class of the Fund over a 30 day period stated as a percent of the maximum public offering price of shares of that class on the last day of that period. 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 twelve 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 a class 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 redemption 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 the 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 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 SAI. For further information about the Fund's performance for the fiscal year ended July 31, 1995, please refer to 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. 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 at the net asset value in effect at the close of business on the record date. Checks for 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 22 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 SAI) anticipates purchasing $100,000 or more of Class A shares of the Fund alone or in combination with the total value of all shares of all classes of other MFS Funds or the 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 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 the MFS Fixed Fund (a bank collective investment 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 another 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 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 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 under the Automatic Exchange Plan, a dollar cost averaging program. 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 in 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. 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 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 SAI 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. 23 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 or falling 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-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 advisers before establishing any of the tax-deferred retirement plans described above. The Fund's SAI, dated December 1, 1995, contains more detailed information about the Fund, including, but not limited to, information related to (i) investment objectives, policies and restrictions, (ii) its Trustees, officers and investment adviser, (iii) portfolio transactions and brokerage commissions, (iv) the method used to calculate yield, distribution rate and total rate of return quotations of the Fund, (v) the Class A and Class B 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. 24 Appendix A WAIVERS OF SALES CHARGES This Appendix 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 are 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, are waived: 1. Dividend Reinvestment (bullet) Shares acquired through dividend or capital gain reinvestment; and (bullet) Shares acquired by automatic reinvestment of distributions of dividends and capital gains of any fund in the MFS Family of Funds ("MFS Funds") pursuant to the Distribution Investment Program. 2. Certain Acquisitions/Liquidations (bullet) 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: (bullet) Officers, eligible directors, employees (including retired employees) and agents of Massachusetts Financial Services Company ("MFS"), Sun Life Assurance Company of Canada ("Sun Life") or any of their subsidiary companies; (bullet) Trustees and retired trustees of any investment company for which MFS Fund Distributors, Inc. ("MFD") serves as distributor; (bullet) Employees, directors, partners, officers and trustees of any sub-adviser to any MFS Fund; (bullet) Employees or registered representatives of dealers and other financial institutions ("dealers") which have a sales agreement with MFD; (bullet) 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 the MFS Fund which issued the shares; and (bullet) Institutional Clients of MFS or MFS Asset Management, Inc. ("AMI"). 4. Involuntary Redemptions (CDSC waiver only) (bullet) 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 ("IRAs") (bullet) Death or disability of the IRA Owner. A-1 Section 401(a) Plans ("401(a) Plans") and Section 403(b) Employer Sponsored Plans ("ESP Plans") (bullet) Death, disability or retirement of 401(a) or ESP Plan participant; (bullet) Loan from 401(a) or ESP Plan (repayment of loans, however, will constitute new sales for purposes of assessing sales charges); (bullet) Financial hardship (as defined in Treasury Regulation Section 1.401(k)-1(d)(2), as amended from time to time); (bullet) Termination of employment of 401(a) or ESP Plan participant (excluding, however, a partial or other termination of the Plan); (bullet) Tax-free return of excess 401(a) or ESP Plan contributions; (bullet) To the extent that redemption proceeds are used to pay expenses (or certain participant expenses) of the 401(a) or ESP 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 MFS Service Center, Inc. (the "Shareholder Servicing Agent"); and (bullet) Distributions from a 401(a) or ESP 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 401(a) or ESP 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 401(a) or ESP Plan's shares in all MFS Funds (i.e., all the assets of the 401(a) or ESP Plan invested in the MFS Funds are withdrawn), unless immediately prior to the redemption, the aggregate amount invested by the 401(a) or ESP 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 401(a) or ESP 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") (bullet) Death or disability of SRO Plan participant. 6. Certain Transfers of Registration (CDSC waiver only). Shares transferred: (bullet) 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 (bullet) 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 CDSC imposed on certain redemptions of Class A shares are waived: 1. Investment of Redemption Proceeds from Unaffiliated Mutual Funds (bullet) 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 A-2 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 (bullet) 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 (bullet) Shares acquired by insurance company separate accounts. 4. Retirement Plans Administrative Services Arrangements (bullet) 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 (bullet) 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: IRAs (bullet) Distributions made on or after the IRA owner has attained the age of 59-1/2 )years old; and (bullet) Tax-free returns of excess IRA contributions. 401(a) Plans (bullet) Distributions made on or after the 401(a) Plan participant has attained the age of 59-1/2 years old; and (bullet) Certain involuntary redemptions and redemptions in connection with certain automatic withdrawals from a 401(a) Plan. ESP Plans and SRO Plans (bullet) Distributions made on or after the ESP or SRO 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 (bullet) Systematic Withdrawal Plan redemptions with respect to up to 10% per year of the account value at the time of establishment. A-3 2. Death of Owner (bullet) 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 (bullet) 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: IRAs, 401(a) Plans, ESP Plans and SRO Plans (bullet) Distributions made on or after the IRA owner or the 401(a), ESP or SRO 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. Salary Reduction Simplified Employee Pension Plans ("SAR-SEP Plans") (bullet) 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; and (bullet) Death or disability of a SAR-SEP Plan participant. A-4 Appendix B Description of Obligations Issued or Guaranteed by U.S. Government Agencies, Authorities or Instrumentalities GNMA Certificates--are mortgage-backed securities which represent a partial ownership interest in a pool of mortgage loans issued by lenders such as mortgage bankers, commercial banks and savings and loan associations. Each mortgage loan included in the pool is either insured by the Federal Housing Administration or guaranteed by the Veterans Administration. The Fund will purchase only GNMA Certificates of the "modified pass-through" type, which entitle the holder to receive its proportionate share of all interest and principal payments owed on the mortgage pool, net of fees paid to the issuer and GNMA. Payment of principal of and interest on GNMA Certificates of the "modified pass-through" type is guaranteed by GNMA. The average life of a GNMA Certificate is likely to be substantially less than the original maturity of the mortgage pools underlying the securities. Prepayments of principal by mortgagors and mortgage foreclosures will usually result in the return of the greater part of principal invested far in advance of the maturity of the mortgages in the pool. Foreclosures impose no risk to principal investment because of the GNMA guarantee. As the prepayment rates of individual mortgage pools will vary widely, it is not possible to accurately predict the average life of a particular issue of GNMA Certificates. However, statistics published by the FHA indicate that the average life of a single-family dwelling mortgage with a 25- 30-year maturity, the type of mortgage which backs the vast majority of GNMA Certificates, is approximately 12 years. It is therefore customary practice to treat GNMA Certificates as 30-year mortgage-backed securities which prepay fully in the twelfth year. As a consequence of the fees paid to GNMA and the issuer of GNMA Certificates, the coupon rate of interest of GNMA Certificates is lower than the interest paid on the VA-guaranteed or FHA-insured mortgages underlying the GNMA Certificates. The yield which will be earned on GNMA Certificates may vary from their coupon rates for the following reasons: (i) Certificates may be issued at a premium or discount, rather than at par; (ii) Certificates may trade in the secondary market at a premium or discount after issuance; (iii) interest is earned and compounded monthly which has the effect of raising the effective yield earned on the Certificates; and (iv) the actual yield of each Certificate is affected by the prepayment of mortgages included in the mortgage pool underlying the Certificates and the rate at which principal so prepaid is reinvested. In addition, prepayment of mortgages included in the mortgage pool underlying a GNMA Certificate purchased at a premium may result in a loss to the Fund. Due to the large amount of GNMA Certificates outstanding and active participation in the secondary market by securities dealers and investors, GNMA Certificates are highly liquid instruments. Prices of GNMA Certificates are readily available from securities dealers and depend on, among other things, the level of market rates, the Certificate's coupon rate and the prepayment experience of the pool of mortgages backing each Certificate. FNMA Bonds--are bonds issued and guaranteed by the Federal National Mortgage Association and are not guaranteed by the U.S. Government. FHLMC Bonds--are bonds issued and guaranteed by the Federal Home Loan Mortgage Corporation and are not guaranteed by the U.S. Government. Export-Import Bank Certificates--are certificates of beneficial interest and participation certificates issued and guaranteed by the Export-Import Bank of the United States. Federal Agricultural Mortgage Corporation Certificates--are certificates of beneficial interest guaranteed by the Federal Agricultural Mortgage Corporation. B-1 Federal Agricultural Mortgage Corporation Bonds and Notes--are bonds and notes guaranteed by the Federal Agricultural Mortgage Corporation. Federal Farm Credit Banks Consolidated Systemwide Notes and Bonds--are bonds issued and guaranteed by a cooperatively owned nationwide system of banks and associations supervised by the Farm Credit Administration. Federal Home Loan Bank Notes and Bonds--are notes and bonds issued by the Federal Home Loan Bank System. Federal Home Loan Bank Certificates--are certificates of beneficial interest and participation certificates issued and guaranteed by the Federal Home Loan Bank System. FHA Debentures--are debentures issued by the Federal Housing Authority of the U.S. Government. FICO Bonds and Notes--are bonds and notes issued and guaranteed by the Financing Corporation. GSA Participation Certificates--are participation certificates issued by the General Services Administration of the U.S. Government. Maritime Administration Bonds--are bonds issued by the Department of Transportation of the U.S. Government. New Communities Debentures--are debentures issued in accordance with the provisions of Title IV of the Housing and Urban Development Act of 1968, as supplemented and extended by Title VII of the Housing and Urban Development Act of 1970, the payment of which is guaranteed by the U.S. Government. REFCORP Bonds and Notes--are bonds and notes issued and guaranteed by the Resolution Funding Corporation. SBA Debentures--are debentures fully guaranteed as to principal and interest by the Small Business Administration of the U.S. Government. SLMA Debentures--are debentures backed by the Student Loan Marketing Association. Title XI Bonds--are bonds issued in accordance with the provisions of Title XI of the Merchant Marine Act of 1936, as amended, the payment of which is guaranteed by the U.S. Government. TVA Bonds and Notes--are bonds and notes issued and guaranteed by the Tennessee Valley Authority. U.S. Department of Veteran Affairs Certificates--are certificates of beneficial interest guaranteed by the U.S. Department of Veteran Affairs. Washington Metropolitan Area Transit Authority Bonds-- are bonds issued by the Washington Metropolitan Area Transit Authority and guaranteed by the Secretary of Transportation of the U.S. Government. Although this list includes the primary types of Government Securities in which the Fund invests (other than U.S. Treasury obligations), the Fund may also invest in Government Securities other than those listed above. B-2 (Artwork Logo--MFS) MFS(R) GOVERNMENT MORTGAGE FUND (A member of the MFS Family of Funds(R) STATEMENT OF ADDITIONAL INFORMATION December 1, 1995
Page ----- 1. Definitions 2 2. Investment Objectives, Policies and Restrictions 2 3. Management of the Fund 11 Trustees 11 Officers 11 Investment Adviser 12 Custodian 13 Shareholder Servicing Agent 13 Distributor 13 4. Portfolio Transactions and Brokerage Commissions 14 5. Shareholder Services 14 Investment and Withdrawal Programs 14 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 22 Appendix A 23
MFS GOVERNMENT MORTGAGE FUND A Series of MFS Series Trust X 500 Boylston Street, Boston, Massachusetts 02116 (617) 954-5000 This Statement of Additional Information (the "SAI") sets forth information which may be of interest to investors but which is not necessarily included in the Fund's Prospectus, dated December 1, 1995. This SAI should be read in conjunction with the Prospectus, a copy of which may be obtained without charge by contacting the Shareholder Servicing Agent (see back cover for address and phone number). This SAI is NOT a prospectus and is authorized for distribution to prospective investors only if preceded or accompanied by a current prospectus. 1. DEFINITIONS "Fund" -- MFS Government Mortgage Fund, a diversified series of MFS Series Trust X (the "Trust"), a Massachusetts business trust. The Trust was known as MFS Government Mortgage Fund prior to June 2, 1995, MFS Government Income Plus Fund prior to March 1, 1993 and MFS Government Income Plus Trust prior to August 3, 1992. "MFS" or the -- Massachusetts Financial Services "Adviser" Company, a Delaware corporation. "MFD" -- MFS Fund Distributors, Inc., a Delaware corporation. "Prospectus" -- The Prospectus of the Fund, dated December 1, 1995, as amended or supplemented from time to time. 2. INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS Investment Objectives. The Fund's primary investment objective is to provide a high level of current income. 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 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. Repurchase Agreements: 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 U.S. Government securities, the values of which are equal to or greater than the repurchase price agreed to be paid by the seller. The repurchase price may be higher than the purchase price, the difference being income to the Fund, or the purchase and repurchase prices may be the same, with interest at a standard rate due to the Fund together with the repurchase price on repurchase. In either case, the income to the Fund is unrelated to the interest rate on the U.S. Government securities. The repurchase agreement provides that in the event the seller fails to pay the price agreed upon on the agreed upon delivery date or upon demand, as the case may be, the Fund will have the right to liquidate the securities. If at the time the Fund is contractually entitled to exercise its right to liquidate the securities, the seller is subject to a proceeding under the bankruptcy laws or its assets are otherwise subject to a stay order, the Fund's exercise of its right to liquidate the securities may be delayed and result in certain losses and costs to the Fund. The Fund has adopted and follows procedures which are intended to minimize the risks of repurchase agreements. For example, the Fund only enters into repurchase agreements after 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 interests and principal payments owed on the mortgages in the mortgage pool, net of certain fees, at the scheduled payment dates regardless of whether the mortgagor actually makes the payment. The principal governmental guarantor of mortgage pass-through securities is 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., 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 2 the availability of mortgage credit for residential housing. FHLMC issues Participation Certificates 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. "When-Issued" Securities: The Fund may purchase securities on a "when-issued" or on a "forward delivery" basis. When the Fund commits to purchase U.S. Government securities on a "when-issued" or "forward delivery" basis, it will set up procedures consistent with policies promulgated by the Securities and Exchange Commission (the "SEC"). Since those policies currently recommend 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 U.S. Government securities sufficient to cover any commitments or to limit any potential risk. The Fund does not intend to make such purchases for speculative purposes. The Fund will only make commitments to purchase securities on a when-issued or forward delivery basis with the intention of actually acquiring the securities. However, the Fund may sell these securities before the settlement date if it is deemed advisable as a matter of investment strategy. When the time comes to pay for when-issued or forward delivery securities, the Fund will meet its obligations from then available cash flow or the sale of securities, or, although it would not normally expect to do so, from the sale of the "when-issued" or forward delivery securities themselves (which may have a value greater or less than the Fund's payment obligation). 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. Collateralized Mortgage Obligations and Multiclass Pass-Through Securities: The Fund may invest a portion of its assets in collateralized mortgage obligations ("CMOs") which are debt obligations collateralized by mortgage loans or mortgage pass-through securities. Collateral underlying CMOs purchased by the Fund must be issued or guaranteed by the U.S. Government, its agencies, authorities or instrumentalities. Typically, CMOs are collateralized by certificates issued by the GNMA, FNMA or FHLMC (such collateral collectively hereinafter 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. These Mortgage Assets must be issued or guaranteed by the U.S. Government, its agencies, authorities or instrumentalities. Unless the context indicates otherwise, all references herein to CMOs include multiclass pass-through securities. Payments of principal of and interest on the Mortgage Assets, and any reinvestment income thereon, provide the funds to pay debt service on the CMOs or make scheduled distributions on the multiclass pass-through securities. In a CMO, a series of bonds or certificates is usually issued in multiple classes. 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. Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly or semiannual basis. The principal of and interest on the Mortgage Assets may be allocated among the several classes of a series of a CMO in innumerable ways. In a common structure, payments of principal, including any principal prepayments, on the Mortgage Assets are applied to the classes of the series of a CMO in the order of their respective stated maturities or final distribution dates, so that no payment of principal will be made on any class of CMOs until all other classes having an earlier stated maturity or final distribution date have been paid in full. Certain CMOs may be stripped (securities which provide only the principal or interest factor of the underlying security). See "Stripped Mortgage-Backed Securities" below for a discussion of the risks of investing in these stripped securities and of investing in classes consisting primarily of interest payments or principal payments. The Fund may also invest in parallel pay CMOs and Planned Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured to provide payments of principal on each payment date to more than one class. These simultaneous payments are taken into account in calculating the stated maturity date or final distribution date of each class, which, as with other CMO structures, must be retired by its stated maturity date or final distribution date but may be retired earlier. PAC Bonds generally require payments of a specified amount of principal on each payment date. PAC Bonds are always parallel pay CMOs with the required principal payment on such securities having the highest priority after interest has been paid to all classes. Stripped Mortgage-Backed Securities: The Fund may invest a portion of its assets in stripped mortgage-backed securities ("SMBS"), which are derivative multiclass mortgage securities. SMBS are usually structured with two classes that receive different proportions of the interest and principal distributions from a pool of Mortgage Assets. The Fund will only invest in SMBS whose Mortgage Assets are issued or guaranteed by the U.S. Government, its agencies, authorities or instrumentalities. 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 3 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. Swaps and Related Transactions: The Fund may enter into interest rate 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 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 and cap, floor and collar arrangements. 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 or other factor that determines the amount of payments to be made under the arrangement. If the Adviser is incorrect in its forecasts of such factors, the investment performance of the Fund would be less than what it would have been if these investment techniques had not been used. 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. Options on Fixed Income Securities: The Fund may write (sell) covered call and put options on fixed income securities and purchase call and put options. An option provides the purchaser, or "holder," with the right, but not the obligation, to purchase, in the case of a "call" option, or sell, in the case of a "put" option, the fixed income security or securities in connection with which the option was written, for a fixed exercise price up to a stated expiration date or, in the case of certain options, on such date. The holder pays a non-refundable purchase price for the option, known as the "premium." The maximum amount of risk the purchaser of the option assumes is equal to the premium plus related transaction costs, although this entire amount may be lost. The risk of the seller, or "writer," however, is potentially unlimited, unless the option is "covered." A call option written by the Fund is "covered" if the Fund owns the security underlying the call or has an absolute and immediate right to acquire that security without additional cash consideration (or for additional cash consideration held in a segregated account by its custodian) upon conversion or exchange of other securities held in its portfolio. A call option is also covered if the Fund holds a call on the same fixed income 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 government 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 government 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 or short-term money market instruments in a segregated account with its custodian. Put and call options written by the Fund may also be covered in such other manner as may be in accordance with the requirements of the exchange on which, or the counterparty with which, the option is traded, and applicable laws and regulations. If the writer's obligation is not so covered, it is subject to the risk of the full change in value of the underlying security from the time the option is written until exercise. The Fund may write options for hedging purposes. In particular, if the Fund writes an option which expires unexercised or is closed out by the Fund at a profit, the Fund retains the premium paid for the option less related transaction costs, which increases its gross income and offsets in part the reduced value of the portfolio security in connection with which the option is written, or the increased cost of portfolio securities to be acquired. In contrast, however, if the price of the security underlying the option moves adversely to the Fund's position, the option may be exer- 4 cised and the Fund will then be required to purchase or sell thesecurity at a disadvantageous price, which might only partially be offset by the amount of the premium. 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 option the Fund determines to write depends upon the expected price movement of the underlying security. The exercise price of a call option may be below ("in-the-money"), equal to ("at-the-money") or above ("out-of-the-money") the current value of the underlying security at the time the option is written. The writing of covered put options is similar in terms of risk/return characteristics to buy-and-write transactions. Put options may be used by the Fund in the same market environments in which call options are used in equivalent buy-and-write transactions. In certain instances, the Fund may enter into Options on Treasury securities which provide for periodic adjustment of the strike price and may also provide for the periodic adjustment of the premium during the term of each such Option. Like other types of Options, these transactions, which may be referred to as "reset" Options or "adjustable strike" Options, grant the purchaser the right to purchase (in the case of a "call") or sell (in the case of a "put"), a specified type and series of U.S. Treasury security at any time up to a stated expiration date (or, in certain instances, on such date). In contrast to other types of Options, however, the price at which the underlying security may be purchased or sold under a "reset" Option is determined at various intervals during the term of the Option, and such price fluctuates from interval to interval based on changes in the market value of the underlying security. As a result, the strike price of a "reset" Option, at the time of exercise, may be less advantageous to the Fund than if the strike price had been fixed at the initiation of the Option. In addition, the premium paid for the purchase of the Option may be determined at the termination, rather than the initiation, of the Option. If the premium is paid at termination, the Fund assumes the risk that (i) the premium may be less than the premium which would otherwise have been received at the initiation of the Option because of such factors as the volatility in yield of the underlying Treasury security over the term of the Option and adjustments made to the strike price of the Option, and (ii) the Option purchaser may default on its obligation to pay the premium at the termination of the Option. The Fund may also 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 or purchase the same security in the event that one of the options is exercised. If the price of the security subsequently rises sufficiently above the exercise price to cover the amount of the premium and transaction costs, the call will likely be exercised and 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. By writing a call option on a portfolio security, the Fund limits its opportunity to profit from any increase in the market value of the underlying security above the exercise price of the option. By writing a put option, the Fund assumes the risk that it may be required to purchase the underlying security for an exercise price above its then current market value, resulting in a loss unless the security subsequently appreciates in value. The writing of options will not be undertaken by the Fund for speculative purposes, but rather for hedging purposes. Where options are written for hedging purposes, such transactions will constitute only a partial hedge against declines in the value of portfolio securities or against increases in the value of securities to be acquired, up to the amount of the premium. The Fund may also purchase put and call options on securities. Put options are purchased to hedge against a decline in the value of securities held in the Fund's portfolio. If such a decline occurs, the put options will permit the Fund to sell the securities underlying such options at the exercise price, or to close out the options at a profit. The Fund will purchase call options to hedge against an increase in the price of securities that the Fund anticipates purchasing in the future. If such an increase occurs, the call option will permit the Fund to purchase the securities underlying such option at the exercise price or to close out the option at a profit. The premium paid for a call or put option plus any transaction costs will reduce the benefit, if any, realized by the Fund upon exercise of the option, and, unless the price of the underlying security rises or declines sufficiently, the option may expire worthless to the Fund. In addition, in the event that the price of the security in connection with which an option was purchased moves in a direction favorable to the Fund, the benefits realized by the Fund as a result of such favorable movement will be reduced by the amount of the premium paid for the option and related transaction costs. The staff of the SEC has taken the position that purchased over- the-counter options and 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 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., 5 the amount that the option is in-the-money). The formula may also include a factor to account for the difference between the price of the security and the strike price of the option if the option is written out-of-the-money. The Fund will treat all or a portion of the formula as illiquid for purposes of the SEC illiquidity ceiling. 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. Yield Curve Options: The Fund may also enter into options on the "spread," or yield differential, between two fixed income securities, in transactions referred to as "yield curve" options. In contrast to other types of options, a yield curve option is based on the difference between the yields of designated securities, rather than the prices of the individual securities, and is settled through cash payments. Accordingly, a yield curve option is profitable to the holder if this differential widens (in the case of a call) or narrows (in the case of a put), regardless of whether the yields of the underlying securities increase or decrease. Yield curve options may be used for the same purposes as other options on securities. 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 trading of yield curve options is subject to all of the risks associated with the trading of other types of options. In addition, however, such options present risk of loss even if the yield of one of the underlying securities remains constant, if the spread moves in a direction or to an extent which was not anticipated. Yield curve options written by the Fund will be "covered." A call (or put) option is covered if the Fund holds another call (or put) option on the spread between the same two securities and maintains in a segregated account with its custodian cash or cash equivalents sufficient to cover the Fund's net liability under the two options. Therefore, the Fund's liability for such a covered option is generally limited to the difference between the amount of the Fund's liability under the option written by the Fund less the value of the option held by the Fund. Yield curve options may also be covered in such other manner as may be in accordance with the requirements of the counterparty with which the option is traded and applicable laws and regulations. Yield curve options are traded over-the- counter and because they have been only recently introduced, established trading markets for these securities have not yet developed. Because these securities are traded over-the-counter, the SEC has taken the position that yield curve options are illiquid and, therefore, cannot exceed the SEC illiquidity ceiling. See "Options on Fixed Income Securities" above for a discussion of the policies the Adviser intends to follow to limit the Fund's investment in these securities. Indexed Securities: The Fund may purchase securities whose prices are indexed to the prices of other securities, securities indices, 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. The performance of indexed securities depends to a great extent on the performance of the security or other instrument to which they are indexed, and may also be influenced by interest rate changes in the U.S. 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. Futures Contracts: The Fund may enter into contracts for the purchase or sale for future delivery of fixed income securities ("Futures Contracts"). Such transactions will be used to hedge (i.e., protect) against anticipated changes in interest rates which otherwise might either adversely affect the value of the Fund's portfolio securities or adversely affect the prices of long-term U.S. Government securities which the Fund intends to purchase at a later date. The Fund may also enter into such transactions for non-hedging purposes to the extent permitted by applicable law. When a Futures Contract is sold, the Fund incurs a contractual obligation to deliver the securities underlying the contract at a specified price on a specified date during a specified future month or, in the case of Futures Contracts on an index of securities, to make or receive a cash settlement. A "purchase" of a Futures Contract means a contractual obligation by the Fund to receive delivery of the securities called for by the contract at a specified price during a specific future month or, in the case of Futures Contracts on an index of securities, to make or receive cash settlements. Futures Contracts have been designed by exchanges which have been designated "contract markets" by the Commodity Futures Trading Commission ("CFTC"), and must be executed through a futures commission merchant, or brokerage firm, which is a member of the relevant contract market. Futures Contracts trade on these markets, and the exchanges, through their clearing organizations, guarantee that the contracts will be performed as between the clearing members of the exchange. The Fund will only enter into Futures Contracts which are based on U.S. Government securities, including any index of U.S. Government securities. While Futures Contracts based on debt securities provide for the delivery of securities, deliveries are very seldom made. Generally, a Futures Contract is terminated by entering into an offsetting transaction. The Fund will incur brokerage fees when it purchases and sells Futures Contracts. At the same time such a purchase or sale is made, the Fund must provide cash or securities as a deposit ("initial deposit") known as "margin." 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 on a marked-to- market basis and the Fund may be required to pay or receive additional "variation margin", based on the decline or increase in the value of the contract. At the time of delivery of securities pursuant to such a contract, adjustments are made to recognize differences in value arising from the delivery of securities with a different interest rate than the specific security that provides the standard for 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 on an index of U.S. Government securities provides for the payment and receipt of a cash 6 settlement based on changes in the value of the index. The index underlying such a Contract is comprised of a broad based portfolio of U.S. Government securities designed to reflect movements in the market as a whole. The purpose of the purchase or sale of a Futures Contract for hedging purposes, in the case of a portfolio such as the Fund's portfolio, which holds or intends to acquire long-term debt securities, is to protect the Fund against the adverse effects of fluctuations in interest rates without actually buying or selling long-term debt securities. For example, since the Fund owns long-term bonds, if interest rates were expected to increase the Fund might enter into Futures Contracts for the sale of debt securities. If interest rates did increase, the value of the debt securities in the portfolio would decline, but the value of the Fund's Futures Contracts would increase at approximately the same rate thereby keeping the net asset value of the Fund from declining, or declining as much as it otherwise would have. Similarly, when it is expected that interest rates may decline, Futures Contracts may be purchased to hedge in anticipation of subsequent purchases of long-term bonds at higher prices. Since the fluctuations in the value of Futures Contracts should be similar to that of long-term bonds, the Fund could protect itself against the effects of the anticipated rise in the value of long-term bonds without actually buying them until the necessary cash became available or the market had stabilized. At that time, the Futures Contracts could be liquidated and the Fund could buy long-term bonds on the cash market. Due to changing market conditions, however, and interest rate forecasts, a futures position may be terminated without a corresponding purchase of securities. To the extent the Fund purchases a Futures Contract, it will maintain a segregated asset account consisting of cash, cash equivalents or short-term money market instruments in an amount equal to the difference between the fluctuating market value of such Futures Contracts and the aggregate value of the initial deposit and variation margin payments made by the Fund with respect to such Futures Contracts, thereby assuring that the position is unleveraged. The liquidity of a market in a futures contract may be adversely affected by "daily price fluctuation limits" established by commodity exchanges, which limit the amount of fluctuation in a futures contract price during a single trading day. Once the daily limit has been reached in the contract, no trades may be entered into at a price beyond the limit, thus preventing the liquidation of open futures positions. Prices have in the past exceeded the daily limit on a number of consecutive trading days. On any day or days when the price fluctuation limits have been reached, the Fund may be unable to liquidate existing futures positions or to implement a hedging strategy through the purchase or sale of particular futures. Further, the CFTC and the various contract markets have established limits referred to as "speculative position limits" on the maximum net long or net short position which any person may hold or control in a particular futures or option contract. An exchange may order the liquidation of positions found to be in violation of these limits and it may impose other sanctions or restrictions. The Adviser does not believe that these trading and position limits will have any adverse impact on the strategies for hedging the portfolio of the Fund. The trading of Futures Contracts is also subject to the illiquidity risks described above with respect to options on securities. Options on Futures Contracts: The Fund may write and purchase options to buy or sell Futures Contracts ("Options on Futures Contracts"). The writing of a call Option on a Futures Contract may constitute a partial hedge against declining prices of the fixed income security underlying the Futures Contract. If the futures price at expiration of the option is below the exercise price, the Fund will retain the full amount of the option premium, less related transaction costs, which provides a partial hedge against any decline that may have occurred in the Fund's portfolio holdings. The writing of a put Option on a Futures Contract may constitute a partial hedge against increasing prices of the security underlying 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. 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 Fund may also enter into such transactions for non-hedging purposes, to the extent permitted by applicable law, which involves greater risk. The Fund may purchase Options on Futures Contracts for hedging purposes as an alternative to purchasing or selling the underlying Futures Contracts. For example, where a decrease in the value of portfolio securities is anticipated as a result of a projected market-wide decline or a rise in interest rates, the Fund may, in lieu of selling Futures Contracts, purchase put options thereon. In the event that such decrease in portfolio value occurs, it may be offset, in whole or part, by a profit on the option. Conversely, where it is projected that the value of securities to be acquired by the Fund will increase prior to acquisition, due to a market advance or a decline in interest rates, the Fund may purchase call Options on Futures Contracts, rather than purchasing the underlying Futures Contracts. As in the case of Options, the writing of Options on Futures Contracts may require the Fund to forego all or a portion of the benefits of favorable movements in the price of portfolio securities, and the purchase of Options on Futures Contracts may require the Fund to forego all or a portion of such benefits up to the amount of the premium paid and related transaction costs. The Fund may also enter into transactions in Options on Futures Contracts for non-hedging purposes to the extent permitted by applicable law. The Fund may cover the writing of call Options on Futures Contracts (a) through purchases of the underlying Futures Contract, (b) through ownership of the instrument, or instruments included in the index, underlying the Futures Contract, or (c) through the holding of a call on the same Futures Contract and in the same principal amount as the call written where the exercise price of the call held (i) is equal to or less than the exercise price of the 7 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 government 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 government 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 government securities in a segregated account with its custodian. Put and call Options on Futures Contracts may also be covered in such other manner as may be in accordance with the rules of the exchange on which the option is traded and applicable laws and regulations. Upon the exercise of a call Option on a Futures Contract written by the Fund, the Fund will be required to sell the underlying Futures Contract which, if the Fund has covered its obligation through the purchase of such Contract, will serve to liquidate its futures position. Similarly, where a put Option on a Futures Contract written by the Fund is exercised, the Fund will be required to purchase the underlying Futures Contract which, if the Fund has covered its obligation through the sale of such Contract, will close out its futures position. An Option on a Futures Contract is traded on the same contract market as the underlying Futures Contract, subject to regulation by the CFTC and the performance guarantee of the exchange clearing house. Risk Factors: Imperfect Correlation of Hedging Instruments with the Fund's Portfolio--The Fund's ability effectively to hedge all or a portion of its portfolio through transactions in options and Futures Contracts will depend on the degree to which price movements in the underlying instruments correlate with price movements in the relevant portion of the Fund's portfolio. If the values of fixed income portfolio securities being hedged do not move in the same amount or direction as the instruments underlying options or Futures Contracts, the Fund's hedging strategy may not be successful and the Fund could sustain losses on its hedging strategy which would not be offset by gains on its portfolio. It is also possible that there may be a negative correlation between the instrument underlying an option or Futures Contract and the portfolio securities being hedged, which could result in losses both on the hedging transaction and the portfolio securities. In such instances, the Fund's overall return could be less than if the hedging transaction had not been undertaken. In the case of Futures and options on fixed income securities, the portfolio securities which are being hedged may not be the same type of obligation underlying such contract. As a result, the correlation probably will not be exact. Consequently, the Fund bears the risk that the price of the fixed income portfolio securities being hedged will not move in the same amount or direction as the underlying index or obligation. The correlation between prices of fixed income securities and prices of options or Futures Contracts may be distorted due to differences in the nature of the markets, such as differences in margin requirements, the liquidity of such markets and the participation of speculators in the option and Futures Contract markets. Due to the possibility of distortion, a correct forecast of general interest rate trends by the Adviser may still not result in a successful transaction. The trading of Options on Futures Contracts also entails the risk that changes in the value of the underlying Futures Contract will not be fully reflected in the value of the option. The risk of imperfect correlation, however, generally tends to diminish as the maturity or termination date of the option or Futures Contract approaches. The trading of options and Futures Contracts also entails the risk that, if the Adviser's judgment as to the general direction of interest or exchange rates is incorrect, the Fund's overall performance may be poorer than if it had not entered into any such contract. For example, if the Fund has hedged against the possibility of an increase in interest rates, and rates instead decline, the Fund will lose part or all of the benefit of the increased value of the fixed income securities being hedged, and may be required to meet ongoing daily variation margin payments. It should be noted that the Fund may purchase and write Options, Futures Contracts and Options on Futures Contracts not only for hedging purposes, but also for non-hedging purposes to the extent permitted by applicable law. As a result, the Fund will incur the risk that losses on such transactions will not be offset by corresponding increases in the value of fixed income portfolio securities or decreases in the cost of fixed income securities to be acquired. Risk Factors: Potential Lack of a Liquid Secondary Market-- Prior to exercise or expiration, a position in an exchange-traded option, Futures Contract or Option on a Futures Contract can only be terminated by entering into a closing purchase or sale transaction, which requires a secondary market for such instruments on the exchange on which the initial transaction was entered. If no such market exists, it may not be possible to close out a position, and the Fund could be required to purchase or sell the underlying instrument or meet ongoing variation margin requirements. The inability to close out option or futures positions also could have an adverse effect on the Fund's ability effectively to hedge its portfolio. The liquidity of a secondary market in an option or Futures Contract may be adversely affected by "daily price fluctuation limits," established by the exchanges, which limit the amount of fluctuation in the price of a contract during a single trading day and prohibit trading beyond such limits once they have been reached. Such limits could prevent the Fund from liquidating open positions, which could render its hedging strategy unsuccessful and result in trading losses. The exchanges on which options and Futures Contracts are traded have also established a number of limitations governing the maximum number of positions which may be traded by a trader, whether acting alone or in concert with others. Further, the purchase and sale of exchange-traded options and Futures Contracts is subject to the risk of trading halts, suspensions, exchange or clearing corporation equipment failures, government intervention, insolvency of a brokerage firm, intervening broker or clearing corporation or other disruptions of nor- 8 mal trading activity, which could make it difficult or impossible to liquidate existing positions or to recover excess variation margin payments. Risk Factors: Options on Futures Contracts--In order to profit from the purchase of an Option on a Futures Contract, it may be necessary to exercise the option and liquidate the underlying Futures Contract, subject to all of the risks of futures trading. The writer of an Option on a Futures Contract is subject to the risks of futures trading, including the requirement of initial and variation margin deposits. Additional 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 policy that it will not enter into a Futures Contract if, immediately thereafter, the value of securities and other obligations underlying all such Futures Contracts would exceed 50% of the value of the Fund's total assets. Moreover, the Fund will not purchase put and call Options if, as a result, more than 5% of its total assets would be invested in such Options. When the Fund purchases a Futures Contract, an amount of cash and cash equivalents will be deposited in a segregated account with the Fund's custodian so that the amount so segregated will at all times equal the value of the Futures Contract, thereby insuring that the leveraging effect of such Futures is minimized. Lending of Portfolio Securities: The Fund may seek to increase its income by lending portfolio securities. Such loans will usually be made to member banks of the Federal Reserve System and to member firms of the Exchange (and subsidiaries thereof), and would be required to be secured continuously by collateral in cash, U.S. Government securities or an irrevocable letter of credit maintained on a current basis at an amount at least equal to the market value of the securities loaned. The Fund would have the right to call a loan and obtain the securities loaned at any time on customary industry settlement notice (which will not usually exceed five days). During the existence of a loan, the Fund would continue to receive the equivalent of the interest paid by the issuer on the securities loaned and would also receive compensation based on investment of cash collateral. As with other extensions of credit, there are risks of delay in recovery or even loss of rights in the collateral should the borrower of the securities fail financially. However, the loans would be made only to firms deemed by the Adviser to be of good standing, and when, in the judgment of the Adviser, the consideration which could be earned currently from securities loans of this type justifies the attendant risk. If the Adviser determines to make securities loans, it is not intended that the value of the securities loaned would exceed 30% of the value of the Fund's total assets. Portfolio Trading: The Fund intends to fully manage its portfolio by buying and selling U.S. Government obligations, as well as holding selected obligations to maturity, and by engaging in transactions involving related options, futures and options on futures. In managing its portfolio the Fund seeks to maximize the return on its portfolio by taking advantage of market developments and yield disparities, which may include use of the following strategies: (1) selling one type of U.S. Government security (e.g., Treasury bonds) and buying another (e.g., GNMA direct pass-through certificates) when disparities arise in the relative values of each; and (2) changing from one U.S. Government obligation to an essentially similar U.S. Government obligation when their respective yields are distorted due to market factors. The Fund will also use the techniques described above under "Repurchase Agreements," "'When-Issued' Securities," "Options" and "Futures Contracts" to manage its portfolio. These strategies may result in increases or decreases in the Fund's current income available for distribution to the Fund's shareholders and in the holding by the Fund of obligations which sell at moderate to substantial premiums or discounts from face value. Moreover, if the Fund's expectations of changes in interest rates or its evaluation of the normal yield relationship between two obligations proves to be incorrect, the Fund's income, net asset value per share and potential capital gain may be decreased or its potential capital loss may be increased. The Fund will engage in portfolio trading if it believes a transaction net of costs will help in attaining its investment objectives. See "Portfolio Transactions and Brokerage Commissions." The objectives and the policies described above and the policies with respect to portfolio trading described above may be changed without shareholder approval. Investment Restrictions. The Fund has adopted the following restrictions which cannot be changed without the approval of the holders of a majority of its shares (which, as used in this SAI, means the lesser of (i) more than 50% of the outstanding shares of the Fund or of a class, as applicable, or (ii) 67% or more of the outstanding shares of the Fund or of a class, as applicable, present at a meeting at which holders of more than 50% of the outstanding shares of the Fund or of a class, as applicable, are represented at such meeting in person or by proxy): The Fund may not: (1) borrow money or pledge its assets except as a temporary measure for extraordinary or emergency purposes (the Fund intends to borrow money only from banks and only to accommodate requests for the repurchase of shares of the Fund while effecting an orderly liquidation of portfolio securities) (for the purpose of this restriction, collateral arrangements with respect to options, Futures Contracts, options on futures contracts and collateral arrangements with respect to initial and variation margins are not 9 considered a pledge of assets); for additional related restrictions, see paragraphs (i) and (ii) under the caption "State and Federal Restrictions"; (2) purchase any security or evidence of interest therein on margin, except that the Fund may obtain such short-term credit as may be necessary for the clearance of purchases and sales of securities and except that the Fund may make deposits on margin in connection with Futures Contracts and related options; (3) write, purchase or sell any put or call option or any combination thereof, provided that this shall not prevent the writing, purchasing and selling of puts, calls or combinations thereof with respect to Government securities and with respect to Futures Contracts or the purchase, ownership, holding or sale of contracts for the future delivery of fixed income securities; (4) 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; (5) purchase or sell commodities or commodity contracts, except that the Fund may purchase and sell Futures Contracts and related options; (6) make short sales of securities or maintain a short position, unless at all times when a short position is open it owns an equal amount of such securities or securities convertible into or exchangeable, without payment of any further consideration, for securities of the same issue as, and equal in amount to, the securities sold short, and unless not more than 10% of the Fund's net assets (taken at market value) is held as collateral for such sales at any one time (it is the present intention of management to make such sales only for the purpose of deferring realization of gain or loss for Federal income tax purposes; such sales would not be made of securities subject to outstanding options); (7) make loans to other persons except through the lending of its portfolio securities not in excess of 30% of its total assets (taken at market value) and except through the use of repurchase agreements and provided that not more than 10% of the Fund's assets will be invested in repurchase agreements maturing in more than seven days (for these purposes the purchase of all or a portion of an issue of debt securities in accordance with the Fund's investment objectives and policies shall not be considered the making of a loan); (8) knowingly invest in securities which are restricted securities under the Securities Act of 1933 if, as a result thereof, more than 10% of the Fund's total assets (taken at market value) would be so invested; (9) purchase securities of any issuer if such purchase at the time thereof would cause more than 10% of the voting securities of such issuer to be held by the Fund; (10) purchase securities of any issuer if such purchase at the time thereof would cause more than 5% of the Fund's assets (taken at market value) to be invested in the securities of such issuer (other than securities or obligations issued or guaranteed by the United States, any state or political subdivision thereof, or any political subdivision of any such state, or any agency or instrumentality of the United States or of any state or of any political subdivision of any state or the United States); or (11) issue any senior security (as that term is defined in the 1940 Act), if such issuance is specifically prohibited by the 1940 Act or the rules and regulations promulgated thereunder (for the purpose of this restriction, collateral arrangements with respect to options, Futures Contracts and options on futures contracts and collateral arrangements with respect to initial and variation margin are not deemed to be the issuance of a senior security). The Fund has also adopted a policy which is fundamental and which provides that the Fund's assets will be invested in Government securities and related options, futures, options on futures and repurchase agreements. State and Federal Restrictions: In order to comply with certain state and federal statutes and policies, the Fund will not, as a matter of operating policy, (i) borrow money for any purpose in excess of 10% of its assets (taken at market value) moreover, the Fund will not purchase any securities for its portfolio at any time at which borrowings exceed 5% of its assets (taken at market value), (ii) pledge for any purpose in excess of 15% of its assets (taken at market value) (for the purpose of this restriction, collateral arrangements with respect to the writing of options, Futures Contracts, Options on Futures Contracts and collateral arrangements with respect to initial and variation margins are not considered a pledge of assets), (iii) invest more than 5% of its total assets at the time of investment in companies which, including predecessors, have a record of less than three years' continuous operation, (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, (v) invest for the purpose of exercising control or management, (vi) purchase securities issued by any 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 the securities of any registered investment company if such purchase at the time thereof would cause more than 10% of the net assets of the Fund (taken at market value) to be invested in the securities of such issuers or would cause 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 invest- 10 ment company, or (vii) invest more than 10% of its assets (taken at market value) in securities (including repurchase agreements maturing in more than seven days) for which there are no readily available market quotations. These policies are not fundamental and may be changed by the Fund without shareholder approval in response to changes in the various state and federal requirements. Percentage Restriction: 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 Fund are responsible for its operations. The Trustees and officers are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) Trustees A. KEITH BRODKIN, Chairman and President* Massachusetts Financial Services Company, Chairman RICHARD B. BAILEY* Private investor; Massachusetts Financial Services Company, former Chairman (prior to September 30, 1991); Cambridge Bancorp, Director; Cambridge Trust Company, Director PETER G. HARWOOD Private Investor 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 (prior to December 1991); The Neiman Marcus Group, Inc., Vice Chairman and Chief Financial Officer (prior to February 1992); 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 (prior to November 1993) Address: Harvard Business School, Soldiers Field Road, Cambridge, Massachusetts CHARLES W. SCHMIDT Private Investor; OHM Corporation, Director; The Boston Company, Director; Boston Safe Deposit and Trust Company, Director; Mohawk Paper Company, Director Address: 30 Colpitts Road, Weston, Massachusetts ARNOLD D. SCOTT* Massachusetts Financial Services Company, Senior Executive Vice President, Secretary and Director JEFFREY L. SHAMES* Massachusetts Financial Services Company, President and Director ELAINE R. SMITH Independent Consultant; Brigham and Women's Hospital, Execu tive Vice President and Chief Operating Officer (prior to September 1992) Address: Weston, Massachusetts DAVID B. STONE North American Management Corp. (investment adviser), Chairman and Director; Eastern Enterprises, Director Address: Ten Post Office Square, Suite 300, Boston, Massachusetts Officers W. THOMAS LONDON,* Treasurer Massachusetts Financial Services Company, Senior Vice President STEPHEN E. CAVAN,* Secretary and Clerk Massachusetts Financial Services Company, Senior Vice President, Assistant Secretary and General Counsel 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 *"Interested persons" (as defined in the 1940 Act) of the Adviser, whose address is 500 Boylston Street, Boston, Massachusetts 02116. Each Trustee and officer holds comparable positions with certain MFS affiliates or with certain other funds of which MFS or a subsidiary of MFS is the investment adviser or distributor. Messrs. Brodkin, Scott and Cavan are the Chairman, 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 $3,250 per year plus $165 per meeting and $130 per 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 5 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 5 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 11 annual compensation and length of service. There is no retirement plan provided by the Fund for Messrs. Brodkin, Scott and Shames. The Fund will accrue compensation expenses each year to cover current years service and amortize past service cost. Set forth in Appendix A hereto is certain information concerning the cash compensation paid to the Trustees and benefits accrued, and estimated benefits payable under the retirement plan. As of October 31, 1995, all Trustees and officers as a group owned less than 1% of the outstanding shares of the Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., P.O. Box 45286, Jacksonville, FL., was the record owner of approximately 7.62% of the outstanding Class A shares of the Fund. Merrill Lynch, Pierce, Fenner & Smith, Inc., P.O. Box 45286, Jacksonville, FL., was the record owner of approximately 11.42% of the outstanding Class B shares of the Fund. The Fund's Declaration of Trust provides that it 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 Fund, unless, as to liabilities to the Fund 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 Fund. In the case of settlement, such indemnification will not be provided unless it has been determined by a court or other body approving the settlement or other disposition or by reasonable determination by non-interested Trustees or in a written opinion of independent counsel based upon a review of readily available facts, 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 is a wholly owned subsidiary of Sun Life Assurance Company of Canada ("Sun Life"). The Adviser manages the Fund pursuant to an Investment Advisory Agreement, dated December 19, 1985, as amended (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, equal to, commencing January 1, 1996, 0.45% of the Fund's average daily net asset value; through December 31, 1995, the Adviser will be receiving a higher management fee equal to the lesser of (i) 0.65% of the Fund's average daily net assets or (ii) 0.30% of the Fund's average daily net assets and 6.1% of the Fund's gross income (i.e., income other than gains from the sale of securities, short-term gains from options and futures transactions and premium income from options written), in every case on an annualized basis for the Fund's then-current fiscal year. For the Fund's fiscal year ended November 30, 1993, MFS received management fees of $7,174,766, equivalent, on an annualized basis, to 0.65% of the Fund's average daily net assets. If MFS had not reduced its management fee for the Fund's fiscal year ended November 30, 1993, MFS would have received management fees under the Advisory Agreement of $7,932,214 (of which $3,188,777 would have been based on average daily net assets and $4,743,437 on gross income), equivalent, on an annualized basis, to 0.72% of the Fund's average daily net assets. For the eight months ended July 31, 1994, MFS received management fees of $8,155,351, equivalent on an annualized basis, to 0.65% of the Fund's average daily net assets. If MFS had not reduced its management fees for the eight months ended July 31, 1994, MFS would have received management fees under the Advisory Agreement of $8,248,819 (of which $2,351,580 was based on average daily net assets and $5,897,239 in gross income), equivalent, or an annualized basis, to 0.66% of the Fund's average daily net assets. For the Fund's fiscal year ended July 31, 1995, MFS received management fees of $9,450,684, equivalent, on an annualized basis, to 0.65% 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 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 amendments or the date on which such requirements become no longer applicable. The Fund pays all of its expenses (other than those assumed by MFS or MFD), including: Trustees fees discussed above; 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 and servicing shareholder accounts; expenses of preparing, printing and mailing share certificates, shareholder reports, notices, proxy statements to shareholders 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 State Street Bank and Trust Company, the Fund's custodian, for all services to the Fund, including safekeeping of funds and securities and maintaining required books and accounts; expenses of calculating the net asset value of shares of the Fund; and expenses of shareholder meetings. Expenses relating to the issuance, registration and qualification of shares of the Fund and the preparation, printing and mailing of prospectuses for such purposes 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. For a list of the Fund's expenses, including the compensation paid to the Trustees who are not officers of the Adviser, during its fiscal year ended July 31, 1995, see "Financial Statements--Statement of Operations" in the Annual Report to shareholders incorporated by reference into this SAI. Payment by 12 the Fund of brokerage commissions for brokerage and research services of value to the Adviser in serving its clients is discussed under the caption "Portfolio Transactions and Brokerage Commissions" below. The Adviser pays the compensation of the Fund'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 outstanding voting securities 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 outstanding voting securities 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 and may permit fund clients in addition to the Fund to use the initials "MFS" in their names. 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, including repurchase agreements, issued by the Custodian and may deal with the Custodian as principal in securities transactions. The Custodian also acts as the dividend disbursing agent of 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, dated September 1, 1995 (the "Agency Agreement") with the Fund. The Shareholder Servicing Agent's responsibilities under the Agency Agreement include administering and performing transfer agent functions and the keeping of records in connection with the issuance, transfer and redemption of 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 is reimbursed by the Fund for certain expenses incurred by the Shareholder Servicing Agent on behalf of the Fund. State Street Bank and Trust Company, the dividend and distribution disbursing agent of the Fund has contracted with the Shareholder Servicing Agent to administer and perform certain dividend and distribution disbursing functions for the Fund. Distributor MFD, a wholly owned subsidiary of MFS, serves as the distributor for the continuous offering of shares of the Fund pursuant to a Distribution Agreement, dated September 1, 1995 (the "Distribution Agreement"), with the Fund. 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 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). A group might qualify to obtain quantity sales charge discounts (see "Investment and Withdrawal Programs" in this SAI). Class A shares of the Fund may be sold at their net asset value to certain persons or 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 the Class A shares. Dealer allowances expressed as a percentage of offering price for all offering prices are set forth in the Prospectus (see "Purchases"). The commission paid to the underwriter is the difference between the total amount invested and the sum of (a) the net proceeds to the Fund and (b) the dealer commission. Because 13 of rounding in the computation of offering price, the portion of the sales charge paid to the underwriter 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 4% and MFD retains approximately 3/4 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 Shares: MFD acts as agent in selling Class B shares of the Fund. The public offering price of Class B 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 July 31, 1995, MFD and certain other financial institutions received net commissions of $28,014 and $135,524, respectively (as their concession on gross commissions of $163,538). The Fund received $21,705,476, representing the aggregate net asset value of such shares. During the eight months ended July 31, 1994, MFD and certain other financial institutions received net commissions of $23,519 and $115,433, respectively (as their concession on gross commissions of $138,952). The Fund received $14,129,666, representing the aggregate net asset value of such shares. During the Fund's fiscal year ended November 30, 1993, MFD and certain other financial institutions received net commissions of $58,847 and $291,008, respectively (as their concession on gross commissions of $349,855). The Fund received $29,744,427, representing the aggregate net asset value of such shares. The Distribution Agreement will remain in effect until September 1, 1997, and will continue in effect thereafter only if such continuance is specifically approved at least annually by the Board of Trustees or by vote of a majority of the Fund's shares (as defined in "Investment Restrictions") and, in either case, by a majority of the Trustees who are not parties to the 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 the 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 broker-dealers through which it seeks this result. U.S. Government 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. Subject to the requirement of seeking execution at the most favorable 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 National Association of Securities Dealers 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 by the Adviser to be equitable to each. It is recognized that in some cases this system could have a detrimental effect on the price or volume of the security as far as the Fund is concerned. In some cases, however, the Fund believes that its ability to participate in volume transactions will produce better executions for 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 Fund's 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 the current offer- 14 ing price value of all holdings of all classes of shares of other MFS Funds or the 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 Fund's 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 the 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 the MFS Fixed Fund (a bank collective investment 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 $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 the fund are available for sale. Such investments will be subject to additional purchase minimums. Distributions invested in shares of one of the other MFS Funds will be invested at net asset value (exclusive of any sales charge) and will not be subject to any contingent deferred sales charge. 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 are drawn from the proceeds of the redemption of shares 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"; 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 which are subject to a CDSC. 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 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 15 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 may exchange their shares for the same class of other MFS Funds under the Automatic Exchange Plan. 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 from 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 transfers (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 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 exchanges 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 MFS Money Market Fund, MFS Government Money Market Fund and Class A shares of MFS Cash Reserve Fund in the case where such shares of the money market funds 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 reinvested in 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 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 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 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 16 of the other MFS Funds (if available for sale) at their 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., 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 or all the shares in the account (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). 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 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 such shares were and the shares received in the exchange are held in a tax-deferred retirement plan. If the 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 MFD 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. 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 MFS Funds, 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 (see "Purchases" in the Prospectus). Tax-Deferred Retirement Plans -- 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 (IRA) (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; 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 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. 6. TAX STATUS The Fund has elected to be treated and intends to qualify each year as a "regulated investment company" under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), by meeting all applicable requirements of Subchapter M, including requirements as to the nature of the Fund's gross income, the amount of Fund distributions, and the composition and holding period of the Fund's portfolio assets. Because the Fund intends to distribute all of its net investment income and net realized capital gains to shareholders in accordance with the timing requirements imposed by the Code, it is not expected that the Fund will be required to pay any federal income or excise taxes. If the Fund should fail to qualify 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 17 income and any distributions from net short-term capital gains, whether paid in cash or 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 net short-term capital losses), whether paid in cash or in additional shares, are taxable to the Fund's shareholders as long-term capital gains for federal income tax purposes regardless of how long they have owned shares in the Fund. Fund dividends declared in October, November, or December of any calendar year, that are payable to shareholders of record in such a month, and that are 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 distribution will have the effect of reducing the per share net asset value of shares in the Fund by the amount of the dividend or distribution. Shareholders purchasing shares shortly before the record date of any taxable dividend or other distribution may thus pay the full price for the shares and then effectively receive a portion of the purchase price back as a taxable distribution. In general, any gain or loss realized upon a taxable disposition of shares of the Fund by a shareholder that holds such shares as a capital asset will be treated as long-term capital gain or loss if the shares have been held for more than twelve months and otherwise as 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). 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. Any Fund investment in zero coupon securities, certain stripped securities and certain securities purchased at a market discount will cause the Fund to realize income prior to the receipt of cash payments with respect to those securities. In order to distribute this income and avoid a tax on the Fund, 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. 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 investors. The Fund's transactions in options and Futures Contracts will be subject to special tax rules that may affect the amount, timing and character of Fund income and distributions to shareholders. For example, certain positions held by the Fund on the last business day of each taxable year will be marked to market (i.e., treated as if closed out) on such day, and any gain or loss associated with the positions will be treated as 60% long-term and 40% short- term capital gain or loss. Certain positions held by the Fund that substantially diminish its risk of loss with respect to other positions in its portfolio 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, Futures Contracts, and swaps and related transactions to the extent necessary to meet the requirements of Subchapter M of the Code. 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 a rate of 30%. The Fund intends to withhold U.S. federal income at the rate of 30% on taxable dividends and other payments 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 appropriate to such claims. 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. Backup withholding will not, however, be applied to payments that have been subject to 30% withholding. Distributions received from the Fund by Non-U.S. Persons also may be subject to tax under the laws of their own jurisdiction. 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 generally 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 SAI, the Exchange is open 18 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 Fund's assets attributable to the class and dividing the difference by the number of shares of the class outstanding. Debt securities (other than short-term obligations) in the Fund's portfolio are valued on the basis of valuations furnished by a pricing service which utilizes both dealer- supplied valuations and electronic data processing techniques which take into account appropriate factors such as institutional-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 the fair value of such securities. Use of the pricing service has been approved by the Board of Trustees. Positions in listed options, Future 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. Short-term obligations with a remaining maturity in excess of 60 days will be valued based upon dealer supplied valuations. Other short-term obligations in the Fund's portfolio are valued at amortized cost, which constitutes fair value as determined by the Board of Trustees. Portfolio securities and other assets 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. A share's net asset value is effective for orders received by the dealer prior to its calculation and received by MFD, the Fund's principal underwriter or its agent, the Shareholder Servicing Agent, prior to the close of that business day. 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 rate of return, which is not reduced by the CDSC (4% maximum for Class B shares purchased on and after January 1, 1993) and therefore may result in a higher rate of return, (ii) with respect to Class A shares, 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 (4.75% maximum), 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. Effective March 1, 1993, the Fund revised its investment policy of investing in securities issued or guaranteed by the U.S. Government and its agencies, authorities and instrumentalities and engaging in transactions involving related options, to its current policy of investing at least 65% of its assets, under normal circumstances, in GNMA securities and obligations fully collateralized by GNMAs. The average annual total rate of return for Class A shares, reflecting the initial investment at the maximum public offering price, for the one-year and five-year periods ended July 31, 1995 and for the period from January 9, 1986 (the Fund's commencement of investment operations) to July 31, 1995 was 4.46%, 6.46%, and 6.53%, respectively. The average annual total rate of return for Class A shares, not giving effect to the initial sales charge, for the one-year and five-year periods ended July 31, 1995 and for the period from January 9, 1986 (the Fund's commencement of investment operations) to July 31, 1995 was 9.60%, 7.50% and 7.08%, respectively. The Fund's average annual total rate of return for Class B shares, reflecting the CDSC, for the one-year period and for the period from September 7, 1993 to July 31, 1995 was 4.81% and 1.36%, 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 for the period September 7, 1993 to July 31, 1995 was 8.81% and 3.33%, respectively. The total rates of return presented above for Class A shares, may not be indicative of future performance. Performance Results: The performance results for Class A shares below, based on an assumed initial investment of $10,000, cover the period from January 9, 1986 to December 31, 1994. It has been assumed that capital gain distributions and income dividends 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 of the Fund to yields and total rates 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 and account balance information may be obtained by calling 1-800-MFS-TALK (637-8255). MFS Government Mortgage Fund
Value of Value of Reinvested Initial Capital Value of Period ended $10,000 Gains Reinvested Total December 31 Investment Distributions Dividends Value - ------------- ----------- ------------ -------- -------- 1986* $9,750 $0 $ 1,001 $10,751 1987 8,261 0 2,214 10,475 1988 7,762 0 3,499 11,261 1989 7,792 0 4,968 12,760 1990 7,052 0 6,159 13,211 1991 7,142 0 7,823 14,965 1992 6,873 0 8,992 15,865 1993 6,853 0 10,137 16,990 1994 6,233 0 10,386 16,619
*For the period from the start of business, January 9, 1986, to December 31, 1986. Explanatory notes: The results in the table assume that the initial investment has been reduced by the current maximum sales 19 charge (4.75%) and take into account the annual Rule 12b-1 fees. 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 over a 30-day period. The yield is calculated by dividing the net investment income per share allocated to a particular class of the Fund earned during the period by the maximum offering price per share of such class 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 the Fund allocated to the class during the period, minus accrued expenses of such class for the period, by (ii) the average number of shares of such class entitled to receive dividends during the period multiplied by the maximum offering price per share of such class on the last day of the period. The Fund's yield calculations assume a maximum sales charge of 4.75% in the case of Class A shares and no payment of any CDSC in the case of Class B shares. The yield calculation for Class A shares for the 30-day period ended July 31, 1995 was 6.19%. The yield calculation for Class B shares for the 30-day period ended July 31, 1995 was 5.77%. 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 twelve 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 twelve 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 and the Class B shares of the Fund for the twelve-month period ended July 31, 1995 was 6.50% and 5.79% respectively. General: 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 in cash. -- 1976 -- MFS Municipal Bond Fund is among the first municipal bond funds established. -- 1979 -- Spectrum becomes the first combination fixed/ variable annuity with no initial sales charge. 20 - -- 1981 -- MFS World Governments Fund is established as America's first globally diversified fixed-income mutual fund. -- 1984 -- MFS Municipal High Income Fund is the first open end mutual fund to seek high tax-free income from lower-rated municipal securities. -- 1986 -- MFS Managed Sectors Fund becomes the first mutual fund to target and shift investments among industry sectors for shareholders. -- 1986 -- MFS Municipal Income Trust is the first closed-end, high-yield municipal bond fund traded on the New York Stock Exchange. -- 1987 -- MFS Multimarket Income Trust is the first closed-end, multimarket high income fund listed on the New York Stock Exchange. -- 1989 -- MFS Regatta becomes America's first non-qualified market-value-adjusted fixed/variable annuity. -- 1990 -- MFS World Total Return Fund is the first global balanced fund. -- 1993 -- MFS World Growth Fund is the first global emerging markets fund to offer the expertise of two sub-advisers -- 1993 -- MFS becomes money manager of MFS Union Standard Trust, the first Trust to invest solely in companies deemed to be union-friendly by an advisory board of senior labor officials, senior managers of companies with significant labor contracts, academics and other national labor leaders or experts. 8. DISTRIBUTION PLANS The Trustees have adopted separate Distribution Plans for Class A and Class B 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 Fund's expense ratio to the extent that the Fund's fixed costs are spread over a larger net asset base. Also, an increase in net assets may lessen the adverse effect 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. The Distribution Plans are described in the Prospectus under the caption "Distribution Plans," which is incorporated herein by reference. The following information supplements this Prospectus discussion. Service Fees: With respect to the Class A Distribution Plan, no service fees will be paid: (i) to any 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 Class A 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. With respect to the Class B Distribution Plan, except in the case of the first year service fee, no service fees 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 by MFD from time to time. 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 shall be entitled to receive any service fee payable under any 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. Distribution Fees: The purpose of distribution payments to MFD under the Distribution Plans 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 expense and equipment. Distribution and Service Fees Paid During the Fund's Last Fiscal Year: During the fiscal year ended July 31, 1995, the Fund paid the following Distribution Plan expenses:
Amount of Distribution Amount of and Distribution Amount of Service and Service Distribution Fees Paid Fees and Service By Retained Fees Received Distribution Plans Fund by MFD by Dealers - ------------------------ ---------- ----------- ------------- Class A Distribution Plan $ 1,435,563 $ 516,081 $ 919,482 Class B Distribution Plan $10,437,906 $8,004,343 $2,433,563
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 of such Plan ("Distribution Plan Qualified Trustees"). Each of the Distribution Plans also requires that the Fund and MFD each shall provide 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 21 (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 Fund'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 of any series into a greater or lesser number of shares without thereby changing the proportionate beneficial interests in that 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 two classes of shares of the Fund, Class A shares and Class B 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 are entitled to share pro rata in the net assets of the Fund allocable to such class available for distribution to shareholders. The Fund has reserved the right to create and issue series and additional 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, the Declaration of Trust provides that a Trustee may be removed from office at a meeting of shareholders by a vote of two-thirds of the outstanding shares of the Fund. A meeting of shareholders will be called upon the request of shareholders of record holding in the aggregate not less than 10% of the outstanding voting securities of the Fund. No material amendment may be made to the Fund's Declaration of Trust without the affirmative vote of a majority of the Fund's outstanding shares (as defined in "Investment Objectives, Policies and Restrictions-- Investment Restrictions"). Shares have no pre- emptive 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 Fund 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 Fund's Declaration of Trust contains an express disclaimer of shareholder liability for acts or obligations of the Fund and provides for indemnification and reimbursement of expenses out of Fund property for any shareholder held personally liable for the obligations of the Fund. The Fund's 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 Fund. 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 Fund itself was unable to meet its obligations. The Fund's Declaration of Trust further provides that obligations of the Fund are not binding upon the Trustees individually but only upon the property of the Fund and that the Trustees will not be liable for errors of judgment or mistakes of fact or law, 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 Fund's independent certified public accountants. The Portfolio of Investments at July 31, 1995, the Statement of Assets and Liabilities at July 31, 1995, the Statement of Operations for the year ended July 31, 1995, the Statement of Changes in Net Assets for the year ended July 31, 1995, the eight months ended July 31, 1994 and the year ended November 30, 1993, the Notes to Financial Statements and the Independent Auditors' Report, each of which is included in the Annual Report to shareholders of the Fund, are incorporated by reference into this SAI and have been so incorporated in reliance upon the report of Deloitte & Touche LLP, independent certified public accountants, as experts in accounting and auditing. 22 Appendix A TRUSTEE COMPENSATION TABLE
Retirement Benefit Accrued as part Estimated Total Trustee Trustee Fees of Fund Credited Years Fees from Fund Trustee from Fund (1) Expense (1) of Service (2) and Fund Complex (3) -------------------------- -------------- -------------- ---------------- --------------------- Richard B. Bailey $6,280 $ 987 8 $226,221 A. Keith Brodkin 0 0 N/A 0 Peter G. Harwood 6,580 650 5 105,812 J. Atwood Ives 6,250 1,009 17 106,482 Lawrence T. Perera 5,950 2,592 22 96,592 William Poorvu 6,580 2,607 22 106,482 Charles W. Schmidt 6,280 2,477 15 98,397 Arnold D. Scott 0 0 N/A 0 Jeffrey L. Shames 0 0 N/A 0 Elaine R. Smith 6,280 964 27 98,397 David B. Stone 6,580 1,516 11 104,007
(1)For fiscal year ended July 31, 1995. [/R] (2)Based on normal retirement age of 73. (3)For calendar year 1994. All Trustees receiving compensation 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 ((4))
Years of Service Average Trustee Fees 3 5 7 10 or more - ------------- ---- ----- ----- ----------- $5,350 $ 803 $1,338 $1,873 $2,675 5,726 859 1,432 2,004 2,863 6,102 915 1,526 2,136 3,051 6,478 972 1,620 2,267 3,239 6,854 1,028 1,714 2,399 3,427 7,230 1,085 1,808 2,531 3,615
(4)Other funds in the MFS fund complex provide similar retirement benefits to the Trustees. 23 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 Independent Accountants Deloitte & Touche LLP 125 Summer Street, Boston, MA 02110 MFS(R) Government Mortgage Fund 500 Boylston Street Boston, MA 02116 [MFS LOGO] The First Name in Mutual Funds ANNUAL REPORT FOR [LOGO] M F S (SM) YEAR ENDED THE FIRST NAME IN MUTUAL FUNDS JULY 31, 1995 - ------------------------------------------------------------------------------- MFS (R) GOVERNMENT MORTGAGE FUND - ------------------------------------------------------------------------------- [GRAPHIC OMITTED: A photo of a building with columns.] MFS(R) GOVERNMENT MORTGAGE FUND TRUSTEES A. Keith Brodkin* - Chairman and President CUSTODIAN State Street Bank and Trust Company Richard B. Bailey* - Private Investor; Former Chairman and Director (until 1991), AUDITORS Massachusetts Financial Services Company Deloitte & Touche LLP Peter G. Harwood - Private Investor INVESTOR INFORMATION For MFS stock and bond market outlooks, J. Atwood Ives - Chairman and Chief Executive call toll free: 1-800-637-4458 anytime from Officer, Eastern Enterprises a touch-tone telephone. Lawrence T. Perera - Partner, For information on MFS mutual funds, 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 MFS Service Center, Inc. Executive (until 1990), Raytheon Company P.O. Box 2281 Boston, MA 02107-9906 Arnold D. Scott* - Senior Executive Vice President and Secretary, Massachusetts For general information, call toll free: Financial Services Company 1-800-225-2606 any business day from 8 a.m. to 8 p.m. Eastern time. Jeffrey L. Shames* - President, Massachusetts Financial Services Company For service to speech- or hearing-impaired, call toll free: 1-800-637-6576 any business Elaine R. Smith - Independent Consultant day from 9 a.m. to 5 p.m. Eastern time. (To use this service, your phone must be David B. Stone - Chairman, North American equipped with a Telecommunications Device for Management Corp. (Investment Advisers) 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. DISTRIBUTOR MFS Fund Distributors, Inc. 500 Boylston Street Boston, Massachusetts 02116-3741 ------------------------------------------- PORTFOLIO MANAGER TOP-RATED SERVICE James J. Calmas* [SEAL] MFS was rated first when securities firms evaluated the quality of TREASURER service they receive from 40 W. Thomas London* mutual fund companies. MFS got high marks for answering calls ASSISTANT TREASURER quickly, processing transactions James O. Yost* accurately and sending statements out on time. SECRETARY (Source: 1994 DALBAR Survey) Stephen E. Cavan* ------------------------------------------- ASSISTANT SECRETARY James R. Bordewick, Jr.* *Affiliated with the Investment Adviser
LETTER TO SHAREHOLDERS Dear Shareholders: Following a difficult year of rising interest rates and declining prices in 1994, the bond markets have shown improvement in 1995, as signs of a weaker U.S. economy have pointed to a more positive outlook for inflation and as investors have anticipated the Federal Reserve Board's July 6 reduction in short-term interest rates. As a result of these developments, interest rates declined and bond prices rose in the first several months of 1995. The mortgage market, which closely follows the Treasury market, has shown similar improvement and the Fund ended its fiscal year with positive returns. For the 12 months ended July 31, 1995, Class A shares of the Fund provided a total return of +9.60%, while Class B shares had a total return of +8.81%. Both of these returns, which include the reinvestment of distributions but exclude the effects of any sales charges, underperformed the Lehman Brothers Government National Mortgage Association (GNMA) Index, an unmanaged index of GNMA issues with more than $50 million outstanding, which returned +10.58% in the same period. A discussion of the Fund's performance relative to the GNMA Index may be found in the Portfolio Performance and Strategy section of this letter. Performance information for the Fund is provided on pages four and five of this report. Economic Outlook Moderate, but sustainable, growth appears to be the hallmark of the economic expansion's fifth year. Consumer spending and homebuying showed only modest gains through July 31, while businesses continued to work off excess inventories and reduce factory output. Meanwhile, overseas economies, particularly those of Germany and Japan, have not recovered as expected, limiting U.S. export growth. However, we believe the Federal Reserve's consistent and, so far, successful efforts to fight inflation seem to be giving consumers and businesses enough confidence to help maintain 2 1/2% to 3% real (adjusted for inflation) growth in gross domestic product through 1995. Interest Rates Although the Federal Reserve implemented a one-quarter percentage point decrease in short-term interest rates in July, the effects of its seven rate increases, which began in late 1993 and ended in February of this year, are still being felt throughout the economy. While there have been some increases in commodity prices, companies have not been able to pass along most of those higher costs, partly because of the need to keep fighting for market share, but also because wages and benefits of U.S. workers continue to grow at rates that are near or perhaps below the inflation rate, limiting consumer buying power. At the end of July, the nation's employment cost index had risen at a rate of just 2.8% over the previous year, helping to contain cost pressures. At the same time, however, the bond markets have perceived isolated signs of more rapid economic growth as possible harbingers of increasing inflation, and have slightly bid up longer-term interest rates. Although previous monetary easing by the Federal Reserve has been followed by additional rate reductions, prospects for further decreases in the current environment are uncertain. Still, with long-term government bonds yielding approximately 7%, in an environment of 2 1/2% to 3% inflation, we believe real rates of return in the fixed-income markets could remain relatively attractive. Portfolio Performance and Strategy The slight underperformance of Class A and Class B shares of the Fund relative to the GNMA Index during the year ended July 31, 1995 was partly the result of a strategy designed to maintain a relatively short duration at the beginning of 1995. This strategy was undertaken to help avoid potential losses that might result from further increases in interest rates. As a result of this conservative strategy, the Fund did not fully participate in the beginning of the bond market rally, although Class A shares of the Fund did outperform the average GNMA fund tracked by Lipper Analytical Services, Inc., an independent firm that monitors mutual fund performance. (Refer to the table on page five for performance results.) Although the Fund's duration was lengthened as interest rates began to decline in anticipation of the Federal Reserve's interest rate cut, duration has since been reduced again, making the Fund less sensitive to additional changes in interest rates. Currently, the portfolio has an interest rate sensitivity similar to that of a 6-year Treasury. (Principal value and interest on Treasury securities are guaranteed by the U.S. government if held to maturity.) On the whole, the mortgage market has performed well during the bond market rally as investors have been looking for additional yield in an environment where the supply of higher-yielding mortgage-backed securities has been low. This was a result of a slowdown in housing sales and mortgage refinancings, both of which saw a great deal of activity in 1992 and 1993, largely satisfying the pent-up demand that existed up to that point. In coming months, we anticipate maintaining the Fund's fairly conservative strategy with relatively short durations, while keeping approximately 80% of the portfolio in mortgage securities. We believe these returns should compare favorably with those of other fixed-income investments. At the same time, during a period of relative uncertainty about the near-term outlook for the economy and interest rates, we are holding fewer longer-term (greater than 20-year) securities to reduce the portfolio's exposure to possible changes in shorter- and longer-term interest rates. We appreciate your support and welcome any questions or comments you may have. Respectfully, - ------------------------- --------------------- [A photo of [A photo of A. Keith Brodkin, James J. Calmas, Chairman and President.] Portfolio Manager.] - ------------------------- --------------------- /s/ A. Keith Brodkin /s/ James J. Calmas A. Keith Brodkin James J. Calmas Chairman and President Portfolio Manager August 10, 1995 PORTFOLIO MANAGER PROFILE James Calmas joined the MFS Fixed Income Department in 1988. A graduate of Dartmouth College and the Amos Tuck School of Business Administration of Dartmouth College, he was named Assistant Vice President - Investments in 1991. In 1993, he was named Vice President - Investments and Portfolio Manager of MFS Government Mortgage Fund. OBJECTIVES AND POLICIES The Fund's primary investment objective is to provide a high level of current income. 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 objectives. The Fund seeks to achieve its investment objectives by investing, under normal circumstances, at least 65% of its total assets in obligations issued or guaranteed by the Government National Mortgage Association (GNMA) and in obligations fully collateralized or otherwise fully secured by obligations issued or guaranteed by the GNMA. The Fund may also invest in other securities that are issued or guaranteed by the U.S. government, its agencies, authorities or instrumentalities. Depending on market conditions, the Fund may temporarily invest a substantial portion of its assets in cash, short-term government securities and related repurchase agreements. 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. FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS For the year ended July 31, 1995, the distributions from ordinary income of Class A and Class B shares were $27,183,924 and $63,697,419, respectively. PERFORMANCE The information on the following page illustrates the historical performance of MFS Government Mortgage Fund Class A shares in comparison to various market indicators. Class A share results reflect the deduction of the 4.75% 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. GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT (For the Period from January 9, 1986 to July 31, 1995) [GRAPHIC OMITTED:] Line graph representing the growth of a $10,000 investment for the period from January 1, 1986 to July 31, 1995. The graph is scaled from $5,000 to $30,000 in $5,000 segments. The years are marked from 1986 to 1995. There are three lines drawn to scale. One is a solid line representing MFS Government Mortgage Fund (Class A), a second line of short dashes represents the Lehman Brothers GNMA Index, and a third line of long dashes represents the Consumer Price Index. MFS Government Mortgage Fund $18,309 Lehman Brothers GNMA Index $23,744 Consumer Price Index $13,953 AVERAGE ANNUAL TOTAL RETURNS
Life of Class through 1 Year 3 Years 5 Years 7/31/95 - ----------------------------------------------------------------------------------------------------------- MFS Government Mortgage Fund (Class A) including 4.75% sales charge + 4.46% +4.09% +6.46% +6.53% - ----------------------------------------------------------------------------------------------------------- MFS Government Mortgage Fund (Class A) at net asset value + 9.60% +5.81% +7.50% +7.08% - ----------------------------------------------------------------------------------------------------------- MFS Government Mortgage Fund (Class B) with CDSC + 4.81% -- -- +1.36% - ----------------------------------------------------------------------------------------------------------- MFS Government Mortgage Fund (Class B) without CDSC + 8.81% -- -- +3.33% - ----------------------------------------------------------------------------------------------------------- Average GNMA fund + 9.25% +5.46% +7.90% +8.19% - ----------------------------------------------------------------------------------------------------------- Lehman Brothers GNMA Index +10.58% +6.37% +8.75% +9.44% - ----------------------------------------------------------------------------------------------------------- Consumer Price Index + 2.76% +2.77% +3.18% +3.54% - ----------------------------------------------------------------------------------------------------------- For the period from the commencement of offering of Class A shares, January 9, 1986 to July 31, 1995. For the period from the commencement of offering of Class B shares, September 7, 1993 to July 31, 1995. These returns reflect the current maximum Class B contingent deferred sales charge (CDSC) of 4%. Benchmark comparisons begin on January 1, 1986. The Consumer Price Index is a popular measure of change in prices.
In the above table, we have included the average annual total returns of all GNMA funds (including the Fund) tracked by Lipper Analytical Services, Inc. for the applicable time periods (50, 36, 31 and 18 funds for the 1-, 3- and 5-year periods ended July 31, 1995, and for the period from January 1, 1986 through July 31, 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.
PORTFOLIO OF INVESTMENTS - July 31, 1995 Bonds - 97.3% - ----------------------------------------------------------------------------------------- Principal Amount Issuer (000 Omitted) Value - ----------------------------------------------------------------------------------------- Federal Home Loan Mortgage Corporation - 15 Year - 2.2% FHLMC, 9s, 2001 - 2006 $ 28,249 $ 29,458,774 - ----------------------------------------------------------------------------------------- Federal Home Loan Mortgage Corporation - 30 Year - 0.1% FHLMC, 8.5s, 2009 - 2017 $ 63 $ 64,882 FHLMC, 9s, 2020 - 2021 861 889,044 FHLMC, 9.5s, 2015 - 2021 440 458,086 -------------- $ 1,412,012 - ----------------------------------------------------------------------------------------- Federal Housing Authority - 1.9% FHA, Centennial, "A", 8.25s, 2028+ $ 23,895 $ 25,109,400 - ----------------------------------------------------------------------------------------- Federal National Mortgage Association - 15 Year - 2.1% FNMA, 8.5s, 2004 - 2008 $ 517 $ 534,844 FNMA, 9s, 2002 - 2008 26,757 27,927,434 -------------- $ 28,462,278 - ----------------------------------------------------------------------------------------- Federal National Mortgage Association - 30 Year - 3.5% FNMA, 6.695s, 2005 $ 10,000 $ 10,068,750 FNMA, Stripped Mortgage-Backed Security, "240", 7s, 2023 18,096 5,954,531 FNMA, 7.5s, 2022 48 48,165 FNMA, 7.95s, 2005 6,290 6,522,926 FNMA, 8s, 2017 - 2023 1,591 1,617,091 FNMA, 8.5s, 2022 2,332 2,403,129 FNMA, 9s, 2017 7 6,932 FNMA, 9.5s, 2022 - 2025 18,969 19,899,598 -------------- $ 46,521,122 - ----------------------------------------------------------------------------------------- Financing Corporation - 5.0% FICO, 10.7s, 2017 $ 11,305 $ 15,526,739 FICO, 9.8s, 2018 5,285 6,731,769 FICO, 10.35s, 2018 33,965 45,391,166 -------------- $ 67,649,674 - ----------------------------------------------------------------------------------------- Government National Mortgage Association - 15 Year - 3.8% GNMA, 7.5s, 2008 - 2009 $ 17,690 $ 17,971,884 GNMA, 8s, 2002 - 2009 15,149 15,608,407 GNMA, 9.5s, 2009 - 2010 16,420 17,240,771 -------------- $ 50,821,062 - ----------------------------------------------------------------------------------------- Government National Mortgage Association - 30 Year - 64.7% GNMA, 6.5s, 2023 - 2024 $ 10,188 $ 9,678,548 GNMA, 7s, 2022 - 2024 245,719 239,804,910 GNMA, 7.5s, 2008 - 2024 179,491 179,377,680 GNMA, 8s, 2002 - 2025 71,192 72,659,576 GNMA, 8.5s, 2022 - 2024 27,622 28,631,431 GNMA, 9s, 2008 - 2024 147,937 155,875,822 GNMA, 9.5s, 2009 - 2022 106,731 113,234,228 GNMA, 10s, 2009 - 2019 29,598 32,206,560 GNMA, 10.5s, 2019 - 2021 7,341 8,102,682 GNMA, 11s, 2021 27,356 30,502,148 GNMA, 12.5s, 2011 632 716,799 -------------- $ 870,790,384 - ----------------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - continued Bonds - continued - ----------------------------------------------------------------------------------------- Principal Amount Issuer (000 Omitted) Value - ----------------------------------------------------------------------------------------- Small Business Administration - 4.8% SBA, 8.75s, 2006 $ 176 $ 189,483 SBA, 10s, 2009 4,103 4,659,618 SBA, 10.1s, 2009 7,937 9,026,832 SBA, 9.3s, 2010 3,920 4,346,649 SBA, 9.45s, 2010 9,352 10,449,751 SBA, 9.55s, 2010 10,249 11,438,833 SBA, 9.7s, 2010 3,209 3,608,156 SBA, 8.8s, 2011 3,327 3,631,817 SBA, 8.85s, 2011 13,178 14,418,201 SBA, 8.05s, 2012 2,808 2,871,038 -------------- $ 64,640,378 - ----------------------------------------------------------------------------------------- U.S. Federal Agencies - 0.2% Federal Agricultural Mortgage Corp., 8.07s, 2006 $ 3,000 $ 3,305,610 - ----------------------------------------------------------------------------------------- U.S. Treasury Obligations - 9.0% Principal Stripped-Interest Payments, 0s, 2017 - 2021 $ 69,900 $ 12,569,339 U.S. Treasury Notes, 9.375s, 1996 3,000 3,074,070 U.S. Treasury Notes, 5.25s, 1998 29,000 28,401,730 U.S. Treasury Bonds, 13.125s, 2001* 25,000 33,293,000 U.S. Treasury Bonds, 10.75s, 2003 - 2005 27,085 35,091,789 U.S. Treasury Bonds, 8.75s, 2020 7,900 9,572,589 -------------- $ 122,002,517 - ----------------------------------------------------------------------------------------- Total Bonds (Identified Cost, $1,307,801,045) $1,310,173,211 - ----------------------------------------------------------------------------------------- Repurchase Agreement - 3.4% - ----------------------------------------------------------------------------------------- Lehman Brothers, dated 7/31/95, due 8/01/ 95, total to be received $45,456,335 (secured by U.S. Treasury Note, 5.81s, due 3/07/96, market value $47,960,000), at Cost and Value $ 45,449 $ 45,449,000 - ----------------------------------------------------------------------------------------- Total Investments (Identified Cost, $1,353,250,045) $1,355,622,211 Other Assets, Less Liabilities - (0.7)% (9,569,414) - ----------------------------------------------------------------------------------------- Net Assets - 100.0% $1,346,052,797 - ----------------------------------------------------------------------------------------- + Restricted security. * Denotes all or a portion of a security segregated as collateral for open futures contracts.
See notes to financial statements FINANCIAL STATEMENTS Statement of Assets and Liabilities - ------------------------------------------------------------------------------ July 31, 1995 - ------------------------------------------------------------------------------ Assets: Investments, at value (identified cost, $1,353,250,045) $1,355,622,211 Cash 157,067 Receivable for daily variation margin on open futures contracts 37,500 Receivable for Fund shares sold 109,919 Interest receivable 13,494,789 Other assets 19,877 -------------- Total assets $1,369,441,363 -------------- Liabilities: Payable for investments purchased $ 20,134,375 Payable for Fund shares reacquired 2,342,969 Payable to affiliates - Management fee 71,293 Shareholder servicing agent fee 19,987 Distribution fee 352,910 Accrued expenses and other liabilities 467,032 -------------- Total liabilities $ 23,388,566 -------------- Net assets $1,346,052,797 ============== Net assets consist of: Paid-in capital $1,471,569,421 Unrealized appreciation on investments 2,115,035 Accumulated net realized loss on investments (127,510,438) Distributions in excess of net investment income (121,221) -------------- Total $1,346,052,797 ============== Shares of beneficial interest outstanding 202,424,538 ============== Class A shares: Net asset value and redemption price per share (net assets of $533,986,698 / 80,276,379 shares of beneficial interest outstanding) $6.65 ===== Offering price per share (100/95.25) $6.98 ===== Class B shares: Net asset value and offering price per share (net assets of $812,066,099 / 122,148,159 shares of beneficial interest outstanding) $6.65 ===== 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 July 31, 1995 - ------------------------------------------------------------------------------ Net investment income: Interest income $120,116,845 ------------ Expenses - Management fee $ 9,450,684 Trustees' compensation 82,098 Shareholder servicing agent fee (Class A) 615,160 Shareholder servicing agent fee (Class B) 2,056,115 Distribution and service fee (Class A) 1,435,563 Distribution and service fee (Class B) 10,437,907 Postage 340,657 Printing 143,030 Auditing fees 78,719 Custodian fee 39,152 Legal fees 9,745 Miscellaneous 890,219 ------------ Total expenses $ 25,579,049 ------------ Net investment income $ 94,537,796 ------------ Realized and unrealized gain (loss) on investments: Realized loss (identified cost basis) - Investment transactions $(41,522,420) Futures contracts (2,714,208) ------------ Net realized loss on investments $(44,236,628) ------------ Change in unrealized appreciation - Investments $ 66,859,957 Futures contracts 1,848,786 ------------ Net unrealized gain on investments $ 68,708,743 ------------ Net realized and unrealized gain on investments $ 24,472,115 ------------ Increase in net assets from operations $119,009,911 ============ See notes to financial statements FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets - ----------------------------------------------------------------------------------------------------- Eight Months Year Ended Year Ended Ended November 30, July 31, 1995 July 31, 1994 1993 - ----------------------------------------------------------------------------------------------------- Increase (decrease) in net assets: From operations - Net investment income $ 94,537,796 $ 74,548,971 $ 61,921,749 Net realized gain (loss) on investments (44,236,628) (25,065,163) 3,896,696 Net unrealized gain (loss) on investments 68,708,743 (75,294,158) (29,750,350) -------------- -------------- -------------- Increase (decrease) in net assets from operations $ 119,009,911 $ (25,810,350) $ 36,068,095 -------------- -------------- -------------- Distributions declared to shareholders - From net investment income (Class A) $ (26,574,630) $ (14,372,080) $ (41,366,228) From net investment income (Class B) (62,269,346) (38,804,832) (16,456,135) In excess of net realized gain on investments (Class A) -- -- (4,790,820) From paid-in capital (Class A) -- (6,354,345) -- From paid-in capital (Class B) -- (17,156,825) -- Tax return of capital (2,036,802) -- -- -------------- -------------- -------------- Total distributions declared to shareholders $ (90,880,778) $ (76,688,082) $ (62,613,183) -------------- -------------- -------------- Fund share (principal) transactions - Net proceeds from sales of shares $ 207,482,564 $ 55,960,166 $ 29,918,411 Net asset value of shares issued to shareholders in connection with merger of MFS Lifetime Government Mortgage Fund -- -- 1,774,003,938 Net asset value of shares issued to shareholders in reinvestment of distributions 40,173,434 31,831,973 24,936,586 Cost of shares reacquired (582,715,690) (482,278,453) (367,519,075) -------------- -------------- -------------- Increase (decrease)in net assets from Fund share transactions $ (335,059,692) $ (394,486,314) $1,461,339,860 -------------- -------------- -------------- Total increase (decrease) in net assets $ (306,930,559) $ (496,984,746) $1,434,794,772 Net assets: At beginning of period 1,652,983,356 2,149,968,102 715,173,330 -------------- -------------- -------------- At end of period (including distributions in excess of net investment income of $(121,221), $(50,624) and $(11,856,473), respectively) $1,346,052,797 $ 1,652,983,356 $2,149,968,102 ============== =============== ============== See notes to financial statements
FINANCIAL STATEMENTS - continued Financial Highlights - -------------------------------------------------------------------------------------------------------------------------- Eight Year Ended Months Ended Year Ended November 30, July 31, July 31, ----------------------------------------- 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------------------------------------------------- Class A - -------------------------------------------------------------------------------------------------------------------------- Per share data (for a share outstanding throughout each period): Net asset value - beginning of period $ 6.49 $ 6.85 $ 6.82 $ 6.95 $ 7.01 ------ ------ ------ ------ ------ Income from investment operations - Net investment income $ 0.45 $ 0.29 $ 0.34 $ 0.46 $ 0.48 Net realized and unrealized gain (loss) on investments 0.14 (0.36) 0.20 0.09 0.25 ------ ------ ------ ------ ------ Total from investment operations $ 0.59 (0.07) $ 0.54 $ 0.55 $ 0.73 ------ ------ ------ ------ ------ Less distributions declared to shareholders - From net investment income $(0.42) (0.20) $(0.47) $(0.42) $(0.44) In excess of net realized gain on investments -- -- (0.04) -- -- From paid-in capital -- (0.09) -- (0.26) (0.35) Tax return of capital (0.01) -- -- -- -- ------ ------ ------ ------ ------ Total distributions declared to shareholders $(0.43) (0.29) $(0.51) $(0.68) $(0.79) ------ ------ ------ ------ ------ Net asset value - end of period $ 6.65 $ 6.49 $ 6.85 $ 6.82 $ 6.95 ====== ====== ====== ====== ====== Total return 9.60% (1.51)% 8.11% 8.25% 11.00% Ratios (to average net assets)/ Supplemental data: Expenses 1.25% 1.27% 1.38% 1.42% 1.44% Net investment income 6.99% 6.46% 6.30% 6.57% 6.91% Portfolio turnover 87% 37% 167% 484% 731% Net assets at end of period (000,000 omitted) $ 534 $ 424 $ 522 $ 715 $ 886 Annualized. Per share data for the periods subsequent to November 30, 1993 is based on average shares outstanding. Total returns for Class A shares do not include the applicable sales charge (except for reinvested dividends prior to October 1, 1989). If the charge had been included, the results would have been lower. The investment adviser did not impose a portion of its management fee 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 -- $ 0.29 $ 0.34 -- -- Ratios (to average net assets): Expenses -- 1.28% 1.46% -- -- Net investment income -- 6.45% 6.22% -- -- See notes to financial statements
FINANCIAL STATEMENTS - continued
Financial Highlights - continued - ----------------------------------------------------------------------------------------------------------------------- Year Ended November 30, 1990 1989 1988 1987 1986 - ----------------------------------------------------------------------------------------------------------------------- Class A - ----------------------------------------------------------------------------------------------------------------------- Per share data (for a share outstanding throughout each period): Net asset value - beginning of period $ 7.86 $ 7.82 $ 8.34 $ 9.82 $ 9.53 ------ ------ ------ ------- ------ Income from investment operations - Net investment income $ 0.53 $ 0.59 $ 0.64 $ 0.75 $ 0.72 Net realized and unrealized gain (loss) on investments (0.40) 0.48 (0.06) (1.08) 0.43 ------ ------ ------ ------- ------ Total from investment operations $ 0.13 $ 1.07 $ 0.58 $ (0.33) $ 1.15 ------ ------ ------ ------- ------ Less distributions declared to shareholders - From net investment income $(0.49) $(0.58) $(0.64) $ (0.82) $(0.65) From net realized gain on investments -- -- -- (0.01) (0.21) From paid-in capital (0.49) (0.45) (0.46) (0.32) -- ------ ------ ------ ------- ------ Total distributions declared to shareholders $(0.98) $(1.03) $(1.10) $ (1.15) $(0.86) ------ ------ ------ ------- ------ Net asset value - end of period $ 7.01 $ 7.86 $ 7.82 $ 8.34 $ 9.82 ====== ====== ====== ======= ====== Total return 2.05% 14.72% 7.39% (3.37)% 13.75% Ratios (to average net assets)/ Supplemental data: Expenses 1.40% 1.37% 1.38% 1.34% 1.00% Net investment income 7.29% 7.57% 7.88% 8.34% 9.54% Portfolio turnover 507% 489% 285% 212% 169% Net assets at end of period (000,000 omitted) $1,068 $1,380 $1,295 $1,129 $ 593 For the period from the commencement of investment operations, January 9, 1986 to November 30, 1986. Annualized. Total returns for Class A shares do not include the applicable sales charge (except for reinvested dividends prior to October 1, 1989). If the charge had been included, the results would have been lower. See notes to financial statements
FINANCIAL STATEMENTS - continued
Financial Highlights - continued - ------------------------------------------------------------------------------------------- Eight Months Year Ended Ended Period Ended July 31, July 31, November 30, 1995 1994 1993 - ------------------------------------------------------------------------------------------- Class B - ------------------------------------------------------------------------------------------- Per share data (for a share outstanding throughout each period): Net asset value - beginning of period $ 6.49 $ 6.84 $ 6.97 ------- ------- ------ Income from investment operations - Net investment income $ 0.41 $ 0.26 $ 0.38 Net realized and unrealized gain (loss) on investments 0.14 (0.35) (0.44) ------- ------- ------ Total from investment operations $ 0.55 $ (0.09) $(0.06) ------- ------- ------ Less distributions declared to shareholders - From net investment income $ (0.38) $ (0.18) $(0.07) From paid-in capital -- (0.08) -- Tax return of capital (0.01) -- -- ------ ------- ------ Total distributions declared to shareholders $ (0.39) $ (0.26) $(0.07) ------- ------- ------ Net asset value - end of period $ 6.65 $ 6.49 $ 6.84 ======= ======= ====== Total return 8.81% (1.97)% (3.91)% Ratios (to average net assets)/ Supplemental data: Expenses 1.96% 1.94% 1.87% Net investment income 6.28% 5.80% 5.92% Portfolio turnover 87% 37% 167% Net assets at end of period (000,000 omitted) $ 812 $1,229 $1,628 For the period from the commencement of offering of Class B shares, September 7, 1993 to November 30, 1993. Annualized. Per share data for the periods subsequent to November 30, 1993 is based on average shares outstanding. The investment adviser did not impose a portion of its management fee 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 -- $ 0.26 $ 0.38 Ratios (to average net assets): Expenses -- 1.94% 1.94% Net investment income -- 5.80% 5.85% See notes to financial statements
NOTES TO FINANCIAL STATEMENTS (1) Business and Organization MFS Government Mortgage Fund (the Fund) is a diversified series of MFS Series Trust X (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, diversified 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 market value. Futures contracts listed on commodities exchanges are valued at closing settlement 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. Futures Contracts - The Fund may enter into futures contracts for the delayed delivery of 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 futures contracts is designed to hedge against anticipated changes in interest rates or securities prices. Investments in interest rate futures for purposes other than hedging may be made to modify 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. Investment Transactions and Income - Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. All premium and original issue discount are amortized or accreted for financial statement and tax reporting purposes as required by federal income tax regulations. 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 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 July 31, 1995, $5,764,417 was reclassified from accumulated undistributed net investment income and $48,392 and $5,716,025 were reclassified to paid-in capital and accumulated net realized gain on investments, respectively, due to differences between book and tax accounting for mortgage-backed securities and tax-basis return of capital. This change had no effect on the net assets or net asset value per share. At July 31, 1995, the Fund, for federal income tax purposes, had a capital loss carry- forward of $(95,700,480) which may be applied against any net taxable realized gains of each succeeding year until the earlier of its utilization or expiration on July 31, 1996 ($3,630,686), July 31, 1998 ($81,836,532), July 31, 2002 ($5,628,534) and July 31, 2003 ($4,604,728). Multiple Classes of Shares of Beneficial Interest - The Fund offers Class A and Class B shares. The two classes of shares differ in their respective shareholder servicing agent, distribution and service fees. All shareholders bear the common expenses of the Fund pro rata, based on 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. (3) Transactions with Affiliates Investment Adviser - The Fund has an investment advisory agreement with Massachusetts Financial Services Company (MFS) to provide overall investment advisory and administrative services, and general office facilities. The management fee is computed daily and paid monthly at an annual rate equal to the lesser of (i) 0.65% of the Fund's average daily net assets or (ii) 0.30% of the Fund's average daily net assets and 6.1% of the Fund's gross income. 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 $31,318 for the year ended July 31, 1995. Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received $19,176 for the year ended July 31, 1995, 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 and Class B 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 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 retains the service fee for accounts not attributable to a securities dealer, which amounted to $105,920 for the year ended July 31, 1995. Fees incurred under the distribution plan during the year ended July 31, 1995 were 0.35% of average daily net assets attributable to Class A shares on an annualized basis. The Class B distribution plan provides that the Fund will pay MFD a monthly distribution fee of 0.75% per annum, and a service fee of up to 0.25% per annum, of the Fund's average daily net assets attributable to Class B 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 shares. The service fee is intended to be additional consideration for services rendered by the dealer with respect to Class B shares. MFD retains the service fee for accounts not attributable to a securities dealer, which amounted to $175,913 for Class B shares for the year ended July 31, 1995. Fees incurred under the distribution plan during the year ended July 31, 1995 were 1.00% of average daily net assets attributable to Class B shares on an annualized basis. 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 12 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 July 31, 1995 were $0 and $1,386,715 for Class A and Class B shares, respectively. Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a fee 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% and up to 0.22% attributable to Class A and Class B 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 $1,230,194,850 $1,547,019,438 ============== ============== 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 $1,353,408,420 ============== Gross unrealized appreciation $ 24,851,994 Gross unrealized depreciation (22,638,203) -------------- Net unrealized appreciation $ 2,213,791 ============== (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 Eight Months Ended Year Ended July 31, 1995 July 31, 1994 --------------------------- ---------------------------- Shares Amount Shares Amount - --------------------------------------------------------------------------------------------- Shares sold 27,491,721 $181,805,681 4,203,202 $ 27,515,113 Shares issued to shareholders in reinvestment of distributions 1,875,858 12,007,470 1,321,312 8,740,816 Shares reacquired (14,375,598) (92,201,944) (16,516,662) (109,058,350) ----------- ------------ ----------- ------------- Net increase (decrease) 14,991,981 $101,611,207 (10,992,148) $ (72,802,421) =========== ============ =========== ============= Year Ended November 30, 1993 ---------------------------- Shares Amount - --------------------------------------------------------------------------------------------- Shares sold 2,146,686 $ 19,558,553 Shares issued to shareholders in reinvestment of distributions 2,663,943 18,391,733 Shares reacquired (33,340,955) (235,950,665) ----------- ------------- Net decrease (28,530,326) $(198,000,379) =========== ============= Class B Shares Eight Months Ended Year Ended July 31, 1995 July 31, 1994 --------------------------- --------------------------- Shares Amount Shares Amount - --------------------------------------------------------------------------------------------- Shares sold 4,039,025 $ 25,676,883 4,217,881 $ 28,445,053 Shares issued to shareholders in reinvestment of distributions 4,409,939 28,165,964 3,488,783 23,091,157 Shares reacquired (75,797,892) (490,513,746) (56,121,433) (373,220,103) ----------- ------------- ------------ ------------- Net decrease (67,348,928) $(436,670,899) (48,414,769) $(321,683,893) =========== ============= =========== ============= Period Ended November 30, 1993* ------------------------------- Shares Amount - --------------------------------------------------------------------------------------------- Shares sold 1,496,862 $ 10,359,858 Shares issued in connection with merger with Lifetime Government Mortgage Fund 254,500,711 1,774,003,938 Shares issued to shareholders in reinvestment of distributions 949,148 6,544,853 Shares reacquired (19,034,865) (131,568,410) ----------- --------------- Net increase 237,911,856 $ 1,659,340,239 =========== =============== *For the period from the commencement of offering of Class B shares, September 7, 1993 to November 30, 1993.
(6) Line of Credit The Fund entered into an agreement which enables it to participate with other funds managed by MFS in an unsecured line of credit with a bank which permits borrowings up to $350 million, collectively. Borrowings may be made to temporarily finance the repurchase of Fund shares. Interest is charged to each fund, based on its borrowings, at a rate equal to the bank's base rate. In addition, a commitment fee, based on the average daily unused portion of the line of credit, is allocated among the participating funds at the end of each quarter. The commitment fee allocated to the Fund for the year ended July 31, 1995 was $20,751. (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 July 31, 1995, is as follows: Unrealized Futures Contracts Expiration Contracts Position Depreciation - ------------------------------------------------------------------------------ U.S. Treasury Notes September 1995 100 Long $257,131 ======== At July 31, 1995, the Fund had sufficient cash and/or securities to cover margin requirements on open futures contracts. (8) Restricted Securities The Fund may invest not more than 10% of its total assets in securities which are subject to legal or contractual restrictions on resale. At July 31, 1995, the Fund owned the following restricted security (constituting 1.83% of total 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 security be registered. The value of this security is determined by valuations supplied by a pricing service or brokers.
Description Date of Acquisition Par Amount Cost Value - ------------------------------------------------------------------------------------------- FHA, Centennial, "A", 8.25s, 2028 3/23/93 $23,895,281 $24,612,139 $25,109,400 ===========
(9) Acquisitions At close of business on September 6, 1993, the Fund acquired all of the assets and liabilities of MFS Lifetime Government Mortgage Fund. The acquisition was accomplished by a tax-free exchange of 254,500,711 Class B shares of the Fund (valued at $1,774,003,938) for all of the assets, subject to all of the liabilities of MFS Lifetime Government Mortgage Fund. MFS Lifetime Government Mortgage Fund then converted all of its outstanding shares for the Class B shares of the Fund and distributed the Class B shares to its shareholders. MFS Lifetime Government Mortgage Fund's net assets on that date ($1,774,003,938), including $45,387,402 of unrealized appreciation, were combined with those of the Fund. The aggregate net assets of the Fund after the acquisition were $2,336,607,120. INDEPENDENT AUDITORS' REPORT To the Trustees of MFS Series Trust X and Shareholders of MFS Government Mortgage Fund: We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of MFS Government Mortgage Fund as of July 31, 1995, the related statement of operations for the year then ended, the statement of changes in net assets for the year ended July 31, 1995, the eight months ended July 31, 1994 and the year ended November 30, 1993, and the financial highlights for the year ended July 31, 1995, the eight months ended July 31, 1994, and for each of the years in the eight-year period ended November 30, 1993. 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 July 31, 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 Government Mortgage Fund at July 31, 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 September 8, 1995 --------------------------------------------- This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus. 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 - ----------------------------------------- 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) ---------------------------------------- BOND MFS(R) Municipal Income Fund - ----------------------------------------- ---------------------------------------- MFS(R) Bond Fund - ----------------------------------------- MFS(R) Government Mortgage Fund STATE TAX-FREE BOND - ----------------------------------------- ---------------------------------------- MFS(R) Government Securities Fund Alabama, Arkansas, California, Florida, - ----------------------------------------- Georgia, Louisiana, Maryland, Massachusetts, MFS(R) High Income Fund Mississippi, New York, North Carolina, - ----------------------------------------- Pennsylvania, South Carolina, Tennessee, MFS(R) Intermediate Income Fund Texas, Virginia, 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 ----------------------------------------
------------- MFS(R) [SEAL] BULK RATE GOVERNMENT NUMBER U.S. POSTAGE MORTGAGE 1 P A I D FUND DALBAR PERMIT #55638 TOP-RATED SERVICE BOSTON, MA ------------- 500 Boylston Street Boston, MA 02116 [LOGO] M F S (SM) THE FIRST NAME IN MUTUAL FUNDS MGM-2 9/95 109M 31/231 PART C Item 24 Financial Statements and Exhibits (a) Financial Statements Included in Part A: MFS Government Mortgage Fund For the period from the start of business, January 9, 1986, to November 30, 1993, for the period from November 30, 1993 to July 31, 1994 and for the year ended July 31, 1995: Financial Highlights Financial Statements Included in Part B: MFS Government Mortgage Fund At July 31, 1995: Portfolio of Investments* Statement of Assets and Liabilities* For the year ended July 31, 1995: Statement of Operations* For the year ended November 30, 1993, the eight months ended July 31, 1994 and the year ended July 31, 1995: Statement of Changes in Net Assets* - ----------------------------------- * Incorporated herein by reference to the Fund's Annual Report to Shareholders dated July 31, 1995 filed with the SEC via EDGAR on September 27, 1995. (b) Exhibits 1 (a) Amended and Restated Declaration of Trust, dated January 19, 1995. (3) (b) Amendment to the Declaration of Trust dated June 2, 1995 to change the name of the Trust and for the establishment and designation of series and classes. (4) 2 Amended and Restated By-Laws, dated December 21, 1994. (3) 3 Not Applicable. 4 Form of Share Certificate for Class A and Class B shares of the Fund. (5) 5 (a) Investment Advisory Agreement for MFS Government Mortgage Fund, dated December 19, 1985; filed herewith. (b) Amendment to Investment Advisory Agreement for MFS Government Mortgage Fund, dated January 1, 1996; filed herewith. (c) Investment Advisory Agreement for MFS Series Trust X (the "Trust") on behalf of MFS/Foreign & Colonial International Growth Fund, dated September 1, 1995; filed herewith. (d) Investment Advisory Agreement for the Trust on behalf of MFS/Foreign & Colonial International Growth and Income Fund, dated September 1, 1995; filed herewith. (e) Investment Advisory Agreement for the Trust on behalf of MFS/Foreign & Colonial Emerging Markets Equity Fund, dated September 1, 1995; filed herewith. (f) Sub-Advisory Agreement between Massachusetts Financial Services Company (the "Adviser" or "MFS") and Foreign & Colonial Management Ltd. (the "Sub-Adviser") with respect to MFS/Foreign & Colonial International Growth Fund, dated September 1, 1995; filed herewith. (g) Sub-Advisory Agreement between the Adviser and the Sub-Adviser with respect to MFS/Foreign & Colonial International Growth and Income Fund, dated September 1, 1995; filed herewith. (h) Sub-Advisory Agreement between the Adviser and the Sub-Adviser with respect to MFS/Foreign & Colonial Emerging Markets Equity Fund, dated September 1, 1995; filed herewith. (i) Sub-Advisory Agreement between the Sub-Adviser and Foreign & Colonial Emerging Markets Limited ("FCEM") with respect to the MFS/Foreign & Colonial International Growth Fund, dated September 1, 1995; filed herewith. (j) Sub-Advisory Agreement between the Sub-Adviser and FCEM with respect to the MFS/Foreign & Colonial International Growth and Income Fund, dated September 1, 1995; filed herewith. (k) Sub-Advisory Agreement between the Sub-Adviser and FCEM with respect to the MFS/Foreign & Colonial Emerging Markets Equity Fund, dated September 1, 1995; filed herewith. 6 (a) Distribution Agreement between MFS Series Trust X and MFS Fund Distributors, Inc., dated September 1, 1995; filed herewith. (b) Dealer Agreement between MFS Funds Distributors, Inc. and a dealer, dated December 28, 1994 and the Mutual Funds Agreement between MFD and a bank or NASD affiliate, dated December 28, 1994. (1) 7 Retirement Plan for Non-Interested Person Trustees, dated January 1, 1991; filed herewith. 8 (a) Custodian Agreement, dated February 19, 1988; filed herewith. (b) Amendment No. 1 to Custodian Agreement, dated February 29, 1988; filed herewith. (c) Amendment No. 2 to Custodian Agreement, dated October 1, 1989; filed herewith. (d) Amendment No. 3 to Custodian Agreement, dated September 17, 1991; filed herewith. 9 (a) Shareholder Servicing Agent Agreement, dated September 1, 1995; filed herewith. (b) Exchange Privilege Agreement, dated September 1, 1995; filed herewith. (c) Loan Agreement by and among the Banks named therein, the MFS Funds named therein, and the First National Bank of Boston dated as of February 21, 1995. (2) (d) Dividend Disbursing Agency Agreement, dated February 1, 1986. (5) 10 24e-2 Consent and Opinion of Counsel; filed herewith. 11 Consent of Deloitte & Touche LLP; filed herewith. 12 Not Applicable. 13 Investment Representation Letter for MFS Government Mortgage Fund; filed herewith. 14 (a) Forms for Individual Retirement Account Disclosure Statement as currently in effect. (6) (b) Forms for MFS 403(b) Custodial Account Agreement as currently in effect. (6) (c) Forms for MFS Prototype Paired Defined Contribution Plans and Funds Agreement as currently in effect. (6) 15 (a) Amended and Restated Distribution Plan for Class A shares of MFS Government Mortgage Fund dated December 21, 1994. (3) (b) Distribution Plan for Class B shares of MFS Government Mortgage Fund dated December 21, 1994. (3) (c) Distribution Plan for Class A shares of MFS/Foreign & Colonial International Growth Fund dated September 1, 1995; filed herewith. (d) Distribution Plan for Class A shares of MFS/Foreign & Colonial International Growth and Income Fund dated September 1, 1995; filed herewith. (e) Distribution Plan for Class A shares of MFS/Foreign & Colonial Emerging Markets Equity Fund dated September 1, 1995; filed herewith. (f) Distribution Plan for Class B shares of MFS/Foreign & Colonial International Growth Fund dated September 1, 1995; filed herewith. (g) Distribution Plan for Class B shares of MFS/Foreign & Colonial International Growth and Income Fund dated September 1, 1995; filed herewith. (h) Distribution Plan for Class B shares of MFS/Foreign & Colonial Emerging Markets Equity Fund dated September 1, 1995; filed herewith. 16 Schedule for Computation of Performance Quotations - Average Annual Total Rate of Return and Standardized Yield. (3) 18 Not Applicable. 27 Financial Data Schedules for each class of MFS Government Mortgage Fund; filed herewith. Power of Attorney, dated September 21, 1994. (3) - ----------------------------- (1) Incorporated by reference to MFS Municipal Series Trust (File Nos. 2-92915 and 811-4096) Post-Effective Amendment No. 26 filed with the SEC via EDGAR on February 22, 1995. (2) Incorporated by reference to Amendment No. 8 on Form N-2 for MFS Municipal Income Trust (File No. 811-4841) filed with the SEC via EDGAR on February 28, 1995. (3) Incorporated by reference to Post-Effective Amendment No. 11 filed with the SEC via EDGAR on March 30, 1995. (4) Incorporated by reference to Post-Effective Amendment No. 12 filed with the SEC via EDGAR on June 16, 1995. (5) Incorporated by reference to MFS Municipal Series Trust (File Nos. 2-92915 and 811-4096) Post-Effective Amendment No. 28 filed with the SEC via EDGAR on July 28, 1995. (6) Incorporated by reference to MFS Series Trust IX (File Nos. 2-50409 and 811-2464) Post-Effective Amendment No. 32 filed with the SEC via EDGAR on August 28, 1995. Item 25. Persons Controlled by or under Common Control with Registrant Not Applicable. Item 26. Number of Holders of Securities MFS Government Mortgage Fund (1) (2) Title of Class Number of Record Holders Class A Shares Shares of Beneficial Interest 39,310 (without par value) (as of October 31, 1995) Class B Shares Shares of Beneficial Interest 40,805 (without par value) (as of October 31, 1995) MFS/Foreign & Colonial International Growth Fund (1) (2) Title of Class Number of Record Holders Class A Shares Shares of Beneficial Interest 846 (without par value) (as of October 31, 1995) Class B Shares Shares of Beneficial Interest 466 (without par value) (as of October 31, 1995) MFS/Foreign & Colonial International Growth and Income Fund (1) (2) Title of Class Number of Record Holders Class A Shares Shares of Beneficial Interest 196 (without par value) (as of October 31, 1995) Class B Shares Shares of Beneficial Interest 209 (without par value) (as of October 31, 1995) MFS/Foreign & Colonial Emerging Markets Equity Fund (1) (2) Title of Class Number of Record Holders Class A Shares Shares of Beneficial Interest 423 (without par value) (as of October 31, 1995) Class B Shares Shares of Beneficial Interest 231 (without par value) (as of October 31, 1995) Item 27. Indemnification Reference is hereby made to (a) Article V of the Registrant's Declaration of Trust, incorporated by reference to the Registrant's Post-Effective Amendment No. 11, filed with the SEC on March 30, 1995; and (b) Section 9 of the Shareholder Servicing Agent Agreement, filed herewith. The Trustees and officers of the Registrant and the personnel of the Registrant's investment adviser are insured under an errors and omissions liability insurance policy. The Registrant and its officers are also insured under the fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940, as amended. Item 28. Business and Other Connections of Investment Adviser MFS serves as investment adviser to the following open-end Funds comprising the MFS Family of Funds: Massachusetts Investors Trust, Massachusetts Investors Growth Stock Fund, MFS Growth Opportunities Fund, MFS Government Securities Fund, MFS Government Limited Maturity Fund, MFS Series Trust I (which has three series: MFS Managed Sectors Fund, MFS Cash Reserve Fund and MFS World Asset Allocation Fund), MFS Series Trust II (which has four series: MFS Emerging Growth Fund, MFS Capital Growth Fund, MFS Intermediate Income Fund and MFS Gold & Natural Resources Fund), MFS Series Trust III (which has two series: MFS High Income Fund and MFS Municipal High Income Fund), MFS Series Trust IV (which has four series: MFS Money Market Fund, MFS Government Money Market Fund, MFS Municipal Bond Fund and MFS OTC Fund), MFS Series Trust V (which has two series: MFS Total Return Fund and MFS Research Fund), MFS Series Trust VI (which has three series: MFS World Total Return Fund, MFS Utilities Fund and MFS World Equity Fund), MFS Series Trust VII (which has two series: MFS World Governments Fund and MFS Value Fund), MFS Series Trust VIII (which has two series: MFS Strategic Income Fund and MFS World Growth Fund), MFS Series Trust IX (which has three series: MFS Bond Fund, MFS Limited Maturity Fund and MFS Municipal Limited Maturity Fund), MFS Series Trust X (which has four series: MFS Government Mortgage Fund, MFS/Foreign & Colonial Emerging Markets Equity Fund, MFS/Foreign and Colonial International Growth Fund and MFS/Foreign and Colonial International Growth & Income Fund), and MFS Municipal Series Trust (which has 19 series: MFS Alabama Municipal Bond Fund, MFS Arkansas Municipal Bond Fund, MFS California Municipal Bond Fund, MFS Florida Municipal Bond Fund, MFS Georgia Municipal Bond Fund, MFS Louisiana Municipal Bond Fund, MFS Maryland Municipal Bond Fund, MFS Massachusetts Municipal Bond Fund, MFS Mississippi Municipal Bond Fund, MFS New York Municipal Bond Fund, MFS North Carolina Municipal Bond Fund, MFS Pennsylvania Municipal Bond Fund, MFS South Carolina Municipal Bond Fund, MFS Tennessee Municipal Bond Fund, MFS Texas Municipal Bond Fund, MFS Virginia Municipal Bond Fund, MFS Washington Municipal Bond Fund, MFS West Virginia Municipal Bond Fund and MFS Municipal Income Fund) (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 seven 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 Fund (which has four portfolios: MFS International Funds-U.S. Equity Fund, MFS International Funds-U.S. Emerging Growth Fund, MFS International Funds-International Government Fund and MFS International Funds-Charter Income Fund) (the "MIL Funds"). The MIL Funds are organized in Luxembourg and qualify as an undertaking for collective investments in transferable securities (UCITS). The principal business address of the MIL Funds is 47, Boulevard Royal, L-2449 Luxembourg. MIL also serves as investment adviser to and distributor for MFS Meridian U.S. Government Bond Fund, MFS Meridian Charter Income Fund, MFS Meridian Global Government Fund, MFS Meridian U.S. Emerging Growth Fund, MFS Meridian Global Equity Fund, MFS Meridian Limited Maturity Fund, MFS Meridian World Growth Fund, MFS Meridian Money Market Fund, MFS Meridian World Total Return Fund and MFS Meridian U.S. Equity Fund (collectively the "MFS Meridian Funds"). Each of the MFS Meridian Funds is organized as an exempt company under the laws of the Cayman Islands. The principal business address of each of the MFS Meridian Funds is P.O. Box 309, Grand Cayman, Cayman Islands, British West Indies. MFS International (U.K.) Ltd. ("MIL-UK"), a private limited company registered with the Registrar of Companies for England and Wales whose current address is 4 John Carpenter Street, London, England ED4Y 0NH, is involved primarily in marketing and investment research activities with respect to private clients and the MIL Funds and the MFS Meridian Funds. MFS Fund Distributors, Inc. ("MFD"), a wholly owned subsidiary of MFS, serves as distributor for the MFS Funds, MVI, UST and MFSIT. Clarendon Insurance Agency, Inc. ("CIAI"), a wholly owned subsidiary of MFS, serves as distributor for certain life insurance and annuity contracts issued by Sun Life Assurance Company of Canada (U.S.). MFS Service Center, Inc. ("MFSC"), a wholly owned subsidiary of MFS, serves as shareholder servicing agent to the MFS Funds, the MFS Closed-End Funds, MFSIT, MVI and UST. 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, Bruce C. Avery, William S. Harris, William W. Scott, Jr., and Patricia A. Zlotin are Executive Vice Presidents, 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, Joseph W. Dello Russo is a Senior Vice President and Chief Financial Officer, Robert T. Burns is a Vice President and an Assistant Secretary of MFS, and Mary Kay Doherty is a Vice President and Assistant Treasurer. Massachusetts Investors Trust Massachusetts Investors Growth Stock Fund MFS Growth Opportunities Fund MFS Government Securities Fund MFS Series Trust I MFS Series Trust V MFS Series Trust VI MFS Series Trust X MFS Government Limited Maturity Fund A. Keith Brodkin is the Chairman and President, Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost, Vice President of MFS, is the Assistant Treasurer, James R. Bordewick, Jr., Vice President and Associate General Counsel of MFS, is the Assistant Secretary. MFS Series Trust II A. Keith Brodkin is the Chairman and President, Leslie J. Nanberg, Senior Vice President of MFS, is a Vice President, Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant Treasurer, and James R. Bordewick, Jr., is the Assistant Secretary. MFS Government Markets Income Trust MFS Intermediate Income Trust A. Keith Brodkin is the Chairman and President, 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 the 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 the Assistant Treasurer, and James R. Bordewick, Jr., is the Assistant Secretary. MFS Series Trust IV MFS Series Trust IX A. Keith Brodkin is the Chairman and President, Robert A. Dennis and Geoffrey L. Kurinsky, Senior Vice Presidents of MFS, are Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary. MFS Series Trust VII A. Keith Brodkin is the Chairman and President, Leslie J. Nanberg and Stephen C. Bryant, Senior Vice Presidents of MFS, are Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary. MFS Series Trust VIII A. Keith Brodkin is the Chairman and President, Jeffrey L. Shames, Leslie J. Nanberg, Patricia A. Zlotin, James T. Swanson and John D. Laupheimer, Jr., Vice President of MFS, are Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary. MFS Municipal Series Trust A. Keith Brodkin is the Chairman and President, Cynthia M. Brown and Robert A. Dennis are Vice Presidents, David B. Smith, Geoffrey L. Schechter and David R. King, Vice Presidents of MFS, are Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary. MFS Variable Insurance Trust MFS Union Standard Trust MFS Institutional Trust A. Keith Brodkin is the Chairman and President, Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary. MFS Municipal Income Trust A. Keith Brodkin is the Chairman and President, Cynthia M. Brown and Robert J. Manning are Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost, is the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary. MFS Multimarket Income Trust MFS Charter Income Trust A. Keith Brodkin is the Chairman and President, 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 the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary. MFS Special Value Trust A. Keith Brodkin is the Chairman and President, Jeffrey L. Shames, 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 the Assistant Treasurer and James R. Bordewick, Jr., is the 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, Stephen E. Cavan is a Director, Senior Vice President and the Clerk, James R. Bordewick, Jr. is a Director, Vice President and an Assistant Clerk, Robert T. Burns is an Assistant Clerk, Joseph W. Dello Russo is the Treasurer and James E. Russell is the Assistant Treasurer. MIL-UK A. Keith Brodkin is a Director and the Chairman, Arnold D. Scott, Jeffrey L. Shames, and James R. Bordewick, Jr., are Directors, Stephen E. Cavan is a Director and the Secretary, Ziad Malek is the President, Joseph W. Dello Russo is the Treasurer, and Robert T. Burns is the Assistant Secretary. MIL Fund A. Keith Brodkin is the Chairman, President and a Director, Richard B. Bailey, John A. Brindle and Richard W. S. Baker 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 Fund A. Keith Brodkin is the Chairman, President and a Director, Richard B. Bailey, John A. Brindle, Richard W. S. Baker, 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, James O. Yost is the Assistant Treasurer, and Ziad Malek is a Senior Vice President. MFD A. Keith Brodkin is the Chairman and a Director, Arnold D. Scott and Jeffrey L. Shames are Directors, William W. Scott, Jr., an Executive Vice President of MFS, is the President, Stephen E. Cavan is the Secretary, Robert T. Burns is the Assistant Secretary, Joseph W. Dello Russo is the Treasurer, and James E. Russell is the Assistant Treasurer. CIAI A. Keith Brodkin is the Chairman and a Director, Arnold D. Scott and Jeffrey L. Shames are Directors, Cynthia Orcott is President, Bruce C. Avery is the Vice President, Joseph W. Dello Russo is the Treasurer, James E. Russell is the Assistant Treasurer, Stephen E. Cavan is the Secretary, and Robert T. Burns is the Assistant Secretary. MFSC A. Keith Brodkin is the Chairman and a Director, Arnold D. Scott and Jeffrey L. Shames are Directors, Joseph A. Recomendes, a Senior Vice President of MFS, is Vice Chairman and a Director, Janet A. Clifford is the Executive Vice President, Joseph W. Dello Russo is the Treasurer, James E. Russell is the Assistant 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, and Arnold D. Scott are Directors, Thomas J. Cashman, Jr., is the President and a Director, Leslie J. Nanberg is a Senior Vice President, a Managing Director and a Director, George F. Bennett, Carol A. Corley, John A. Gee, Brianne Grady and Kevin R. Parke are Senior Vice Presidents and Managing Directors, Joseph W. Dello Russo is the Treasurer, James E. Russell is the Assistant 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 and a Director, Douglas C. Grip, a Senior Vice President of MFS, is the President, Joseph W. Dello Russo is the Treasurer, James E. Russell is the Assistant Treasurer, Stephen E. Cavan is the Secretary, Robert T. Burns is the Assistant Secretary and Sharon A. Brovelli is a Senior 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) Joseph W. Dello Russo Director of Mutual Fund Operations, The Boston Company, Exchange Place, Boston, Massachusetts (until August, 1994) Item 29. Distributors (a) Reference is hereby made to Item 28 above. (b) Reference is hereby made to Item 28 above; the principal business address of each of these persons is 500 Boylston Street, Boston, Massachusetts 02116. (c) Not applicable. Item 30. Location of Accounts and Records The accounts and records of the Registrant are located, in whole or in part, at the office of the Registrant at the following locations: NAME ADDRESS Massachusetts Financial Services 500 Boylston Street Company (investment adviser) Boston, MA 02116 MFS Funds Distributors, Inc. 500 Boylston Street (principal underwriter) Boston, MA 02116 State Street Bank and Trust Company State Street South (custodian) 5 - West North Quincy, MA 02171 MFS Service Center, Inc. 500 Boylston Street (transfer agent) Boston, MA 02116 Item 31. Management Services Not Applicable. Item 32. Undertakings (a) Not applicable. (b) The Registrant undertakes to file a post-effective amendment, in order to file financial statements for the MFS/Foreign & Colonial International Growth Fund, MFS/Foreign & Colonial International Growth and Income Fund and MFS/Foreign & Colonial Emerging Markets Equity Fund, which need not be certified, within four to six months from the later of the effective date (August 30, 1995) of Post-Effective Amendment No. 12 which was filed with the SEC on June 16, 1995 or the initial public offering of shares of each Fund. (c) Registrant undertakes to furnish each person to whom a prospectus is delivered with a copy of its latest annual report to shareholders upon request and without charge. (d) Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to trustees, officers and controlling persons of the Registrant pursuant to the provisions set forth in Item 27 of this Part C, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a trustee, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the Securities being Registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-Effective Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized, in the City of Boston and The Commonwealth of Massachusetts on the 28th day of November, 1995. MFS SERIES TRUST X By: JAMES R. BORDEWICK, JR. Name: James R. Bordewick, Jr. Title: Assistant Secretary Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment to its Registration Statement has been signed below by the following persons in the capacities indicated on November 28, 1995. SIGNATURE TITLE A. KEITH BRODKIN* Chairman, President (Principal Executive A. Keith Brodkin Officer) and Trustee W. THOMAS LONDON* Treasurer (Principal Financial Officer W. Thomas London and Principal Accounting Officer) RICHARD B. BAILEY* Trustee Richard B. Bailey PETER G. HARWOOD* Trustee Peter G. Harwood J. ATWOOD IVES* Trustee J. Atwood Ives LAWRENCE T. PERERA* Trustee Lawrence T. Perera WILLIAM J. POORVU* Trustee William J. Poorvu CHARLES W. SCHMIDT* Trustee Charles W. Schmidt ARNOLD D. SCOTT* Trustee Arnold D. Scott JEFFREY L. SHAMES* Trustee Jeffrey L. Shames ELAINE R. SMITH* Trustee Elaine R. Smith DAVID B. STONE* Trustee David B. Stone *By: JAMES R. BORDEWICK, JR. Name: James R. Bordewick, Jr. as Attorney-in-fact Executed by James R. Bordewick, Jr. on behalf of those indicated pursuant to a Power of Attorney dated September 21, 1994, incorporated by reference to the Registrant's Post-Effective Amendment No. 11 filed with the Securities and Exchange Commission on March 30, 1995. INDEX TO EXHIBITS EXHIBIT NO. DESCRIPTION OF EXHIBIT 5 (a) Investment Advisory Agreement, dated December 19, 1985. (b) Amendment to Investment Advisory Agreement for MFS Government Mortgage Fund, dated January 1, 1996. (c) Investment Advisory Agreement for MFS Series Trust X (the "Trust") on behalf of MFS/Foreign & Colonial International Growth Fund, dated September 1, 1995. (d) Investment Advisory Agreement for the Trust on behalf of MFS/Foreign & Colonial International Growth and Income Fund, dated September 1, 1995. (e) Investment Advisory Agreement for the Trust on behalf of MFS/Foreign & Colonial Emerging Markets Equity Fund, dated September 1, 1995. (f) Sub-Advisory Agreement between Massachusetts Financial Services Company (the "Adviser" or "MFS") and Foreign & Colonial Management Ltd. (the "Sub-Adviser") with respect to MFS/Foreign & Colonial International Growth Fund, dated September 1, 1995. (g) Sub-Advisory Agreement between the Adviser and the Sub-Adviser with respect to MFS/Foreign & Colonial International Growth and Income Fund, dated September 1, 1995. (h) Sub-Advisory Agreement between the Adviser and the Sub-Adviser with respect to MFS/Foreign & Colonial Emerging Markets Equity Fund, dated September 1, 1995. (i) Sub-Advisory Agreement between the Sub-Adviser and Foreign & Colonial Emerging Markets Limited ("FCEM") with respect to the MFS/Foreign & Colonial International Growth Fund, dated September 1, 1995. EXHIBIT NO. DESCRIPTION OF EXHIBIT (j) Sub-Advisory Agreement between the Sub-Adviser and FCEM with respect to the MFS/Foreign & Colonial International Growth and Income Fund, dated September 1, 1995. (k) Sub-Advisory Agreement between the Sub-Adviser and FCEM with respect to the MFS/Foreign & Colonial Emerging Markets Equity Fund, dated September 1, 1995. 6 (a) Distribution Agreement between MFS Series Trust X and MFS Fund Distributors, Inc., dated September 1, 1995. 7 Retirement Plan for Non-Interested Person Trustees, dated January 1, 1991. 8 (a) Custodian Agreement, dated February 19, 1988. (b) Amendment No. 1 to Custodian Agreement, dated February 29, 1988. (c) Amendment No. 2 to Custodian Agreement, dated October 1, 1989. (d) Amendment No. 3 to Custodian Agreement, dated September 17, 1991. 9 (a) Shareholder Servicing Agent Agreement, dated September 1, 1995. (b) Exchange Privilege Agreement, dated September 1, 1995. 10 24e-2 Consent and Opinion of Counsel. 11 Consent of Deloitte & Touche LLP. 13 Investment Representation Letter for MFS Government Mortgage Fund. 15 (c) Distribution Plan for Class A shares of MFS/Foreign & Colonial International Growth Fund dated September 1, 1995. EXHIBIT NO. DESCRIPTION OF EXHIBIT (d) Distribution Plan for Class A shares of MFS/Foreign & Colonial International Growth and Income Fund dated September 1, 1995. (e) Distribution Plan for Class A shares of MFS/Foreign & Colonial Emerging Markets Equity Fund dated September 1, 1995. (f) Distribution Plan for Class B shares of MFS/Foreign & Colonial International Growth Fund dated September 1, 1995. (g) Distribution Plan for Class B shares of MFS/Foreign & Colonial International Growth and Income Fund dated September 1, 1995. (h) Distribution Plan for Class B shares of MFS/Foreign & Colonial Emerging Markets Equity Fund dated September 1, 1995. 27 Financial Data Schedules for each class of MFS Government Mortgage Fund. EX-99.5(A) 2 INVESTMENT ADVISORY AGREEMENT EXHIBIT NO. 99.5(a) INVESTMENT ADVISORY AGREEMENT THIS AGREEMENT, made this 19th day of December, 1985, by and between MGH GOVERNMENT SECURITIES HIGH YIELD TRUST, 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 "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 regulation, 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 investment advisory and administrative services, office space, equipment and clerical personnel necessary for servicing the investments of the Trust and maintaining its organization, and investment advisory facilities and executive and supervisory personnel for managing the investments and effecting the portfolio transactions of the Trust. 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 Trust 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 Trust, fees and expenses of independent auditors, of legal counsel and of any transfer agent, registrar and dividend disbursing agent of the Trust, expenses of repurchasing and redeeming shares and servicing shareholder accounts, expenses of preparing, printing and mailing share certificates, shareholders' 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 Trust, including safekeeping of funds and securities and maintaining required books and accounts, expenses of calculating the net asset value of shares of the Trust, expenses of shareholders' meetings, and expenses relating to the issuance, registration and qualification of shares of the Trust and the preparation, printing and mailing of prospectuses for such purposes (except to the extent of any Distribution Agreement to which the Trust 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 to be provided, the Trust shall pay to the Adviser an investment advisory fee computed and paid monthly in an amount equal to the sum of .3% of the Trust's average daily net assets plus 6.1% of the Trust's gross income (i.e., income other than from the sale of securities, short-term 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. Payment of the foregoing fee is subject to the provision that within 30 days following the close of any fiscal year of the Trust, the Adviser will pay to the Trust a sum equal to the amount by which the aggregate expenses of the Trust, but excluding interest, taxes, brokerage commissions and extraordinary expenses, incurred during such fiscal year exceed 1 1\2% of the Trust's average daily net assets during such fiscal year. The obligation of the Adviser to reimburse the Trust for expenses incurred during any year may be terminated or revised at any time by the Adviser without the consent of the Trust by notice in writing from the Adviser to the Trust. 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 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 Trust, 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 Trust except as permitted by the Declaration, and will comply with all other provisions of the Declaration and By-Laws and the then-current Prospectus of the Trust 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 Trust, 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 Trust are not to be 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 Trust agrees that if the Adviser shall for any reason no longer serve as the Adviser to the Trust, the Trust will change its name so as to delete the initials "MFS." It is understood that 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 be or become similarly interested in the Trust, and that the Adviser may be or become interested in the Trust as a shareholder or otherwise. ARTICLE 7: Duration, Termination and Amendments 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, 1987 on which date it will terminate unless its continuance after August 1, 1987 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 Trust. 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 Trust, 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 Trust. 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, 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, 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 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 GOVERNMENT SECURITIES HIGH YIELD TRUST By: RICHARD B. BAILEY Richard B. Bailey Chairman and Trustee MASSACHUSETTS FINANCIAL SERVICES COMPANY By: H. ALDEN JOHNSON, JR. H. Alden Johnson, Jr. President EX-99.5(B) 3 AMENDMENT TO INVESTMENT ADV. AGR. EXHIBIT NO. 99.5(b) AMENDMENT TO INVESTMENT ADVISORY AGREEMENT AMENDMENT dated as of January 1, 1996 to the Investment Advisory Agreement dated December 19, 1985 by and between MFS Series Trust X (formerly, MFS Government Securities High Yield Trust) (the "Trust") on behalf of MFS Government Mortgage Fund (the "Fund"), a series of the Trust, and Massachusetts Financial Services Company, a Delaware corporation (the "Adviser") (the "Agreement"). WITNESSETH WHEREAS, the Trust on behalf of the Fund has entered into the Agreement with the Adviser; and WHEREAS, MFS has agreed to amend the Agreement as provided below; 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: 1. Amendment of the Agreement: The first sentence of Article 3 of the Agreement is deleted and replaced in its entirety as follows: "For the services to be rendered and the facilities to be provided, the Fund shall pay to the Adviser an investment advisory fee computed and paid monthly in an amount equal to 0.45% of the Fund's average daily net assets on an annualized basis for the Fund's then-current fiscal year." 2. Miscellaneous: Except as set forth in this Amendment, the Agreement shall remain in full force and effect, without amendment or modification. 3. Prior Amendments. This Amendment supercedes any and all previous amendments to the Agreement. 4. Limitation of Liability of the Trustees and Shareholders: A copy of the Trust's Declaration of Trust is on file with the Secretary of State of The Commonwealth of Massachusetts. The parties hereto acknowledge 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 in accordance with its proportionate interest hereunder. If this instrument is executed by the Trust on behalf of one or more series of the Trust, the parties hereto acknowledge 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 parties hereto also agree that the obligations of each series hereunder shall be several and not joint, in accordance with its proportionate interest hereunder, and the parties hereto agree not to proceed against any series for the obligations of another series. IN WITNESS WHEREOF, the parties have caused this Amendment to the Agreement to be executed and delivered in the names and on their behalf by the undersigned, therewith duly authorized, all as of the day and year first above written. MFS SERIES TRUST X, on behalf of MFS GOVERNMENT MORTGAGE FUND By: A. KEITH BRODKIN A. Keith Brodkin, Chairman MASSACHUSETTS FINANCIAL SERVICES COMPANY By: ARNOLD D. SCOTT Arnold D. Scott, Senior Executive Vice President EX-99.5(C) 4 INVESTMENT ADVISORY AGREEMENT EXHIBIT NO. 99.5(c) INVESTMENT ADVISORY AGREEMENT INVESTMENT ADVISORY AGREEMENT, dated as of this 1st day of September, 1995, by and between MFS SERIES TRUST X, a Massachusetts business trust (the "Trust"), on behalf of MFS/FOREIGN & COLONIAL INTERNATIONAL GROWTH FUND (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 (the "1940 Act"); and 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 supervision of its funds. The Adviser shall act as Adviser to the Fund and as such shall furnish continuously an investment program and shall determine from time to time what securities shall be purchased, sold or exchanged and what portion of the assets of the Fund shall be held uninvested, subject always to the restrictions of the Trust's Amended and Restated Declaration of Trust, dated January 18, 1995 and By-Laws, each as amended from time to time (respectively, the "Declaration" and the "By-Laws"), to the provisions of the 1940 Act and the rules and regulations thereunder and to the Fund's then-current Prospectus and Statement of Additional Information. Should the Trustees at any time, however, make any 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, dealers or other entities 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, dealers or other entities and the placing of such orders, the Adviser is directed to seek for the Fund execution at the most favorable 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, dealer or other entity an amount of commission for effecting a securities transaction in excess of the amount of commission another broker, dealer or other entity 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 ( within the meaning of Section 28(e) of the Securities and Exchange Act of 1934, as amended) provided by such broker, dealer or other entity, viewed in terms of either that particular transaction or the Adviser's overall responsibilities with respect to the Fund and to other clients of the Adviser as to which the Adviser exercises investment discretion. The Adviser may from time to time enter into investment sub-advisory agreements with one or more investment advisers (a "Sub-Adviser") to the Fund to perform some or all of the services for which the Adviser is responsible pursuant to this Article 1 upon such terms and conditions as the Adviser may determine provided that such investment sub-advisory agreements have been approved by a majority of the Trustees of the Trust who are not interested persons of the Trust, the Adviser or the Sub-Adviser and by vote of a majority of the outstanding voting securities of the Fund. The Adviser may terminate the services of any Sub-Adviser at any time in its sole discretion, and shall at such time assume the responsibilities of such Sub-Adviser unless and until a successor Sub-Adviser is selected. Subject to the provisions of Article 6, the Adviser shall not be liable for any error of judgment or mistake of law by any Sub-Adviser or for any loss arising out of any investment made by any Sub-Adviser or for any act or omission in the execution and management of the Fund by any Sub-Adviser. ARTICLE 2. Allocation of Charges and Expenses. The Adviser shall furnish at its own expense investment advisory and administrative services, office space, equipment and clerical personnel necessary for servicing the investments of the Fund and maintaining the Trust's 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 Trust will pay all of its own expenses including, without limitation, compensation of Trustees of the Trust who are not affiliated persons of the Trust or the Adviser; governmental fees; interest charges; taxes; membership dues in the Investment Company Institute allocable to the Trust; fees and expenses of independent auditors, of legal counsel, and of any transfer agent, registrar or dividend disbursing agent of the Trust; expenses of repurchasing and redeeming shares and servicing shareholder accounts; expenses of preparing, printing and mailing stock certificates, prospectuses, periodic reports, notices, 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 the custodian for all services to the Trust, including safekeeping of funds and securities, keeping books and accounts and calculation of the net asset value of shares of the Fund; expenses of shareholder 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 to be provided, the Fund shall pay to the Adviser an investment advisory fee computed and paid monthly at a rate equal to 0.975% of the first $500 million of the Fund's average daily net assets on an annualized basis and 0.925% thereafter. If the Adviser shall serve for less than the whole of any period specified in this Article 3, the compensation payable to the Adviser with respect to the Fund will be prorated. ARTICLE 4. Special Services. Should the Fund have occasion to request the Adviser to perform services not herein contemplated or to request the Adviser to arrange for the services of others, the Adviser will act for the Fund upon request to the best of its ability, with compensation for the Adviser's services to be agreed upon with respect to each such occasion as it arises. ARTICLE 5. Covenants of the Adviser. The Adviser agrees that it will not deal with itself, or with the Trustees of the Trust or the Trust's distributor as principals in making purchases or sales of securities or other property for the account of the Fund, except as permitted by the 1940 Act, 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 6. Limitation of Liability of the Adviser. The Adviser and its Directors, officers and employees, 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 or their duties, or by reason of reckless disregard of its or their obligations and duties hereunder. ARTICLE 7. 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" or "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 words "Massachusetts Financial" or "MFS". It is understood that the Trustees, officers and shareholders of the Trust are or may be or become interested in the Adviser, as Directors, officers, employees, or otherwise and that Directors, officers and employees of the Adviser are or may become similarly interested in the Trust and that the Adviser may be or become interested in the Trust as a shareholder or otherwise. ARTICLE 8. Duration, Termination and Amendment 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, 1997 and each year thereafter but only so long as its continuance 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 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 of the Trust 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. ARTICLE 9: Certain Terms. The terms "vote of a majority of the outstanding voting securities," "assignment," "specifically approved at least annually," "affiliated person" and "interested persons," when used in this Agreement, shall have the respective meanings specified in the 1940 Act and the rules and regulations thereunder, subject, however, to such exemption as may be granted by the Securities and Exchange Commission under the 1940 Act. ARTICLE 10: Record Keeping. The Adviser will maintain records in a form acceptable to the Trust and in compliance with the rules and regulations of the Securities and Exchange Commission, including but not limited to records required to be maintained by Section 31(a) of the 1940 Act and the rules and regulations thereunder, which at all times will be the property of the Trust and will be available for inspection and use by the Trust. ARTICLE 11: Limitation of Liability of the Trustees and Shareholders. A copy of the Declaration of the Trust is on file with Secretary of State of The Commonwealth of Massachusetts. The parties hereto acknowledge 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 in accordance with its proportionate interest hereunder. If this instrument is executed by the Trust on behalf of one or more series of the Trust, the parties here acknowledge 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 one or more series of the Trust, the parties hereto also agree that the obligations of each series hereunder shall be several and not joint, in accordance with its proportionate interest hereunder, and the parties hereto agree not to proceed against any series for the obligations of another series. 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. MFS SERIES TRUST X on behalf of the MFS/FOREIGN & COLONIAL INTERNATIONAL GROWTH FUND By: A. KEITH BRODKIN A. Keith Brodkin Chairman and Trustee MASSACHUSETTS FINANCIAL SERVICES COMPANY By: JEFFREY L. SHAMES Jeffrey L. Shames President EX-99.5(D) 5 INVESTMENT ADVISORY AGREEMENT EXHIBIT NO. 99.5(d) INVESTMENT ADVISORY AGREEMENT INVESTMENT ADVISORY AGREEMENT, dated as of this 1st day of September, 1995, by and between MFS SERIES TRUST X, a Massachusetts business trust (the "Trust"), on behalf of MFS/FOREIGN & COLONIAL INTERNATIONAL GROWTH AND INCOME FUND (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 (the "1940 Act"); and 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 supervision of its funds. The Adviser shall act as Adviser to the Fund and as such shall furnish continuously an investment program and shall determine from time to time what securities shall be purchased, sold or exchanged and what portion of the assets of the Fund shall be held uninvested, subject always to the restrictions of the Trust's Amended and Restated Declaration of Trust, dated January 18, 1995 and By-Laws, each as amended from time to time (respectively, the "Declaration" and the "By-Laws"), to the provisions of the 1940 Act and the rules and regulations thereunder and to the Fund's then-current Prospectus and Statement of Additional Information. Should the Trustees at any time, however, make any 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, dealers or other entities 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, dealers or other entities and the placing of such orders, the Adviser is directed to seek for the Fund execution at the most favorable 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, dealer or other entity an amount of commission for effecting a securities transaction in excess of the amount of commission another broker, dealer or other entity 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 ( within the meaning of Section 28(e) of the Securities and Exchange Act of 1934, as amended) provided by such broker, dealer or other entity, viewed in terms of either that particular transaction or the Adviser's overall responsibilities with respect to the Fund and to other clients of the Adviser as to which the Adviser exercises investment discretion. The Adviser may from time to time enter into investment sub-advisory agreements with one or more investment advisers (a "Sub-Adviser") to the Fund to perform some or all of the services for which the Adviser is responsible pursuant to this Article 1 upon such terms and conditions as the Adviser may determine provided that such investment sub-advisory agreements have been approved by a majority of the Trustees of the Trust who are not interested persons of the Trust, the Adviser or the Sub-Adviser and by vote of a majority of the outstanding voting securities of the Fund. The Adviser may terminate the services of any Sub-Adviser at any time in its sole discretion, and shall at such time assume the responsibilities of such Sub-Adviser unless and until a successor Sub-Adviser is selected. Subject to the provisions of Article 6, the Adviser shall not be liable for any error of judgment or mistake of law by any Sub-Adviser or for any loss arising out of any investment made by any Sub-Adviser or for any act or omission in the execution and management of the Fund by any Sub-Adviser. ARTICLE 2. Allocation of Charges and Expenses. The Adviser shall furnish at its own expense investment advisory and administrative services, office space, equipment and clerical personnel necessary for servicing the investments of the Fund and maintaining the Trust's 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 Trust will pay all of its own expenses including, without limitation, compensation of Trustees of the Trust who are not affiliated persons of the Trust or the Adviser; governmental fees; interest charges; taxes; membership dues in the Investment Company Institute allocable to the Trust; fees and expenses of independent auditors, of legal counsel, and of any transfer agent, registrar or dividend disbursing agent of the Trust; expenses of repurchasing and redeeming shares and servicing shareholder accounts; expenses of preparing, printing and mailing stock certificates, prospectuses, periodic reports, notices, 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 the custodian for all services to the Trust, including safekeeping of funds and securities, keeping books and accounts and calculation of the net asset value of shares of the Fund; expenses of shareholder 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 to be provided, the Fund shall pay to the Adviser an investment advisory fee computed and paid monthly at a rate equal to 0.975% of the first $500 million of the Fund's average daily net assets on an annualized basis and 0.925% thereafter. If the Adviser shall serve for less than the whole of any period specified in this Article 3, the compensation payable to the Adviser with respect to the Fund will be prorated. ARTICLE 4. Special Services. Should the Fund have occasion to request the Adviser to perform services not herein contemplated or to request the Adviser to arrange for the services of others, the Adviser will act for the Fund upon request to the best of its ability, with compensation for the Adviser's services to be agreed upon with respect to each such occasion as it arises. ARTICLE 5. Covenants of the Adviser. The Adviser agrees that it will not deal with itself, or with the Trustees of the Trust or the Trust's distributor as principals in making purchases or sales of securities or other property for the account of the Fund, except as permitted by the 1940 Act, 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 6. Limitation of Liability of the Adviser. The Adviser and its Directors, officers and employees, 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 or their duties, or by reason of reckless disregard of its or their obligations and duties hereunder. ARTICLE 7. 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" or "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 words "Massachusetts Financial" or "MFS". It is understood that the Trustees, officers and shareholders of the Trust are or may be or become interested in the Adviser, as Directors, officers, employees, or otherwise and that Directors, officers and employees of the Adviser are or may become similarly interested in the Trust and that the Adviser may be or become interested in the Trust as a shareholder or otherwise. ARTICLE 8. Duration, Termination and Amendment 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, 1997 and each year thereafter but only so long as its continuance 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 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 of the Trust 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. ARTICLE 9: Certain Terms. The terms "vote of a majority of the outstanding voting securities," "assignment," "specifically approved at least annually," "affiliated person" and "interested persons," when used in this Agreement, shall have the respective meanings specified in the 1940 Act and the rules and regulations thereunder, subject, however, to such exemption as may be granted by the Securities and Exchange Commission under the 1940 Act. ARTICLE 10: Record Keeping. The Adviser will maintain records in a form acceptable to the Trust and in compliance with the rules and regulations of the Securities and Exchange Commission, including but not limited to records required to be maintained by Section 31(a) of the 1940 Act and the rules and regulations thereunder, which at all times will be the property of the Trust and will be available for inspection and use by the Trust. ARTICLE 11: Limitation of Liability of the Trustees and Shareholders. A copy of the Declaration of the Trust is on file with Secretary of State of The Commonwealth of Massachusetts. The parties hereto acknowledge 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 in accordance with its proportionate interest hereunder. If this instrument is executed by the Trust on behalf of one or more series of the Trust, the parties hereto acknowledge 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 one or more series of the Trust, the parties hereto also agree that the obligations of each series hereunder shall be several and not joint, in accordance with its proportionate interest hereunder, and the parties hereto agree not to proceed against any series for the obligations of another series. 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. MFS SERIES TRUST X on behalf of the MFS/FOREIGN & COLONIAL INTERNATIONAL GROWTH AND INCOME FUND By: A. KEITH BRODKIN A. Keith Brodkin Chairman and Trustee MASSACHUSETTS FINANCIAL SERVICES COMPANY By: JEFFREY L. SHAMES Jeffrey L. Shames President EX-99.5(E) 6 INVESTMENT ADVISORY AGREEMENT EXHIBIT NO. 99.5(e) INVESTMENT ADVISORY AGREEMENT INVESTMENT ADVISORY AGREEMENT, dated as of this 1st day of September, 1995, by and between MFS SERIES TRUST X, a Massachusetts business trust (the "Trust"), on behalf of MFS/FOREIGN & COLONIAL EMERGING MARKETS EQUITY FUND (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 (the "1940 Act"); and 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 supervision of its funds. The Adviser shall act as Adviser to the Fund and as such shall furnish continuously an investment program and shall determine from time to time what securities shall be purchased, sold or exchanged and what portion of the assets of the Fund shall be held uninvested, subject always to the restrictions of the Trust's Amended and Restated Declaration of Trust, dated January 18, 1995 and By-Laws, each as amended from time to time (respectively, the "Declaration" and the "By-Laws"), to the provisions of the 1940 Act and the rules and regulations thereunder and to the Fund's then-current Prospectus and Statement of Additional Information. Should the Trustees at any time, however, make any 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, dealers or other entities 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, dealers or other entities and the placing of such orders, the Adviser is directed to seek for the Fund execution at the most favorable 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, dealer or other entity an amount of commission for effecting a securities transaction in excess of the amount of commission another broker, dealer or other entity 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 ( within the meaning of Section 28(e) of the Securities and Exchange Act of 1934, as amended) provided by such broker, dealer or other entity, viewed in terms of either that particular transaction or the Adviser's overall responsibilities with respect to the Fund and to other clients of the Adviser as to which the Adviser exercises investment discretion. The Adviser may from time to time enter into investment sub-advisory agreements with one or more investment advisers (a "Sub-Adviser") to the Fund to perform some or all of the services for which the Adviser is responsible pursuant to this Article 1 upon such terms and conditions as the Adviser may determine provided that such investment sub-advisory agreements have been approved by a majority of the Trustees of the Trust who are not interested persons of the Trust, the Adviser or the Sub-Adviser and by vote of a majority of the outstanding voting securities of the Fund. The Adviser may terminate the services of any Sub-Adviser at any time in its sole discretion, and shall at such time assume the responsibilities of such Sub-Adviser unless and until a successor Sub-Adviser is selected. Subject to the provisions of Article 6, the Adviser shall not be liable for any error of judgment or mistake of law by any Sub-Adviser or for any loss arising out of any investment made by any Sub-Adviser or for any act or omission in the execution and management of the Fund by any Sub-Adviser. ARTICLE 2. Allocation of Charges and Expenses. The Adviser shall furnish at its own expense investment advisory and administrative services, office space, equipment and clerical personnel necessary for servicing the investments of the Fund and maintaining the Trust's 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 Trust will pay all of its own expenses including, without limitation, compensation of Trustees of the Trust who are not affiliated persons of the Trust or the Adviser; governmental fees; interest charges; taxes; membership dues in the Investment Company Institute allocable to the Trust; fees and expenses of independent auditors, of legal counsel, and of any transfer agent, registrar or dividend disbursing agent of the Trust; expenses of repurchasing and redeeming shares and servicing shareholder accounts; expenses of preparing, printing and mailing stock certificates, prospectuses, periodic reports, notices, 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 the custodian for all services to the Trust, including safekeeping of funds and securities, keeping books and accounts and calculation of the net asset value of shares of the Fund; expenses of shareholder 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 to be provided, the Fund shall pay to the Adviser an investment advisory fee computed and paid monthly at a rate equal to 1.25% of the Fund's average daily net assets on an annualized basis. If the Adviser shall serve for less than the whole of any period specified in this Article 3, the compensation payable to the Adviser with respect to the Fund will be prorated. ARTICLE 4. Special Services. Should the Fund have occasion to request the Adviser to perform services not herein contemplated or to request the Adviser to arrange for the services of others, the Adviser will act for the Fund upon request to the best of its ability, with compensation for the Adviser's services to be agreed upon with respect to each such occasion as it arises. ARTICLE 5. Covenants of the Adviser. The Adviser agrees that it will not deal with itself, or with the Trustees of the Trust or the Trust's distributor as principals in making purchases or sales of securities or other property for the account of the Fund, except as permitted by the 1940 Act, 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 6. Limitation of Liability of the Adviser. The Adviser and its Directors, officers and employees, 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 or their duties, or by reason of reckless disregard of its or their obligations and duties hereunder. ARTICLE 7. 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" or "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 words "Massachusetts Financial" or "MFS". It is understood that the Trustees, officers and shareholders of the Trust are or may be or become interested in the Adviser, as Directors, officers, employees, or otherwise and that Directors, officers and employees of the Adviser are or may become similarly interested in the Trust and that the Adviser may be or become interested in the Trust as a shareholder or otherwise. ARTICLE 8. Duration, Termination and Amendment 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, 1997 and each year thereafter but only so long as its continuance 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 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 of the Trust 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. ARTICLE 9: Certain Terms. The terms "vote of a majority of the outstanding voting securities," "assignment," "specifically approved at least annually," "affiliated person" and "interested persons," when used in this Agreement, shall have the respective meanings specified in the 1940 Act and the rules and regulations thereunder, subject, however, to such exemption as may be granted by the Securities and Exchange Commission under the 1940 Act. ARTICLE 10: Record Keeping. The Adviser will maintain records in a form acceptable to the Trust and in compliance with the rules and regulations of the Securities and Exchange Commission, including but not limited to records required to be maintained by Section 31(a) of the 1940 Act and the rules and regulations thereunder, which at all times will be the property of the Trust and will be available for inspection and use by the Trust. ARTICLE 11: Limitation of Liability of the Trustees and Shareholders. A copy of the Declaration of the Trust is on file with Secretary of State of The Commonwealth of Massachusetts. The parties hereto acknowledge 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 in accordance with its proportionate interest hereunder. If this instrument is executed by the Trust on behalf of one or more series of the Trust, the parties hereto acknowledge 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 one or more series of the Trust, the parties hereto also agree that the obligations of each series hereunder shall be several and not joint, in accordance with its proportionate interest hereunder, and the parties hereto agree not to proceed against any series for the obligations of another series. 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. MFS SERIES TRUST X on behalf of the MFS/FOREIGN & COLONIAL EMERGING MARKETS EQUITY FUND By: A. KEITH BRODKIN A. Keith Brodkin Chairman and Trustee MASSACHUSETTS FINANCIAL SERVICES COMPANY By: JEFFREY L. SHAMES Jeffrey L. Shames President EX-99.5(F) 7 SUB-ADVISORY AGREEMENT EXHIBIT NO. 99.5(f) SUB-ADVISORY AGREEMENT SUB-ADVISORY AGREEMENT, dated this 1st day of September, 1995, by and between MASSACHUSETTS FINANCIAL SERVICES COMPANY, a Delaware corporation (the "Adviser") and FOREIGN & COLONIAL MANAGEMENT LTD., a company incorporated under the laws of England and Wales (the "Sub-Adviser"). WITNESSETH: WHEREAS, the Adviser provides MFS/Foreign & Colonial International Growth Fund (the "Fund"), a series of MFS Series Trust X (the "Trust"), an open-end investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"), business services pursuant to the terms and conditions of an investment advisory agreement dated September 1, 1995 (the "Advisory Agreement") between the Adviser and the Trust, on behalf of the Fund; and WHEREAS, the Sub-Adviser is willing to provide services to the Adviser 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: 1. Duties of the Sub-Adviser. Subject to the supervision of the Trustees of the Trust and the Adviser, the Sub-Adviser will: (a) manage such Fund's assets on behalf of the Fund in accordance with the Fund's investment objective, policies and limitations as stated in the Fund's then current Prospectus (the "Prospectus") and Statement of Additional Information (the "Statement"), and the Trust's Amended and Restated Declaration of Trust dated January 18, 1995 and Amended and Restated By-Laws, each as from time to time in effect (respectively, the "Declaration" and the "By-Laws") and in compliance with the 1940 Act and the rules, regulations and orders thereunder; (b) make investment decisions for the Fund; (c) place purchase and sale orders for portfolio transactions for the Fund; (d) manage otherwise uninvested cash assets of the Fund; (e) as the agent of the Fund, give instructions (including trade tickets) to the custodian and any sub-custodian of the Fund as to deliveries of securities, transfers of currencies and payments of cash for the account of the Fund (the Sub-Adviser shall promptly notify the Adviser of such instructions); (f) employ professional portfolio managers to provide research services to the Fund; (g) attend periodic meetings of the Board of Trustees of the Trust and (h) obtain all the registrations, qualifications and consents, on behalf of the Fund, which are necessary for the Fund to purchase and sell assets in each jurisdiction (other than the United States) in which the Fund's assets are to be invested (the Sub-Adviser shall promptly provide the Adviser with copies of any such registrations, qualifications and consents). In providing these services, the Sub-Adviser will furnish continuously an investment program with respect to the Fund's assets. The Sub-Adviser shall be responsible for monitoring the Fund's compliance with the Prospectus, the Statement, the Declaration, the By-Laws and the 1940 Act and the rules, regulations and orders thereunder and in monitoring such compliance the Sub-Adviser shall do so in the functional currency of the Fund. The Adviser agrees to provide the Sub-Adviser with such assistance as may be reasonably requested by the Sub-Adviser in connection with its activities under this Agreement, including, without limitation, information concerning the Fund, its funds available, or to become available, for investment and generally as to the conditions of the Fund's affairs. From time to time the Adviser will notify the Sub-Adviser of the aggregate U.S. Dollar amount of the Fund's assets. The Adviser will have responsibility for exercising proxy, consent and other rights pertaining to the Fund's portfolio securities; provided, however, that the Sub-Adviser will, as requested, make recommendations to the Adviser as to the manner in which such proxy, consent and other rights shall be exercised. Should the Trustees of the Trust or the Adviser at any time make any determination as to investment policy and notify the Sub-Adviser thereof in writing, the Sub-Adviser shall be bound by such determination for the period, if any, specified in such notice or until notified that such determination has been revoked. Further, the Adviser or the Trustees of the Trust may at any time, upon written notice to the Sub-Adviser, suspend or restrict the right of the Sub-Adviser to determine what assets of the Fund shall be purchased or sold and what portion, if any, of the Fund's assets shall be held uninvested. It is understood that the Adviser undertakes to discuss with the Sub-Adviser any such determinations of investment policy and any such suspension or restrictions on the right of the Sub-Adviser to determine what assets of the Fund shall be purchased or sold or held uninvested, prior to the implementation thereof. 2. Certain Information to the Sub-Adviser. Copies of the Prospectus, the Statement, the Declaration and the By-Laws have been delivered to the Sub-Adviser. The Adviser agrees to notify the Sub-Adviser of each change in the investment policies of the Fund and to provide to the Sub-Adviser as promptly as practicable copies of all amendments and supplements to the Prospectus, the Statement, the Declaration and the By-Laws. In addition, the Adviser will promptly provide the Sub-Adviser with any procedures applicable to the Sub-Adviser adopted from time to time by the Trustees of the Trust and agrees to provide promptly to the Sub-Adviser copies of all amendments thereto. 3. Execution of Certain Documents. Subject to any other written instructions of the Adviser and the Trustees of the Trust, the Sub-Adviser is hereby appointed the Adviser's and the Trust's agent and attorney-in-fact to execute account documentation, agreements, contracts and other documents as the Sub-Adviser shall be requested by brokers, dealers, counterparties and other persons in connection with its management of the assets of the Fund. 4. Reports. The Sub-Adviser shall furnish to the Trustees of the Trust or the Adviser, or both, as may be appropriate, quarterly reports of its activities on behalf of the Fund, as required by applicable law or as otherwise requested from time to time by the Trustees of the Trust or the Adviser, and such additional information, reports, evaluations, analyses and opinions as the Trustees of the Trust or the Adviser, as appropriate, may request from time to time. 5. Brokerage. In connection with the selections of brokers, dealers or other entities and the placing of orders for the purchase and sale of portfolio investments for the Fund, the Sub-Adviser is directed to seek for the Fund execution at the most favorable price by responsible brokerage firms at reasonably competitive commission rates. In fulfilling this requirement, the Sub-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, dealer or other entity an amount of commission for effecting a securities transaction in excess of the amount of commission another broker, dealer or other entity would have charged for effecting that transaction, if the Sub-Adviser determined in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services (within the meaning of Section 28(e) of the Securities Exchange Act of 1934, as amended) provided by such broker, dealer or other entity, viewed in terms of either that particular transaction or the Sub-Adviser's overall responsibilities with respect to the Fund and to other clients of the Sub-Adviser as to which the Sub-Adviser exercises investment discretion. 6. Services to Other Companies or Accounts. On occasions when the Sub-Adviser deems the purchase or sale of a security to be in the best interest of the Fund as well as other clients, the Sub-Adviser, to the extent permitted by applicable laws and regulations, may, but shall be under no obligation to, aggregate the securities to be so purchased or sold in order to obtain the most favorable price or lower brokerage commissions and efficient execution. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction will be made by the Sub-Adviser in the manner it considers to be the most equitable. The Sub-Adviser agrees to allocate similarly opportunities to sell or otherwise dispose of securities among the Fund and other clients of the Sub-Adviser. 7. Other Sub-Advisers. The Sub-Adviser may from time to time enter into investment sub-advisory agreements with one or more investment advisers, (an "Other Sub-Adviser"), to the Fund to perform some or all of the services for which the Sub-Adviser is responsible pursuant to this Agreement upon such terms and conditions as the Adviser and the Sub-Adviser may determine; provided, however, that such investment sub-advisory agreements have been approved by a majority of the Trustees of the Trust who are not interested persons of the Trust, or the Sub-Adviser or the Other Sub-Adviser and by vote of a majority of the outstanding voting securities of the Fund; and, provided, further, that the Sub-Adviser shall own a majority of the voting securities of any Other Sub-Adviser. The Sub-Adviser may terminate the services of any Other Sub-Adviser at any time in its sole discretion, and shall at such time assume the responsibilities of such Other Sub-Adviser unless and until a successor Other Sub-Adviser is selected. The Sub-Adviser shall be liable for any error of judgment or mistake of law by any Other Sub-Adviser and for any act or omission in the execution and management of the Fund by any Other Sub-Adviser. 8. Compensation of the Sub-Adviser. For the services to be rendered by the Sub-Adviser under this Agreement, the Adviser shall pay to the Sub-Adviser compensation, computed and paid monthly in arrears in U.S. dollars, at a rate of 0.80% of the average daily net asset value of the Fund's assets on an annualized basis. If the Sub-Adviser shall serve for less than the whole of any month, the compensation payable to the Sub-Adviser with respect to the Fund will be prorated. The Sub-Adviser will pay its expenses incurred in performing its duties under this Agreement. Neither the Trust nor the Fund shall be liable to the Sub-Adviser for the compensation of the Sub-Adviser. For the purpose of determining fees payable to the Sub-Adviser, the value of the Fund's net assets shall be computed at the times and in the manner specified in the Prospectus and/or Statement. In the event that the Adviser reduces its management fee payable under the Advisory Agreement in order to comply with the expense limitations of a State securities commission or otherwise (but not a voluntary reduction), the Sub-Adviser agrees to reduce its fee payable under this Agreement by a pro rata amount. 9. Limitation of Liability of the Sub-Adviser. The Sub-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. The Trust, on behalf of the Fund, may enforce any obligations of the Sub-Adviser under this Agreement and may recover directly from the Sub-Adviser for any liability it may have to the Fund. 10. Activities of the Sub-Adviser. The services of the Sub-Adviser to the Fund are not deemed to be exclusive, the Sub-Adviser being free to render investment advisory and/or other services to others. The Sub-Adviser may permit other fund clients to use the words "Foreign & Colonial" in their names. The Adviser and the Trust agree that if the Sub-Adviser shall for any reason no longer serve as the Sub-Adviser to the Fund, the Fund will change its name so as to delete the words "Foreign & Colonial". It is understood that the Trustees, officers and shareholders of the Trust, the Fund or the Adviser are or may be or become interested in the Sub-Adviser or any person controlling, controlled by or under common control with the Sub-Adviser, as trustees, officers, employees or otherwise and that trustees, officers and employees of the Sub-Adviser or any person controlling, controlled by or under common control with the Sub-Adviser may become similarly interested in the Trust, the Fund or the Adviser and that the Sub-Adviser may be or become interested in the Fund as a shareholder or otherwise. 11. Covenants of the Sub-Adviser. The Sub-Adviser agrees that it (a) will not deal with itself, "affiliated persons" of the Sub-Adviser, the Trustees of the Trust or the Fund's distributor, as principals, agents, brokers or dealers in making purchases or sales of securities or other property for the account of the Fund, except as permitted by the 1940 Act and the rules, regulations and orders thereunder and subject to the prior written approval of the Adviser, (b) will not take a long or short position in the shares of the Fund except as permitted by the Declaration and (c) will comply with all other provisions of the Declaration and the By-Laws and the then-current Prospectus and Statement relative to the Sub-Adviser and its trustees, officers, employees and affiliates. 12. Representations, Warranties and Additional Agreements of the Sub-Adviser. The Sub-Adviser represents, warrants and agrees that: (a) It: (i) is registered as an investment adviser under the U.S. Investment Advisers Act of 1940 (the "Advisers Act"), is authorized to undertake investment business in the United Kingdom by virtue of its membership in the Investment Management Regulatory Organisation ("IMRO") and is registered under the laws of any jurisdiction in which the Sub-Adviser is required to be registered as an investment adviser in order to perform its obligations under this Agreement, and will continue to be so registered for so long as this Agreement remains in effect; (ii) is not prohibited by the 1940 Act or the Advisers Act from performing the services contemplated by this Agreement; (iii) has met, and will continue to meet for so long as this Agreement remains in effect, any other applicable Federal or State requirements, or the applicable requirements of any regulatory or industry self-regulatory agency, necessary to be met in order to perform the services contemplated by this Agreement; (iv) has the authority to enter into and perform the services contemplated by this Agreement; (v) will immediately notify the Adviser in writing of the occurrence of any event that would disqualify the Sub-Adviser from serving as an investment adviser of an investment company pursuant to Section 9(a) of the 1940 Act or otherwise; and (vi) will immediately notify the Adviser in writing of any change of control of the Sub-Adviser or any parent of the Sub-Adviser resulting in an "assignment" of this Agreement. (b) It will maintain, keep current and preserve on behalf of the Fund, in the manner and for the periods of time required or permitted by the 1940 Act and the rules, regulations and orders thereunder and the Advisers Act and the rules, regulations and orders thereunder, records relating to investment transactions made by the Sub-Adviser for the Fund as may be reasonably requested by the Adviser or the Fund from time to time. The Sub-Adviser agrees that such records are the property of the Fund, and will be surrendered to the Fund promptly upon request; provided however, that the Sub-Adviser may retain copies of such records for archival purposes as required by IMRO. (c) The Sub-Adviser has adopted a written code of ethics complying with the requirements of Rule 17j-1 under the 1940 Act and, if it has not already done so, will provide the Adviser and the Trust with a copy of such code of ethics, and upon any amendment to such code of ethics, promptly provide such amendment. At least annually the Sub-Adviser will provide the Trust and the Adviser with a certificate signed by the chief compliance officer (or the person performing such function) of the Sub-Adviser certifying, to the best of his or her knowledge, compliance with the code of ethics during the immediately preceding twelve (12) month period, including any material violations of or amendments to the code of ethics or the administration thereof. (d) It has provided the Adviser and the Trust with a copy of its Form ADV as most recently filed with the Securities and Exchange Commission (the "SEC") and will, promptly after filing any amendment to its Form ADV with the SEC, furnish a copy of such amendment to the Adviser and the Trust. 13. Duration and Termination 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, 1997 and each year thereafter but only so long as its continuance is "specifically approved at least annually" (a) by the vote of a majority of the Trustees of the Trust who are not "interested persons" of the Trust or of the Adviser or of the Sub-Adviser at a meeting specifically called for the purpose of voting on such approval, and (b) 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 of the Trust, 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, or by the Sub-Adviser on not more than ninety days nor less than sixty days written notice. This Agreement shall automatically terminate in the event of its "assignment" or in the event that the Advisory Agreement shall have terminated for any reason. 14. Amendments to this Agreement. This Agreement may be amended only if such amendment is approved by "vote of a majority of the outstanding voting securities" of the Fund, by the Adviser and by the Sub-Adviser. 15. Certain Definitions. The terms "specifically approved at least annually", "vote of a majority of the outstanding voting securities", "assignment", "control", "affiliated persons" and "interested person", when used in this Agreement, shall have the respective meanings specified, and shall be construed in a manner consistent with, the 1940 Act and the rules, regulations and orders thereunder, subject, however, to such exemptions as may be granted by the SEC under the 1940 Act. 16. Survival of Representations and Warranties; Duty to Update Information. All representations and warranties made by the Sub-Adviser pursuant to Section 12 hereof shall survive for the duration of this Agreement and the Sub-Adviser shall immediately notify, but in no event later than five (5) business days, the Adviser in writing upon becoming aware that any of the foregoing representations and warranties are no longer true. 17. Miscellaneous. This Agreement shall be governed by and construed in accordance with the internal laws of The Commonwealth of Massachusetts. All notices provided for by this Agreement shall be in writing and shall be deemed given when received, against appropriate receipt, by the Sub-Adviser's Secretary in the case of the Sub-Adviser, the Adviser's General Counsel in the case of the Adviser, and the Trust's Secretary in the case of the Fund, or such other person as a party shall designate by notice to the other parties. This Agreement constitutes the entire agreement among the parties hereto and supersedes any prior agreement among the parties relating to the subject matter hereof. The section headings of this Agreement are for convenience of reference and do not constitute a part hereof. 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. MASSACHUSETTS FINANCIAL SERVICES COMPANY By: JEFFREY L. SHAMES Jeffrey L. Shames President FOREIGN & COLONIAL MANAGEMENT LTD. By: JAMES OGILVY James Ogilvy By: JONATHAN LUBRAN Jonathan Lubran The foregoing is hereby agreed to: A copy of the Declaration of Trust of the Trust is on file with the Secretary of State of The Commonwealth of Massachusetts. The parties hereto acknowledge 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 in accordance with its proportionate interest hereunder. If this instrument is executed by the Trust on behalf of one or more series of the Trust, the parties hereto acknowledge 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 parties hereto also agree that the obligations of each series hereunder shall be several and not joint, in accordance with its proportionate interest hereunder, and the parties hereto agree not to proceed against any series for the obligations of another series. MFS SERIES TRUST X, on behalf of MFS/FOREIGN & COLONIAL INTERNATIONAL GROWTH FUND By: A. KEITH BRODKIN A. Keith Brodkin Chairman EX-99.5(G) 8 SUB-ADVISORY AGREEMENT EXHIBIT NO. 99.5(g) SUB-ADVISORY AGREEMENT SUB-ADVISORY AGREEMENT, dated this 1st day of September, 1995, by and between MASSACHUSETTS FINANCIAL SERVICES COMPANY, a Delaware corporation (the "Adviser") and FOREIGN & COLONIAL MANAGEMENT LTD., a company incorporated under the laws of England and Wales (the "Sub-Adviser"). WITNESSETH: WHEREAS, the Adviser provides MFS/Foreign & Colonial International Growth and Income Fund (the "Fund"), a series of MFS Series Trust X (the "Trust"), an open-end investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"), business services pursuant to the terms and conditions of an investment advisory agreement dated September 1, 1995 (the "Advisory Agreement") between the Adviser and the Trust, on behalf of the Fund; and WHEREAS, the Sub-Adviser is willing to provide services to the Adviser 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: 1. Duties of the Sub-Adviser. Subject to the supervision of the Trustees of the Trust and the Adviser, the Sub-Adviser will: (a) manage such portion of the Fund's assets as the Adviser and the Sub-Adviser shall from time to time mutually designate (the "Designated Assets") on behalf of the Fund in accordance with the Fund's investment objective, policies and limitations as stated in the Fund's then current Prospectus (the "Prospectus") and Statement of Additional Information (the "Statement"), and the Trust's Amended and Restated Declaration of Trust dated January 18, 1995 and Amended and Restated By-Laws, each as from time to time in effect (respectively, the"Declaration" and the "By-Laws") and in compliance with the 1940 Act and the rules, regulations and orders thereunder; (b) make investment decisions for the Fund with respect to the Designated Assets; (c) place purchase and sale orders for portfolio transactions for the Fund with respect to the Designated Assets; (d) manage otherwise uninvested cash assets of the Fund with respect to the Designated Assets ; (e) as the agent of the Fund, give instructions (including trade tickets) to the custodian and any sub-custodian of the Fund as to deliveries of securities, transfers of currencies and payments of cash for the account of the Fund with respect to the Designated Assets (the Sub-Adviser shall promptly notify the Adviser of such instructions); (f) employ professional portfolio managers to provide research services to the Fund; (g) attend periodic meetings of the Board of Trustees of the Trust and (h) obtain all the registrations, qualifications and consents, on behalf of the Fund, which are necessary for the Fund to purchase and sell assets in each jurisdiction (other than the United States) in which the Designated Assets are to be invested (the Sub-Adviser shall promptly provide the Adviser with copies of any such registrations, qualifications and consents). In providing these services, the Sub-Adviser will furnish continuously an investment program with respect to the Designated Assets. The Sub-Adviser shall be responsible for monitoring the Fund's compliance with the Prospectus, the Statement, the Declaration, the By-Laws and the 1940 Act and the rules, regulations and orders thereunder and in monitoring such compliance the Sub-Adviser shall do so in the functional currency of the Fund. The Sub-Adviser shall only be responsible for compliance with the above-mentioned restrictions in regards to the Designated Assets. The Adviser agrees to provide the Sub-Adviser with such assistance as may be reasonably requested by the Sub-Adviser in connection with its activities under this Agreement, including, without limitation, information concerning the Fund, its funds available, or to become available, for investment and generally as to the conditions of the Fund's affairs. From time to time the Adviser will notify the Sub-Adviser of the aggregate U.S. Dollar amount of the Designated Assets. The Adviser will have responsibility for exercising proxy, consent and other rights pertaining to the Fund's portfolio securities; provided, however, that the Sub-Adviser will, as requested, make recommendations to the Adviser as to the manner in which such proxy, consent and other rights shall be exercised. Should the Trustees of the Trust or the Adviser at any time make any determination as to investment policy and notify the Sub-Adviser thereof in writing, the Sub-Adviser shall be bound by such determination for the period, if any, specified in such notice or until notified that such determination has been revoked. Further, the Adviser or the Trustees of the Trust may at any time, upon written notice to the Sub-Adviser, suspend or restrict the right of the Sub-Adviser to determine what assets of the Fund shall be purchased or sold and what portion, if any, of the Fund's assets shall be held uninvested. It is understood that the Adviser undertakes to discuss with the Sub-Adviser any such determinations of investment policy and any such suspensions or restrictions on the right of the Sub-Adviser to determine what assets of the Fund shall be purchased or sold or held uninvested, prior to the implementation thereof. 2. Certain Information to the Sub-Adviser. Copies of the Prospectus, the Statement, the Declaration and the By-Laws have been delivered to the Sub-Adviser. The Adviser agrees to notify the Sub-Adviser of each change in the investment policies of the Fund and to provide to the Sub-Adviser as promptly as practicable copies of all amendments and supplements to the Prospectus, the Statement, the Declaration and the By-Laws. In addition, the Adviser will promptly provide the Sub-Adviser with any procedures applicable to the Sub-Adviser adopted from time to time by the Trustees of the Trust and agrees to provide promptly to the Sub-Adviser copies of all amendments thereto. 3. Execution of Certain Documents. Subject to any other written instructions of the Adviser and the Trustees of the Trust, the Sub-Adviser is hereby appointed the Adviser's and the Trust's agent and attorney-in-fact to execute account documentation, agreements, contracts and other documents as the Sub-Adviser shall be requested by brokers, dealers, counterparties and other persons in connection with its management of the Designated Assets. 4. Reports. The Sub-Adviser shall furnish to the Trustees of the Trust or the Adviser, or both, as may be appropriate, quarterly reports of its activities on behalf of the Fund, as required by applicable law or as otherwise requested from time to time by the Trustees of the Trust or the Adviser, and such additional information, reports, evaluations, analyses and opinions as the Trustees of the Trust or the Adviser, as appropriate, may request from time to time. 5. Brokerage. In connection with the selections of brokers, dealers or other entities and the placing of orders for the purchase and sale of portfolio investments for the Fund with respect to the Designated Assets, the Sub-Adviser is directed to seek for the Fund execution at the most favorable price by responsible brokerage firms at reasonably competitive commission rates. In fulfilling this requirement, the Sub-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, dealer or other entity an amount of commission for effecting a securities transaction in excess of the amount of commission another broker, dealer or other entity would have charged for effecting that transaction, if the Sub-Adviser determined in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services (within the meaning of Section 28(e) of the Securities Exchange Act of 1934, as amended) provided by such broker, dealer or other entity, viewed in terms of either that particular transaction or the Sub-Adviser's overall responsibilities with respect to the Fund and to other clients of the Sub-Adviser as to which the Sub-Adviser exercises investment discretion. 6. Services to Other Companies or Accounts. On occasions when the Sub-Adviser deems the purchase or sale of a security to be in the best interest of the Fund as well as other clients, the Sub-Adviser, to the extent permitted by applicable laws and regulations, may, but shall be under no obligation to, aggregate the securities to be so purchased or sold in order to obtain the most favorable price or lower brokerage commissions and efficient execution. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction will be made by the Sub-Adviser in the manner it considers to be the most equitable. The Sub-Adviser agrees to allocate similarly opportunities to sell or otherwise dispose of securities among the Fund and other clients of the Sub-Adviser. 7. Other Sub-Advisers. The Sub-Adviser may from time to time enter into investment sub-advisory agreements with one or more investment advisers (an "Other Sub-Adviser") to the Fund to perform some or all of the services for which the Sub-Adviser is responsible pursuant to this Agreement upon such terms and conditions as the Adviser and the Sub-Adviser may determine; provided, however, that such investment sub-advisory agreements have been approved by a majority of the Trustees of the Trust who are not interested persons of the Trust, or the Sub-Adviser or the Other Sub-Adviser and by vote of a majority of the outstanding voting securities of the Fund; and, provided, further, that the Sub-Adviser shall own a majority of the voting securities of any Other Sub-Adviser. The Sub-Adviser may terminate the services of any Other Sub-Adviser at any time in its sole discretion, and shall at such time assume the responsibilities of such Other Sub-Adviser unless and until a successor Other Sub-Adviser is selected. The Sub-Adviser shall be liable for any error of judgment or mistake of law by any Other Sub-Adviser and for any act or omission in the execution and management of the Fund by any Other Sub-Adviser. 8. Compensation of the Sub-Adviser. For the services to be rendered by the Sub-Adviser under this Agreement, the Adviser shall pay to the Sub-Adviser compensation, computed and paid monthly in arrears in U.S. dollars, at a rate of 0.75% of the average daily net asset value of the Designated Assets on an annualized basis. If the Sub-Adviser shall serve for less than the whole of any month, the compensation payable to the Sub-Adviser with respect to the Fund will be prorated. The Sub-Adviser will pay its expenses incurred in performing its duties under this Agreement. Neither the Trust nor the Fund shall be liable to the Sub-Adviser for the compensation of the Sub-Adviser. For the purpose of determining fees payable to the Sub-Adviser, the value of the Fund's net assets shall be computed at the times and in the manner specified in the Prospectus and/or Statement. In the event that the Adviser reduces its management fee payable under the Advisory Agreement in order to comply with the expense limitations of a State securities commission or otherwise (but not a voluntary reduction), the Sub-Adviser agrees to reduce its fee payable under this Agreement by a pro rata amount. 9. Limitation of Liability of the Sub-Adviser. The Sub-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. The Trust, on behalf of the Fund, may enforce any obligations of the Sub-Adviser under this Agreement and may recover directly from the Sub-Adviser for any liability it may have to the Fund. 10. Activities of the Sub-Adviser. The services of the Sub-Adviser to the Fund are not deemed to be exclusive, the Sub-Adviser being free to render investment advisory and/or other services to others. The Sub-Adviser may permit other fund clients to use the words "Foreign & Colonial" in their names. The Adviser and the Trust agree that if the Sub-Adviser shall for any reason no longer serve as the Sub-Adviser to the Fund, the Fund will change its name so as to delete the words "Foreign & Colonial". It is understood that the Trustees, officers and shareholders of the Trust, the Fund or the Adviser are or may be or become interested in the Sub-Adviser or any person controlling, controlled by or under common control with the Sub-Adviser, as trustees, officers, employees or otherwise and that trustees, officers and employees of the Sub-Adviser or any person controlling, controlled by or under common control with the Sub-Adviser may become similarly interested in the Trust, the Fund or the Adviser and that the Sub-Adviser may be or become interested in the Fund as a shareholder or otherwise. 11. Covenants of the Sub-Adviser. The Sub-Adviser agrees that it (a) will not deal with itself, "affiliated persons" of the Sub-Adviser, the Trustees of the Trust or the Fund's distributor, as principals, agents, brokers or dealers in making purchases or sales of securities or other property for the account of the Fund, except as permitted by the 1940 Act and the rules, regulations and orders thereunder and subject to the prior written approval of the Adviser, (b) will not take a long or short position in the shares of the Fund except as permitted by the Declaration and (c) will comply with all other provisions of the Declaration and the By-Laws and the then-current Prospectus and Statement relative to the Sub-Adviser and its trustees, officers, employees and affiliates. 12. Representations, Warranties and Additional Agreements of the Sub-Adviser. The Sub-Adviser represents, warrants and agrees that: (a) It: (i) is registered as an investment adviser under the U.S. Investment Advisers Act of 1940 (the "Advisers Act"), is authorized to undertake investment business in the United Kingdom by virtue of its membership in the Investment Management Regulatory Organisation ("IMRO") and is registered under the laws of any jurisdiction in which the Sub-Adviser is required to be registered as an investment adviser in order to perform its obligations under this Agreement, and will continue to be so registered for so long as this Agreement remains in effect; (ii) is not prohibited by the 1940 Act or the Advisers Act from performing the services contemplated by this Agreement; (iii) has met, and will continue to meet for so long as this Agreement remains in effect, any other applicable Federal or State requirements, or the applicable requirements of any regulatory or industry self-regulatory agency, necessary to be met in order to perform the services contemplated by this Agreement; (iv) has the authority to enter into and perform the services contemplated by this Agreement; (v) will immediately notify the Adviser in writing of the occurrence of any event that would disqualify the Sub-Adviser from serving as an investment adviser of an investment company pursuant to Section 9(a) of the 1940 Act or otherwise; and (vi) will immediately notify the Adviser in writing of any change of control of the Sub-Adviser or any parent of the Sub-Adviser resulting in an "assignment" of this Agreement. (b) It will maintain, keep current and preserve on behalf of the Fund, in the manner and for the periods of time required or permitted by the 1940 Act and the rules, regulations and orders thereunder and the Advisers Act and the rules, regulations and orders thereunder, records relating to investment transactions made by the Sub-Adviser for the Fund as may be reasonably requested by the Adviser or the Fund from time to time. The Sub-Adviser agrees that such records are the property of the Fund, and will be surrendered to the Fund promptly upon request; provided, however, that the Sub-Adviser may retain copies of such records for archival purposes as required by IMRO. (c) The Sub-Adviser has adopted a written code of ethics complying with the requirements of Rule 17j-1 under the 1940 Act and, if it has not already done so, will provide the Adviser and the Trust with a copy of such code of ethics, and upon any amendment to such code of ethics, promptly provide such amendment. At least annually the Sub-Adviser will provide the Trust and the Adviser with a certificate signed by the chief compliance officer (or the person performing such function) of the Sub-Adviser certifying, to the best of his or her knowledge, compliance with the code of ethics during the immediately preceding twelve (12) month period, including any material violations of or amendments to the code of ethics or the administration thereof. (d) It has provided the Adviser and the Trust with a copy of its Form ADV as most recently filed with the Securities and Exchange Commission (the "SEC") and will, promptly after filing any amendment to its Form ADV with the SEC, furnish a copy of such amendment to the Adviser and the Trust. 13. Duration and Termination 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, 1997 and each year thereafter but only so long as its continuance is "specifically approved at least annually" (a) by the vote of a majority of the Trustees of the Trust who are not "interested persons" of the Trust or of the Adviser or of the Sub-Adviser at a meeting specifically called for the purpose of voting on such approval, and (b) 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 of the Trust, 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, or by the Sub-Adviser on not more than ninety days nor less than sixty days written notice. This Agreement shall automatically terminate in the event of its "assignment" or in the event that the Advisory Agreement shall have terminated for any reason. 14. Amendments to this Agreement. This Agreement may be amended only if such amendment is approved by "vote of a majority of the outstanding voting securities" of the Fund, by the Adviser and by the Sub-Adviser. 15. Certain Definitions. The terms "specifically approved at least annually", "vote of a majority of the outstanding voting securities", "assignment", "control", "affiliated persons" and "interested person", when used in this Agreement, shall have the respective meanings specified, and shall be construed in a manner consistent with, the 1940 Act and the rules, regulations and orders thereunder, subject, however, to such exemptions as may be granted by the SEC under the 1940 Act. 16. Survival of Representations and Warranties; Duty to Update Information. All representations and warranties made by the Sub-Adviser pursuant to Section 12 hereof shall survive for the duration of this Agreement and the Sub-Adviser shall immediately notify, but in no event later than five (5) business days, the Adviser in writing upon becoming aware that any of the foregoing representations and warranties are no longer true. 17. Miscellaneous. This Agreement shall be governed by and construed in accordance with the internal laws of The Commonwealth of Massachusetts. All notices provided for by this Agreement shall be in writing and shall be deemed given when received, against appropriate receipt, by the Sub-Adviser's Secretary in the case of the Sub-Adviser, the Adviser's General Counsel in the case of the Adviser, and the Trust's Secretary in the case of the Fund, or such other person as a party shall designate by notice to the other parties. This Agreement constitutes the entire agreement among the parties hereto and supersedes any prior agreement among the parties relating to the subject matter hereof. The section headings of this Agreement are for convenience of reference and do not constitute a part hereof. 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. MASSACHUSETTS FINANCIAL SERVICES COMPANY By: JEFFREY L. SHAMES Jeffrey L. Shames President FOREIGN & COLONIAL MANAGEMENT LTD. By: JAMES OGILVY James Ogilvy By: JONATHAN LUBRAN Jonathan Lubran The foregoing is hereby agreed to: A copy of the Declaration of Trust of the Trust is on file with the Secretary of State of The Commonwealth of Massachusetts. The parties hereto acknowledge 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 in accordance with its proportionate interest hereunder. If this instrument is executed by the Trust on behalf of one or more series of the Trust, the parties hereto acknowledge 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 parties hereto also agree that the obligations of each series hereunder shall be several and not joint, in accordance with its proportionate interest hereunder, and the parties hereto agree not to proceed against any series for the obligations of another series. MFS SERIES TRUST X, on behalf of MFS/FOREIGN & COLONIAL INTERNATIONAL GROWTH AND INCOME FUND By: A. KEITH BRODKIN A. Keith Brodkin Chairman EX-99.5(H) 9 SUB-ADVISORY AGREEMENT EXHIBIT NO. 99.5(h) SUB-ADVISORY AGREEMENT SUB-ADVISORY AGREEMENT, dated this 1st day of September, 1995, by and between MASSACHUSETTS FINANCIAL SERVICES COMPANY, a Delaware corporation (the "Adviser") and FOREIGN & COLONIAL MANAGEMENT LTD., a company incorporated under the laws of England and Wales (the "Sub-Adviser"). WITNESSETH: WHEREAS, the Adviser provides MFS/Foreign & Colonial Emerging Markets Equity Fund (the "Fund"), a series of MFS Series Trust X (the "Trust"), an open-end investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"), business services pursuant to the terms and conditions of an investment advisory agreement dated September 1, 1995 (the "Advisory Agreement") between the Adviser and the Trust, on behalf of the Fund; and WHEREAS, the Sub-Adviser is willing to provide services to the Adviser 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: 1. Duties of the Sub-Adviser. Subject to the supervision of the Trustees of the Trust and the Adviser, the Sub-Adviser will: (a) manage such Fund's assets on behalf of the Fund in accordance with the Fund's investment objective, policies and limitations as stated in the Fund's then current Prospectus (the "Prospectus") and Statement of Additional Information (the "Statement"), and the Trust's Amended and Restated Declaration of Trust dated January 18, 1995 and Amended and Restated By-Laws, each as from time to time in effect (respectively, the "Declaration" and the "By-Laws") and in compliance with the 1940 Act and the rules, regulations and orders thereunder; (b) make investment decisions for the Fund; (c) place purchase and sale orders for portfolio transactions for the Fund; (d) manage otherwise uninvested cash assets of the Fund; (e) as the agent of the Fund, give instructions (including trade tickets) to the custodian and any sub-custodian of the Fund as to deliveries of securities, transfers of currencies and payments of cash for the account of the Fund (the Sub-Adviser shall promptly notify the Adviser of such instructions); (f) employ professional portfolio managers to provide research services to the Fund; (g) attend periodic meetings of the Board of Trustees of the Trust and (h) obtain all the registrations, qualifications and consents, on behalf of the Fund, which are necessary for the Fund to purchase and sell assets in each jurisdiction (other than the United States) in which the Fund's assets are to be invested (the Sub-Adviser shall promptly provide the Adviser with copies of any such registrations, qualifications and consents). In providing these services, the Sub-Adviser will furnish continuously an investment program with respect to the Fund's assets. The Sub-Adviser shall be responsible for monitoring the Fund's compliance with the Prospectus, the Statement, the Declaration, the By-Laws and the 1940 Act and the rules, regulations and orders thereunder and in monitoring such compliance the Sub-Adviser shall do so in the functional currency of the Fund. The Adviser agrees to provide the Sub-Adviser with such assistance as may be reasonably requested by the Sub-Adviser in connection with its activities under this Agreement, including, without limitation, information concerning the Fund, its funds available, or to become available, for investment and generally as to the conditions of the Fund's affairs. From time to time the Adviser will notify the Sub-Adviser of the aggregate U.S. Dollar amount of the Fund's assets. The Adviser will have responsibility for exercising proxy, consent and other rights pertaining to the Fund's portfolio securities; provided, however, that the Sub-Adviser will, as requested, make recommendations to the Adviser as to the manner in which such proxy, consent and other rights shall be exercised. Should the Trustees of the Trust or the Adviser at any time make any determination as to investment policy and notify the Sub-Adviser thereof in writing, the Sub-Adviser shall be bound by such determination for the period, if any, specified in such notice or until notified that such determination has been revoked. Further, the Adviser or the Trustees of the Trust may at any time, upon written notice to the Sub-Adviser, suspend or restrict the right of the Sub-Adviser to determine what assets of the Fund shall be purchased or sold and what portion, if any, of the Fund's assets shall be held uninvested. It is understood that the Adviser undertakes to discuss with the Sub-Adviser any such determinations of investment policy and any such suspension or restrictions on the right of the Sub-Adviser to determine what assets of the Fund shall be purchased or sold or held uninvested, prior to the implementation thereof. 2. Certain Information to the Sub-Adviser. Copies of the Prospectus, the Statement, the Declaration and the By-Laws have been delivered to the Sub-Adviser. The Adviser agrees to notify the Sub-Adviser of each change in the investment policies of the Fund and to provide to the Sub-Adviser as promptly as practicable copies of all amendments and supplements to the Prospectus, the Statement, the Declaration and the By-Laws. In addition, the Adviser will promptly provide the Sub-Adviser with any procedures applicable to the Sub-Adviser adopted from time to time by the Trustees of the Trust and agrees to provide promptly to the Sub-Adviser copies of all amendments thereto. 3. Execution of Certain Documents. Subject to any other written instructions of the Adviser and the Trustees of the Trust, the Sub-Adviser is hereby appointed the Adviser's and the Trust's agent and attorney-in-fact to execute account documentation, agreements, contracts and other documents as the Sub-Adviser shall be requested by brokers, dealers, counterparties and other persons in connection with its management of the assets of the Fund. 4. Reports. The Sub-Adviser shall furnish to the Trustees of the Trust or the Adviser, or both, as may be appropriate, quarterly reports of its activities on behalf of the Fund, as required by applicable law or as otherwise requested from time to time by the Trustees of the Trust or the Adviser, and such additional information, reports, evaluations, analyses and opinions as the Trustees of the Trust or the Adviser, as appropriate, may request from time to time. 5. Brokerage. In connection with the selections of brokers, dealers or other entities and the placing of orders for the purchase and sale of portfolio investments for the Fund, the Sub-Adviser is directed to seek for the Fund execution at the most favorable price by responsible brokerage firms at reasonably competitive commission rates. In fulfilling this requirement, the Sub-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, dealer or other entity an amount of commission for effecting a securities transaction in excess of the amount of commission another broker, dealer or other entity would have charged for effecting that transaction, if the Sub-Adviser determined in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services (within the meaning of Section 28(e) of the Securities Exchange Act of 1934, as amended) provided by such broker, dealer or other entity, viewed in terms of either that particular transaction or the Sub-Adviser's overall responsibilities with respect to the Fund and to other clients of the Sub-Adviser as to which the Sub-Adviser exercises investment discretion. 6. Services to Other Companies or Accounts. On occasions when the Sub-Adviser deems the purchase or sale of a security to be in the best interest of the Fund as well as other clients, the Sub-Adviser, to the extent permitted by applicable laws and regulations, may, but shall be under no obligation to, aggregate the securities to be so purchased or sold in order to obtain the most favorable price or lower brokerage commissions and efficient execution. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction will be made by the Sub-Adviser in the manner it considers to be the most equitable. The Sub-Adviser agrees to allocate similarly opportunities to sell or otherwise dispose of securities among the Fund and other clients of the Sub-Adviser. 7. Other Sub-Advisers. The Sub-Adviser may from time to time enter into investment sub-advisory agreements with one or more investment advisers, (an "Other Sub-Adviser"), to the Fund to perform some or all of the services for which the Sub-Adviser is responsible pursuant to this Agreement upon such terms and conditions as the Adviser and the Sub-Adviser may determine; provided, however, that such investment sub-advisory agreements have been approved by a majority of the Trustees of the Trust who are not interested persons of the Trust, or the Sub-Adviser or the Other Sub-Adviser and by vote of a majority of the outstanding voting securities of the Fund; and, provided, further, that the Sub-Adviser shall own a majority of the voting securities of any Other Sub-Adviser. The Sub-Adviser may terminate the services of any Other Sub-Adviser at any time in its sole discretion, and shall at such time assume the responsibilities of such Other Sub-Adviser unless and until a successor Other Sub-Adviser is selected. The Sub-Adviser shall be liable for any error of judgment or mistake of law by any Other Sub-Adviser and for any act or omission in the execution and management of the Fund by any Other Sub-Adviser. 8. Compensation of the Sub-Adviser. For the services to be rendered by the Sub-Adviser under this Agreement, the Adviser shall pay to the Sub-Adviser compensation, computed and paid monthly in arrears in U.S. dollars, at a rate of 1.00% of the average daily net asset value of the Fund's assets on an annualized basis. If the Sub-Adviser shall serve for less than the whole of any month, the compensation payable to the Sub-Adviser with respect to the Fund will be prorated. The Sub-Adviser will pay its expenses incurred in performing its duties under this Agreement. Neither the Trust nor the Fund shall be liable to the Sub-Adviser for the compensation of the Sub-Adviser. For the purpose of determining fees payable to the Sub-Adviser, the value of the Fund's net assets shall be computed at the times and in the manner specified in the Prospectus and/or Statement. In the event that the Adviser reduces its management fee payable under the Advisory Agreement in order to comply with the expense limitations of a State securities commission or otherwise (but not a voluntary reduction), the Sub-Adviser agrees to reduce its fee payable under this Agreement by a pro rata amount. 9. Limitation of Liability of the Sub-Adviser. The Sub-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. The Trust, on behalf of the Fund, may enforce any obligations of the Sub-Adviser under this Agreement and may recover directly from the Sub-Adviser for any liability it may have to the Fund. 10. Activities of the Sub-Adviser. The services of the Sub-Adviser to the Fund are not deemed to be exclusive, the Sub-Adviser being free to render investment advisory and/or other services to others. The Sub-Adviser may permit other fund clients to use the words "Foreign & Colonial" in their names. The Adviser and the Trust agree that if the Sub-Adviser shall for any reason no longer serve as the Sub-Adviser to the Fund, the Fund will change its name so as to delete the words "Foreign & Colonial". It is understood that the Trustees, officers and shareholders of the Trust, the Fund or the Adviser are or may be or become interested in the Sub-Adviser or any person controlling, controlled by or under common control with the Sub-Adviser, as trustees, officers, employees or otherwise and that trustees, officers and employees of the Sub-Adviser or any person controlling, controlled by or under common control with the Sub-Adviser may become similarly interested in the Trust, the Fund or the Adviser and that the Sub-Adviser may be or become interested in the Fund as a shareholder or otherwise. 11. Covenants of the Sub-Adviser. The Sub-Adviser agrees that it (a) will not deal with itself, "affiliated persons" of the Sub-Adviser, the Trustees of the Trust or the Fund's distributor, as principals, agents, brokers or dealers in making purchases or sales of securities or other property for the account of the Fund, except as permitted by the 1940 Act and the rules, regulations and orders thereunder and subject to the prior written approval of the Adviser, (b) will not take a long or short position in the shares of the Fund except as permitted by the Declaration and (c) will comply with all other provisions of the Declaration and the By-Laws and the then-current Prospectus and Statement relative to the Sub-Adviser and its trustees, officers, employees and affiliates. 12. Representations, Warranties and Additional Agreements of the Sub-Adviser. The Sub-Adviser represents, warrants and agrees that: (a) It: (i) is registered as an investment adviser under the U.S. Investment Advisers Act of 1940 (the "Advisers Act"), is authorized to undertake investment business in the United Kingdom by virtue of its membership in the Investment Management Regulatory Organisation ("IMRO") and is registered under the laws of any jurisdiction in which the Sub-Adviser is required to be registered as an investment adviser in order to perform its obligations under this Agreement, and will continue to be so registered for so long as this Agreement remains in effect; (ii) is not prohibited by the 1940 Act or the Advisers Act from performing the services contemplated by this Agreement; (iii) has met, and will continue to meet for so long as this Agreement remains in effect, any other applicable Federal or State requirements, or the applicable requirements of any regulatory or industry self-regulatory agency, necessary to be met in order to perform the services contemplated by this Agreement; (iv) has the authority to enter into and perform the services contemplated by this Agreement; (v) will immediately notify the Adviser in writing of the occurrence of any event that would disqualify the Sub-Adviser from serving as an investment adviser of an investment company pursuant to Section 9(a) of the 1940 Act or otherwise; and (vi) will immediately notify the Adviser in writing of any change of control of the Sub-Adviser or any parent of the Sub-Adviser resulting in an "assignment" of this Agreement. (b) It will maintain, keep current and preserve on behalf of the Fund, in the manner and for the periods of time required or permitted by the 1940 Act and the rules, regulations and orders thereunder and the Advisers Act and the rules, regulations and orders thereunder, records relating to investment transactions made by the Sub-Adviser for the Fund as may be reasonably requested by the Adviser or the Fund from time to time. The Sub-Adviser agrees that such records are the property of the Fund, and will be surrendered to the Fund promptly upon request; provided, however, that the Sub-Adviser may retain copies of such records for archival purposes as required by IMRO. (c) The Sub-Adviser has adopted a written code of ethics complying with the requirements of Rule 17j-1 under the 1940 Act and, if it has not already done so, will provide the Adviser and the Trust with a copy of such code of ethics, and upon any amendment to such code of ethics, promptly provide such amendment. At least annually the Sub-Adviser will provide the Trust and the Adviser with a certificate signed by the chief compliance officer (or the person performing such function) of the Sub-Adviser certifying, to the best of his or her knowledge, compliance with the code of ethics during the immediately preceding twelve (12) month period, including any material violations of or amendments to the code of ethics or the administration thereof. (d) It has provided the Adviser and the Trust with a copy of its Form ADV as most recently filed with the Securities and Exchange Commission (the "SEC") and will, promptly after filing any amendment to its Form ADV with the SEC, furnish a copy of such amendment to the Adviser and the Trust. 13. Duration and Termination 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, 1997 and each year thereafter but only so long as its continuance is "specifically approved at least annually" (a) by the vote of a majority of the Trustees of the Trust who are not "interested persons" of the Trust or of the Adviser or of the Sub-Adviser at a meeting specifically called for the purpose of voting on such approval, and (b) 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 of the Trust, 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, or by the Sub-Adviser on not more than ninety days nor less than sixty days written notice. This Agreement shall automatically terminate in the event of its "assignment" or in the event that the Advisory Agreement shall have terminated for any reason. 14. Amendments to this Agreement. This Agreement may be amended only if such amendment is approved by "vote of a majority of the outstanding voting securities" of the Fund, by the Adviser and by the Sub-Adviser. 15. Certain Definitions. The terms "specifically approved at least annually", "vote of a majority of the outstanding voting securities", "assignment", "control", "affiliated persons" and "interested person", when used in this Agreement, shall have the respective meanings specified, and shall be construed in a manner consistent with, the 1940 Act and the rules, regulations and orders thereunder, subject, however, to such exemptions as may be granted by the SEC under the 1940 Act. 16. Survival of Representations and Warranties; Duty to Update Information. All representations and warranties made by the Sub-Adviser pursuant to Section 12 hereof shall survive for the duration of this Agreement and the Sub-Adviser shall immediately notify, but in no event later than five (5) business days, the Adviser in writing upon becoming aware that any of the foregoing representations and warranties are no longer true. 17. Miscellaneous. This Agreement shall be governed by and construed in accordance with the internal laws of The Commonwealth of Massachusetts. All notices provided for by this Agreement shall be in writing and shall be deemed given when received, against appropriate receipt, by the Sub-Adviser's Secretary in the case of the Sub-Adviser, the Adviser's General Counsel in the case of the Adviser, and the Trust's Secretary in the case of the Fund, or such other person as a party shall designate by notice to the other parties. This Agreement constitutes the entire agreement among the parties hereto and supersedes any prior agreement among the parties relating to the subject matter hereof. The section headings of this Agreement are for convenience of reference and do not constitute a part hereof. 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. MASSACHUSETTS FINANCIAL SERVICES COMPANY By: JEFFREY L. SHAMES Jeffrey L. Shames President FOREIGN & COLONIAL MANAGEMENT LTD. By: JAMES OGILVY James Ogilvy By: JONATHAN LUBRAN Jonathan Lubran The foregoing is hereby agreed to: A copy of the Declaration of Trust of the Trust is on file with the Secretary of State of The Commonwealth of Massachusetts. The parties hereto acknowledge 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 in accordance with its proportionate interest hereunder. If this instrument is executed by the Trust on behalf of one or more series of the Trust, the parties hereto acknowledge 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 parties hereto also agree that the obligations of each series hereunder shall be several and not joint, in accordance with its proportionate interest hereunder, and the parties hereto agree not to proceed against any series for the obligations of another series. MFS SERIES TRUST X, on behalf of MFS/FOREIGN & COLONIAL EMERGING MARKETS EQUITY FUND By: A. KEITH BRODKIN A. Keith Brodkin Chairman EX-99.5(I) 10 SUB-ADVISORY AGREEMENT EXHIBIT NO. 99.5(i) SUB-ADVISORY AGREEMENT SUB-ADVISORY AGREEMENT, dated this 1st day of September, 1995, by and between FOREIGN & COLONIAL MANAGEMENT LTD., a company incorporated under the laws of England and Wales (the "Sub-Adviser"), and FOREIGN & COLONIAL EMERGING MARKETS LIMITED, a company incorporated under the laws of England and Wales ("FCEM"). WITNESSETH: WHEREAS, Massachusetts Financial Services Company (the "Adviser") provides MFS/Foreign & Colonial International Growth Fund (the "Fund"), a series of MFS Series Trust X (the "Trust"), an open-end investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"), business services pursuant to the terms and conditions of an investment advisory agreement dated September 1, 1995 (the "Advisory Agreement") between the Adviser and the Trust, on behalf of the Fund; WHEREAS, the Sub-Adviser provides services to the Adviser pursuant to the terms and conditions of a sub-advisory agreement dated September 1, 1995 (the "FCM Sub-Advisory Agreement") between the Adviser and the Sub-Adviser; and WHEREAS, FCEM is willing to provide services to the Sub-Adviser 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: 1. Duties of FCEM. Subject to the supervision of the Trustees of the Trust, the Adviser and the Sub-Adviser, FCEM will: (a) manage such portion of the Fund's assets as the Adviser, Sub-Adviser and FCEM shall from time to time mutually designate (the "Designated Assets") on behalf of the Fund in accordance with the Fund's investment objective, policies and limitations as stated in the Fund's then current Prospectus (the "Prospectus") and Statement of Additional Information (the "Statement"), and the Trust's Amended and Restated Declaration of Trust dated January 18, 1995 and Amended and Restated By-Laws, each as from time to time in effect (respectively, the"Declaration" and the "By-Laws") and in compliance with the 1940 Act and the rules, regulations and orders thereunder; (b) make investment decisions for the Fund with respect to the Designated Assets; (c) place purchase and sale orders for portfolio transactions for the Fund with respect to the Designated Assets; (d) manage otherwise uninvested cash assets of the Fund with respect to the Designated Assets ; (e) as the agent of the Fund, give instructions (including trade tickets) to the custodian and any sub-custodian of the Fund as to deliveries of securities, transfers of currencies and payments of cash for the account of the Fund with respect to the Designated Assets (FCEM shall promptly notify the Adviser and the Sub-Adviser of such instructions); (f) employ professional portfolio managers to provide research services to the Fund; (g) attend periodic meetings of the Board of Trustees of the Trust and (h) obtain all the registrations, qualifications and consents, on behalf of the Fund, which are necessary for the Fund to purchase and sell assets in each jurisdiction (other than the United States) in which the Designated Assets are to be invested (FCEM shall promptly provide the Adviser and the Sub-Adviser with copies of any such registrations, qualifications and consents). In providing these services, FCEM will furnish continuously an investment program with respect to the Designated Assets. FCEM shall be responsible for monitoring the Fund's compliance with the Prospectus, the Statement, the Declaration, the By-Laws and the 1940 Act and the rules, regulations and orders thereunder and in monitoring such compliance FCEM shall do so in the functional currency of the Fund. FCEM shall only be responsible for compliance with the above-mentioned restrictions in regards to the Designated Assets. The Sub-Adviser agrees to provide FCEM with such assistance as may be reasonably requested by FCEM in connection with its activities under this Agreement, including, without limitation, information concerning the Fund, its funds available, or to become available, for investment and generally as to the conditions of the Fund's affairs. Should the Trustees of the Trust or the Adviser and the Sub-Adviser at any time make any determination as to investment policy and notify FCEM thereof in writing, FCEM shall be bound by such determination for the period, if any, specified in such notice or until notified that such determination has been revoked. Further, the Adviser and the Sub-Adviser or the Trustees of the Trust may at any time, upon written notice to FCEM, suspend or restrict the right of FCEM to determine what assets of the Fund shall be purchased or sold and what portion, if any, of the Fund's assets shall be held uninvested. It is understood that the Adviser and the Sub-Adviser undertake to discuss with FCEM any such determinations of investment policy and any such suspensions or restrictions on the right of FCEM to determine what assets of the Fund shall be purchased or sold or held uninvested, prior to the implementation thereof. 2. Execution of Certain Documents. Subject to any other written instructions of the Adviser, the Sub-Adviser and the Trustees of the Trust, FCEM is hereby appointed the Sub-Adviser's and the Trust's agent and attorney-in-fact to execute account documentation, agreements, contracts and other documents as FCEM shall be requested by brokers, dealers, counterparties and other persons in connection with its management of the Designated Assets. 3. Brokerage. In connection with the selections of brokers, dealers or other entities and the placing of orders for the purchase and sale of portfolio investments for the Fund with respect to the Designated Assets, FCEM is directed to seek for the Fund execution at the most favorable price by responsible brokerage firms at reasonably competitive commission rates. In fulfilling this requirement, FCEM 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, dealer or other entity an amount of commission for effecting a securities transaction in excess of the amount of commission another broker, dealer or other entity would have charged for effecting that transaction, if FCEM determined in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services (within the meaning of Section 28(e) of the Securities Exchange Act of 1934, as amended) provided by such broker, dealer or other entity, viewed in terms of either that particular transaction or FCEM's overall responsibilities with respect to the Fund and to other clients of FCEM as to which FCEM exercises investment discretion. 4. Reports. FCEM shall furnish to the Trustees of the Trust, the Adviser or the Sub-Adviser, or all of them, as may be appropriate, quarterly reports of its activities on behalf of the Fund, as required by applicable law or as otherwise requested from time to time by the Trustees of the Trust, the Adviser or the Sub-Adviser, and such additional information, reports, evaluations, analyses and opinions as the Trustees of the Trust, the Adviser or the Sub-Adviser, as appropriate, may request from time to time. 5. Services to Other Companies or Accounts. On occasions when FCEM deems the purchase or sale of a security to be in the best interest of the Fund as well as other clients, FCEM, to the extent permitted by applicable laws and regulations, may, but shall be under no obligation to, aggregate the securities to be so purchased or sold in order to obtain the most favorable price or lower brokerage commissions and efficient execution. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction will be made by FCEM in the manner it considers to be the most equitable. FCEM agrees to allocate similarly opportunities to sell or otherwise dispose of securities among the Fund and other clients of FCEM. 6. Compensation of FCEM. For the services to be rendered by FCEM under this Agreement, the Sub-Adviser shall pay to FCEM compensation, computed and paid monthly in arrears, at a rate of 1.00% of the average daily net asset value of the Designated Assets on an annualized basis. If FCEM shall serve for less than the whole of any month, the compensation payable to FCEM with respect to the Fund will be prorated. FCEM will pay its expenses incurred in performing its duties under this Agreement. Neither the Trust, the Adviser nor the Fund shall be liable to FCEM for the compensation of FCEM. For the purpose of determining fees payable to FCEM, the value of the Fund's net assets shall be computed at the times and in the manner specified in the Prospectus and/or Statement. In the event that the Sub-Adviser reduces its management fee payable under the FCM Sub-Advisory Agreement in order to comply with the expense limitations of a State securities commission or otherwise (but not a voluntary reduction), FCEM agrees to reduce its fee payable under this Agreement by a pro rata amount. 7. Limitation of Liability of FCEM. FCEM 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. The Trust, on behalf of the Fund, may enforce any obligations of FCEM under this Agreement and may recover directly from FCEM for any liability it may have to the Fund. 8. Activities of FCEM. The services of FCEM to the Fund are not deemed to be exclusive, FCEM being free to render investment advisory and/or other services to others. It is understood that the Trustees, officers and shareholders of the Trust, the Fund, the Adviser or the Sub-Adviser are or may become interested in FCEM or any person controlling, controlled by or under common control with FCEM, as trustees, officers, employees or otherwise and that trustees, officers and employees of FCEM or any person controlling, controlled by or under common control with FCEM may become similarly interested in the Trust, the Fund, the Adviser or the Sub-Adviser and that FCEM may be or become interested in the Fund as a shareholder or otherwise. 9. Covenants of FCEM. FCEM agrees that it (a) will not deal with itself, "affiliated persons" of FCEM, the Sub-Adviser, the Trustees of the Trust or the Fund's distributor, as principals, agents, brokers or dealers in making purchases or sales of securities or other property for the account of the Fund, except as permitted by the 1940 Act and the rules, regulations and orders thereunder and subject to the prior written approval of the Adviser, (b) will not take a long or short position in the shares of the Fund except as permitted by the Declaration and (c) will comply with all other provisions of the Declaration and the By-Laws and the then-current Prospectus and Statement relative to FCEM and its trustees, officers, employees and affiliates. 10. Representations, Warranties and Additional Agreements of FCEM. FCEM represents, warrants and agrees that: (a) It: (i) is registered as an investment adviser under the U.S. Investment Advisers Act of 1940 (the "Advisers Act"), is authorized to undertake investment business in the United Kingdom by virtue of its membership in the Investment Management Regulatory Organisation ("IMRO") and is registered under the laws of any jurisdiction in which FCEM is required to be registered as an investment adviser in order to perform its obligations under this Agreement, and will continue to be so registered for so long as this Agreement remains in effect; (ii) is not prohibited by the 1940 Act or the Advisers Act from performing the services contemplated by this Agreement; (iii) has met, and will continue to meet for so long as this Agreement remains in effect, any other applicable Federal or State requirements, or the applicable requirements of any regulatory or industry self-regulatory agency, necessary to be met in order to perform the services contemplated by this Agreement; (iv) has the authority to enter into and perform the services contemplated by this Agreement; (v) will immediately notify the Adviser and the Sub-Adviser in writing of the occurrence of any event that would disqualify FCEM from serving as an investment adviser of an investment company pursuant to Section 9(a) of the 1940 Act or otherwise; and (vi) will immediately notify the Adviser and the Sub-Adviser in writing of any change of control of FCEM or any parent of FCEM resulting in an "assignment" of this Agreement. (b) It will maintain, keep current and preserve on behalf of the Fund, in the manner and for the periods of time required or permitted by the 1940 Act and the rules, regulations and orders thereunder and the Advisers Act and the rules, regulations and orders thereunder, records relating to investment transactions made by FCEM for the Fund as may be reasonably requested by the Adviser or the Fund from time to time. FCEM agrees that such records are the property of the Fund, and will be surrendered to the Fund promptly upon request; provided, however, that FCEM may retain copies of such records for archival purposes as required by IMRO. (c) FCEM has adopted a written code of ethics complying with the requirements of Rule 17j-1 under the 1940 Act and, if it has not already done so, will provide the Adviser, the Sub-Adviser and the Trust with a copy of such code of ethics, and upon any amendment to such code of ethics, promptly provide such amendment. At least annually FCEM will provide the Trust, the Sub-Adviser and the Adviser with a certificate signed by the chief compliance officer (or the person performing such function) of FCEM certifying, to the best of his or her knowledge, compliance with the code of ethics during the immediately preceding twelve (12) month period, including any material violations of or amendments to the code of ethics or the administration thereof. (d) It has provided the Adviser, the Sub-Adviser and the Trust with a copy of its Form ADV as most recently filed with the Securities and Exchange Commission (the "SEC") and will, promptly after filing any amendment to its Form ADV with the SEC, furnish a copy of such amendment to the Adviser, the Sub-Adviser and the Trust. 11. Duration and Termination 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, 1997 and each year thereafter but only so long as its continuance is "specifically approved at least annually" (a) by the vote of a majority of the Trustees of the Trust who are not "interested persons" of the Trust, the Adviser, the Sub-Adviser or FCEM at a meeting specifically called for the purpose of voting on such approval, and (b) 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 of the Trust, by "vote of a majority of the outstanding voting securities" of the Fund or by the Adviser or the Sub-Adviser, on not more than sixty days nor less than thirty days written notice, or by FCEM on not more than ninety days nor less than sixty days written notice. This Agreement shall automatically terminate in the event of its "assignment" or in the event that the FCM Sub-Advisory Agreement or the Advisory Agreement shall have terminated for any reason. 12. Amendments to this Agreement. This Agreement may be amended only if such amendment is approved by "vote of a majority of the outstanding voting securities" of the Fund, by the Adviser, by the Sub-Adviser and by FCEM. 13. Certain Definitions. The terms "specifically approved at least annually", "vote of a majority of the outstanding voting securities", "assignment", "control", "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 1940 Act and the rules, regulations and orders thereunder, subject, however, to such exemptions as may be granted by the SEC under the 1940 Act. 14. Survival of Representations and Warranties; Duty to Update Information. All representations and warranties made by FCEM pursuant to Section 9 hereof shall survive for the duration of this Agreement and FCEM shall immediately notify, but in no event later than five (5) business days, the Adviser and the Sub-Adviser in writing upon becoming aware that any of the foregoing representations and warranties are no longer true. 15. Miscellaneous. This Agreement shall be governed by and construed in accordance with the internal laws of The Commonwealth of Massachusetts. All notices provided for by this Agreement shall be in writing and shall be deemed given when received, against appropriate receipt, by the Sub-Adviser's Secretary in the case of the Sub-Adviser, by the Adviser's General Counsel in the case of the Adviser, by FCEM's Secretary in the case of FCEM and by the Trust's Secretary in the case of the Fund, or such other person as a party shall designate by notice to the other parties. This Agreement constitutes the entire agreement among the parties hereto and supersedes any prior agreement among the parties relating to the subject matter hereof. The section headings of this Agreement are for convenience of reference and do not constitute a part hereof. 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. FOREIGN & COLONIAL MANAGEMENT LTD. By: JAMES OGILVY James Ogilvy By: JONATHAN LUBRAN Jonathan Lubran FOREIGN & COLONIAL EMERGING MARKETS LIMITED By: AUDLEY TWISTON DAVIES Audley Twiston Davies By: KAREN CLARKE Karen Clarke The foregoing is hereby agreed to: A copy of the Declaration of Trust of the Trust is on file with the Secretary of State of The Commonwealth of Massachusetts. The parties hereto acknowledge 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 in accordance with its proportionate interest hereunder. If this instrument is executed by the Trust on behalf of one or more series of the Trust, the parties hereto acknowledge 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 parties hereto also agree that the obligations of each series hereunder shall be several and not joint, in accordance with its proportionate interest hereunder, and the parties hereto agree not to proceed against any series for the obligations of another series. MFS SERIES TRUST X on behalf of MFS/FOREIGN & COLONIAL INTERNATIONAL GROWTH FUND By: A. KEITH BRODKIN A. Keith Brodkin Chairman MASSACHUSETTS FINANCIAL SERVICES COMPANY By: JEFFREY L. SHAMES Jeffrey L. Shames President EX-99.5(J) 11 SUB-ADVISORY AGREEMENT EXHIBIT NO. 99.5(j) SUB-ADVISORY AGREEMENT SUB-ADVISORY AGREEMENT, dated this 1st day of September, 1995, by and between FOREIGN & COLONIAL MANAGEMENT LTD., a company incorporated under the laws of England and Wales (the "Sub-Adviser"), and FOREIGN & COLONIAL EMERGING MARKETS LIMITED, a company incorporated under the laws of England and Wales ("FCEM"). WITNESSETH: WHEREAS, Massachusetts Financial Services Company (the "Adviser") provides MFS/Foreign & Colonial International Growth and Income Fund (the "Fund"), a series of MFS Series Trust X (the "Trust"), an open-end investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"), business services pursuant to the terms and conditions of an investment advisory agreement dated September 1, 1995 (the "Advisory Agreement") between the Adviser and the Trust, on behalf of the Fund; WHEREAS, the Sub-Adviser provides services to the Adviser pursuant to the terms and conditions of a sub-advisory agreement dated September 1, 1995 (the "FCM Sub-Advisory Agreement") between the Adviser and the Sub-Adviser; and WHEREAS, FCEM is willing to provide services to the Sub-Adviser 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: 1. Duties of FCEM. Subject to the supervision of the Trustees of the Trust, the Adviser and the Sub-Adviser, FCEM will: (a) manage such portion of the Fund's assets as the Adviser, Sub-Adviser and FCEM shall from time to time mutually designate (the "Designated Assets") on behalf of the Fund in accordance with the Fund's investment objective, policies and limitations as stated in the Fund's then current Prospectus (the "Prospectus") and Statement of Additional Information (the "Statement"), and the Trust's Amended and Restated Declaration of Trust dated January 18, 1995 and Amended and Restated By-Laws, each as from time to time in effect (respectively, the "Declaration" and the "By-Laws") and in compliance with the 1940 Act and the rules, regulations and orders thereunder; (b) make investment decisions for the Fund with respect to the Designated Assets; (c) place purchase and sale orders for portfolio transactions for the Fund with respect to the Designated Assets; (d) manage otherwise uninvested cash assets of the Fund with respect to the Designated Assets; (e) as the agent of the Fund, give instructions (including trade tickets) to the custodian and any sub-custodian of the Fund as to deliveries of securities, transfers of currencies and payments of cash for the account of the Fund with respect to the Designated Assets (FCEM shall promptly notify the Adviser and the Sub-Adviser of such instructions); (f) employ professional portfolio managers to provide research services to the Fund; (g) attend periodic meetings of the Board of Trustees of the Trust and (h) obtain all the registrations, qualifications and consents, on behalf of the Fund, which are necessary for the Fund to purchase and sell assets in each jurisdiction (other than the United States) in which the Designated Assets are to be invested (FCEM shall promptly provide the Adviser and the Sub-Adviser with copies of any such registrations, qualifications and consents). In providing these services, FCEM will furnish continuously an investment program with respect to the Designated Assets. FCEM shall be responsible for monitoring the Fund's compliance with the Prospectus, the Statement, the Declaration, the By-Laws and the 1940 Act and the rules, regulations and orders thereunder and in monitoring such compliance FCEM shall do so in the functional currency of the Fund. FCEM shall only be responsible for compliance with the above-mentioned restrictions in regards to the Designated Assets. The Sub-Adviser agrees to provide FCEM with such assistance as may be reasonably requested by FCEM in connection with its activities under this Agreement, including, without limitation, information concerning the Fund, its funds available, or to become available, for investment and generally as to the conditions of the Fund's affairs. Should the Trustees of the Trust or the Adviser and the Sub-Adviser at any time make any determination as to investment policy and notify FCEM thereof in writing, FCEM shall be bound by such determination for the period, if any, specified in such notice or until notified that such determination has been revoked. Further, the Adviser and the Sub-Adviser or the Trustees of the Trust may at any time, upon written notice to FCEM, suspend or restrict the right of FCEM to determine what assets of the Fund shall be purchased or sold and what portion, if any, of the Fund's assets shall be held uninvested. It is understood that the Adviser and the Sub-Adviser undertake to discuss with FCEM any such determinations of investment policy and any such suspensions or restrictions on the right of FCEM to determine what assets of the Fund shall be purchased or sold or held uninvested, prior to the implementation thereof. 2. Execution of Certain Documents. Subject to any other written instructions of the Adviser, the Sub-Adviser and the Trustees of the Trust, FCEM is hereby appointed the Sub-Adviser's and the Trust's agent and attorney-in-fact to execute account documentation, agreements, contracts and other documents as FCEM shall be requested by brokers, dealers, counterparties and other persons in connection with its management of the Designated Assets. 3. Brokerage. In connection with the selections of brokers, dealers or other entities and the placing of orders for the purchase and sale of portfolio investments for the Fund with respect to the Designated Assets, FCEM is directed to seek for the Fund execution at the most favorable price by responsible brokerage firms at reasonably competitive commission rates. In fulfilling this requirement, FCEM 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, dealer or other entity an amount of commission for effecting a securities transaction in excess of the amount of commission another broker, dealer or other entity would have charged for effecting that transaction, if FCEM determined in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services (within the meaning of Section 28(e) of the Securities Exchange Act of 1934, as amended) provided by such broker, dealer or other entity, viewed in terms of either that particular transaction or FCEM's overall responsibilities with respect to the Fund and to other clients of FCEM as to which FCEM exercises investment discretion. 4. Reports. FCEM shall furnish to the Trustees of the Trust, the Adviser or the Sub-Adviser, or all of them, as may be appropriate, quarterly reports of its activities on behalf of the Fund, as required by applicable law or as otherwise requested from time to time by the Trustees of the Trust, the Adviser or the Sub-Adviser, and such additional information, reports, evaluations, analyses and opinions as the Trustees of the Trust, the Adviser or the Sub-Adviser, as appropriate, may request from time to time. 5. Services to Other Companies or Accounts. On occasions when FCEM deems the purchase or sale of a security to be in the best interest of the Fund as well as other clients, FCEM, to the extent permitted by applicable laws and regulations, may, but shall be under no obligation to, aggregate the securities to be so purchased or sold in order to obtain the most favorable price or lower brokerage commissions and efficient execution. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction will be made by FCEM in the manner it considers to be the most equitable. FCEM agrees to allocate similarly opportunities to sell or otherwise dispose of securities among the Fund and other clients of FCEM. 6. Compensation of FCEM. For the services to be rendered by FCEM under this Agreement, the Sub-Adviser shall pay to FCEM compensation, computed and paid monthly in arrears, at a rate of 1.00% of the average daily net asset value of the Designated Assets on an annualized basis. If FCEM shall serve for less than the whole of any month, the compensation payable to FCEM with respect to the Fund will be prorated. FCEM will pay its expenses incurred in performing its duties under this Agreement. Neither the Trust, the Adviser nor the Fund shall be liable to FCEM for the compensation of FCEM. For the purpose of determining fees payable to FCEM, the value of the Fund's net assets shall be computed at the times and in the manner specified in the Prospectus and/or Statement. In the event that the Sub-Adviser reduces its management fee payable under the FCM Sub-Advisory Agreement in order to comply with the expense limitations of a State securities commission or otherwise (but not a voluntary reduction), FCEM agrees to reduce its fee payable under this Agreement by a pro rata amount. 7. Limitation of Liability of FCEM. FCEM 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. The Trust, on behalf of the Fund, may enforce any obligations of FCEM under this Agreement and may recover directly from FCEM for any liability it may have to the Fund. 8. Activities of FCEM. The services of FCEM to the Fund are not deemed to be exclusive, FCEM being free to render investment advisory and/or other services to others. It is understood that the Trustees, officers and shareholders of the Trust, the Fund, the Adviser or the Sub-Adviser are or may become interested in FCEM or any person controlling, controlled by or under common control with FCEM, as trustees, officers, employees or otherwise and that trustees, officers and employees of FCEM or any person controlling, controlled by or under common control with FCEM may become similarly interested in the Trust, the Fund, the Adviser or the Sub-Adviser and that FCEM may be or become interested in the Fund as a shareholder or otherwise. 9. Covenants of FCEM. FCEM agrees that it (a) will not deal with itself, "affiliated persons" of FCEM, the Sub-Adviser, the Trustees of the Trust or the Fund's distributor, as principals, agents, brokers or dealers in making purchases or sales of securities or other property for the account of the Fund, except as permitted by the 1940 Act and the rules, regulations and orders thereunder and subject to the prior written approval of the Adviser, (b) will not take a long or short position in the shares of the Fund except as permitted by the Declaration and (c) will comply with all other provisions of the Declaration and the By-Laws and the then-current Prospectus and Statement relative to FCEM and its trustees, officers, employees and affiliates. 10. Representations, Warranties and Additional Agreements of FCEM. FCEM represents, warrants and agrees that: (a) It: (i) is registered as an investment adviser under the U.S. Investment Advisers Act of 1940 (the "Advisers Act"), is authorized to undertake investment business in the United Kingdom by virtue of its membership in the Investment Management Regulatory Organisation ("IMRO") and is registered under the laws of any jurisdiction in which FCEM is required to be registered as an investment adviser in order to perform its obligations under this Agreement, and will continue to be so registered for so long as this Agreement remains in effect; (ii) is not prohibited by the 1940 Act or the Advisers Act from performing the services contemplated by this Agreement; (iii) has met, and will continue to meet for so long as this Agreement remains in effect, any other applicable Federal or State requirements, or the applicable requirements of any regulatory or industry self-regulatory agency, necessary to be met in order to perform the services contemplated by this Agreement; (iv) has the authority to enter into and perform the services contemplated by this Agreement; (v) will immediately notify the Adviser and the Sub-Adviser in writing of the occurrence of any event that would disqualify FCEM from serving as an investment adviser of an investment company pursuant to Section 9(a) of the 1940 Act or otherwise; and (vi) will immediately notify the Adviser and the Sub-Adviser in writing of any change of control of FCEM or any parent of FCEM resulting in an "assignment" of this Agreement. (b) It will maintain, keep current and preserve on behalf of the Fund, in the manner and for the periods of time required or permitted by the 1940 Act and the rules, regulations and orders thereunder and the Advisers Act and the rules, regulations and orders thereunder, records relating to investment transactions made by FCEM for the Fund as may be reasonably requested by the Adviser or the Fund from time to time. FCEM agrees that such records are the property of the Fund, and will be surrendered to the Fund promptly upon request; provided, however, that FCEM may retain copies of such records for archival purposes as required by IMRO. (c) FCEM has adopted a written code of ethics complying with the requirements of Rule 17j-1 under the 1940 Act and, if it has not already done so, will provide the Adviser, the Sub-Adviser and the Trust with a copy of such code of ethics, and upon any amendment to such code of ethics, promptly provide such amendment. At least annually FCEM will provide the Trust, the Sub-Adviser and the Adviser with a certificate signed by the chief compliance officer (or the person performing such function) of FCEM certifying, to the best of his or her knowledge, compliance with the code of ethics during the immediately preceding twelve (12) month period, including any material violations of or amendments to the code of ethics or the administration thereof. (d) It has provided the Adviser, the Sub-Adviser and the Trust with a copy of its Form ADV as most recently filed with the Securities and Exchange Commission (the "SEC") and will, promptly after filing any amendment to its Form ADV with the SEC, furnish a copy of such amendment to the Adviser, the Sub-Adviser and the Trust. 11. Duration and Termination 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, 1997 and each year thereafter but only so long as its continuance is "specifically approved at least annually" (a) by the vote of a majority of the Trustees of the Trust who are not "interested persons" of the Trust, the Adviser, the Sub-Adviser or FCEM at a meeting specifically called for the purpose of voting on such approval, and (b) 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 of the Trust, by "vote of a majority of the outstanding voting securities" of the Fund or by the Adviser or the Sub-Adviser, on not more than sixty days nor less than thirty days written notice, or by FCEM on not more than ninety days nor less than sixty days written notice. This Agreement shall automatically terminate in the event of its "assignment" or in the event that the FCM Sub-Advisory Agreement or the Advisory Agreement shall have terminated for any reason. 12. Amendments to this Agreement. This Agreement may be amended only if such amendment is approved by "vote of a majority of the outstanding voting securities" of the Fund, by the Adviser, by the Sub-Adviser and by FCEM. 13. Certain Definitions. The terms "specifically approved at least annually", "vote of a majority of the outstanding voting securities", "assignment", "control", "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 1940 Act and the rules, regulations and orders thereunder, subject, however, to such exemptions as may be granted by the SEC under the 1940 Act. 14. Survival of Representations and Warranties; Duty to Update Information. All representations and warranties made by FCEM pursuant to Section 9 hereof shall survive for the duration of this Agreement and FCEM shall immediately notify, but in no event later than five (5) business days, the Adviser and the Sub-Adviser in writing upon becoming aware that any of the foregoing representations and warranties are no longer true. 15. Miscellaneous. This Agreement shall be governed by and construed in accordance with the internal laws of The Commonwealth of Massachusetts. All notices provided for by this Agreement shall be in writing and shall be deemed given when received, against appropriate receipt, by the Sub-Adviser's Secretary in the case of the Sub-Adviser, by the Adviser's General Counsel in the case of the Adviser, by FCEM's Secretary in the case of FCEM and by the Trust's Secretary in the case of the Fund, or such other person as a party shall designate by notice to the other parties. This Agreement constitutes the entire agreement among the parties hereto and supersedes any prior agreement among the parties relating to the subject matter hereof. The section headings of this Agreement are for convenience of reference and do not constitute a part hereof. 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. FOREIGN & COLONIAL MANAGEMENT LTD. By: JAMES OGILVY James Ogilvy By: JONATHAN LUBRAN Jonathan Lubran FOREIGN & COLONIAL EMERGING MARKETS LIMITED By: AUDLEY TWISTON DAVIES Audley Twiston Davies By: KAREN CLARKE Karen Clarke The foregoing is hereby agreed to: A copy of the Declaration of Trust of the Trust is on file with the Secretary of State of The Commonwealth of Massachusetts. The parties hereto acknowledge 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 in accordance with its proportionate interest hereunder. If this instrument is executed by the Trust on behalf of one or more series of the Trust, the parties hereto acknowledge 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 parties hereto also agree that the obligations of each series hereunder shall be several and not joint, in accordance with its proportionate interest hereunder, and the parties hereto agree not to proceed against any series for the obligations of another series. MFS SERIES TRUST X on behalf of MFS/FOREIGN & COLONIAL INTERNATIONAL GROWTH AND INCOME FUND By: A. KEITH BRODKIN A. Keith Brodkin Chairman MASSACHUSETTS FINANCIAL SERVICES COMPANY By: JEFFREY L. SHAMES Jeffrey L. Shames President EX-99.5(K) 12 SUB-ADVISORY AGREEMENT EXHIBIT NO. 99.5(k) SUB-ADVISORY AGREEMENT SUB-ADVISORY AGREEMENT, dated this 1st day of September, 1995, by and between FOREIGN & COLONIAL MANAGEMENT LTD., a company incorporated under the laws of England and Wales (the "Sub-Adviser"), and FOREIGN & COLONIAL EMERGING MARKETS LIMITED, a company incorporated under the laws of England and Wales ("FCEM"). WITNESSETH: WHEREAS, Massachusetts Financial Services Company (the "Adviser") provides MFS/Foreign & Colonial Emerging Markets Equity Fund (the "Fund"), a series of MFS Series Trust X (the "Trust"), an open-end investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"), business services pursuant to the terms and conditions of an investment advisory agreement dated September 1, 1995 (the "Advisory Agreement") between the Adviser and the Trust, on behalf of the Fund; WHEREAS, the Sub-Adviser provides services to the Adviser pursuant to the terms and conditions of a sub-advisory agreement dated September 1, 1995 (the "FCM Sub-Advisory Agreement") between the Adviser and the Sub-Adviser; and WHEREAS, FCEM is willing to provide services to the Sub-Adviser 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: 1. Duties of FCEM. Subject to the supervision of the Trustees of the Trust, the Adviser and the Sub-Adviser, FCEM will: (a) manage such portion of the Fund's assets as the Adviser, Sub-Adviser and FCEM shall from time to time mutually designate (the "Designated Assets") on behalf of the Fund in accordance with the Fund's investment objective, policies and limitations as stated in the Fund's then current Prospectus (the "Prospectus") and Statement of Additional Information (the "Statement"), and the Trust's Amended and Restated Declaration of Trust dated January 18, 1995 and Amended and Restated By-Laws, each as from time to time in effect (respectively, the "Declaration" and the "By-Laws") and in compliance with the 1940 Act and the rules, regulations and orders thereunder; (b) make investment decisions for the Fund with respect to the Designated Assets; (c) place purchase and sale orders for portfolio transactions for the Fund with respect to the Designated Assets; (d) manage otherwise uninvested cash assets of the Fund with respect to the Designated Assets; (e) as the agent of the Fund, give instructions (including trade tickets) to the custodian and any sub-custodian of the Fund as to deliveries of securities, transfers of currencies and payments of cash for the account of the Fund with respect to the Designated Assets (FCEM shall promptly notify the Adviser and the Sub-Adviser of such instructions); (f) employ professional portfolio managers to provide research services to the Fund; (g) attend periodic meetings of the Board of Trustees of the Trust and (h) obtain all the registrations, qualifications and consents, on behalf of the Fund, which are necessary for the Fund to purchase and sell assets in each jurisdiction (other than the United States) in which the Designated Assets are to be invested (FCEM shall promptly provide the Adviser and the Sub-Adviser with copies of any such registrations, qualifications and consents). In providing these services, FCEM will furnish continuously an investment program with respect to the Designated Assets. FCEM shall be responsible for monitoring the Fund's compliance with the Prospectus, the Statement, the Declaration, the By-Laws and the 1940 Act and the rules, regulations and orders thereunder and in monitoring such compliance FCEM shall do so in the functional currency of the Fund. FCEM shall only be responsible for compliance with the above-mentioned restrictions in regards to the Designated Assets. The Sub-Adviser agrees to provide FCEM with such assistance as may be reasonably requested by FCEM in connection with its activities under this Agreement, including, without limitation, information concerning the Fund, its funds available, or to become available, for investment and generally as to the conditions of the Fund's affairs. Should the Trustees of the Trust or the Adviser and the Sub-Adviser at any time make any determination as to investment policy and notify FCEM thereof in writing, FCEM shall be bound by such determination for the period, if any, specified in such notice or until notified that such determination has been revoked. Further, the Adviser and the Sub-Adviser or the Trustees of the Trust may at any time, upon written notice to FCEM, suspend or restrict the right of FCEM to determine what assets of the Fund shall be purchased or sold and what portion, if any, of the Fund's assets shall be held uninvested. It is understood that the Adviser and the Sub-Adviser undertake to discuss with FCEM any such determinations of investment policy and any such suspensions or restrictions on the right of FCEM to determine what assets of the Fund shall be purchased or sold or held uninvested, prior to the implementation thereof. 2. Execution of Certain Documents. Subject to any other written instructions of the Adviser, the Sub-Adviser and the Trustees of the Trust, FCEM is hereby appointed the Sub-Adviser's and the Trust's agent and attorney-in-fact to execute account documentation, agreements, contracts and other documents as FCEM shall be requested by brokers, dealers, counterparties and other persons in connection with its management of the Designated Assets. 3. Brokerage. In connection with the selections of brokers, dealers or other entities and the placing of orders for the purchase and sale of portfolio investments for the Fund with respect to the Designated Assets, FCEM is directed to seek for the Fund execution at the most favorable price by responsible brokerage firms at reasonably competitive commission rates. In fulfilling this requirement, FCEM 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, dealer or other entity an amount of commission for effecting a securities transaction in excess of the amount of commission another broker, dealer or other entity would have charged for effecting that transaction, if FCEM determined in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services (within the meaning of Section 28(e) of the Securities Exchange Act of 1934, as amended) provided by such broker, dealer or other entity, viewed in terms of either that particular transaction or FCEM's overall responsibilities with respect to the Fund and to other clients of FCEM as to which FCEM exercises investment discretion. 4. Reports. FCEM shall furnish to the Trustees of the Trust, the Adviser or the Sub-Adviser, or all of them, as may be appropriate, quarterly reports of its activities on behalf of the Fund, as required by applicable law or as otherwise requested from time to time by the Trustees of the Trust, the Adviser or the Sub-Adviser, and such additional information, reports, evaluations, analyses and opinions as the Trustees of the Trust, the Adviser or the Sub-Adviser, as appropriate, may request from time to time. 5. Services to Other Companies or Accounts. On occasions when FCEM deems the purchase or sale of a security to be in the best interest of the Fund as well as other clients, FCEM, to the extent permitted by applicable laws and regulations, may, but shall be under no obligation to, aggregate the securities to be so purchased or sold in order to obtain the most favorable price or lower brokerage commissions and efficient execution. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction will be made by FCEM in the manner it considers to be the most equitable. FCEM agrees to allocate similarly opportunities to sell or otherwise dispose of securities among the Fund and other clients of FCEM. 6. Compensation of FCEM. For the services to be rendered by FCEM under this Agreement, the Sub-Adviser shall pay to FCEM compensation, computed and paid monthly in arrears, at a rate of 1.00% of the average daily net asset value of the Designated Assets on an annualized basis. If FCEM shall serve for less than the whole of any month, the compensation payable to FCEM with respect to the Fund will be prorated. FCEM will pay its expenses incurred in performing its duties under this Agreement. Neither the Trust, the Adviser nor the Fund shall be liable to FCEM for the compensation of FCEM. For the purpose of determining fees payable to FCEM, the value of the Fund's net assets shall be computed at the times and in the manner specified in the Prospectus and/or Statement. In the event that the Sub-Adviser reduces its management fee payable under the FCM Sub-Advisory Agreement in order to comply with the expense limitations of a State securities commission or otherwise (but not a voluntary reduction), FCEM agrees to reduce its fee payable under this Agreement by a pro rata amount. 7. Limitation of Liability of FCEM. FCEM 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. The Trust, on behalf of the Fund, may enforce any obligations of FCEM under this Agreement and may recover directly from FCEM for any liability it may have to the Fund. 8. Activities of FCEM. The services of FCEM to the Fund are not deemed to be exclusive, FCEM being free to render investment advisory and/or other services to others. It is understood that the Trustees, officers and shareholders of the Trust, the Fund, the Adviser or the Sub-Adviser are or may become interested in FCEM or any person controlling, controlled by or under common control with FCEM, as trustees, officers, employees or otherwise and that trustees, officers and employees of FCEM or any person controlling, controlled by or under common control with FCEM may become similarly interested in the Trust, the Fund, the Adviser or the Sub-Adviser and that FCEM may be or become interested in the Fund as a shareholder or otherwise. 9. Covenants of FCEM. FCEM agrees that it (a) will not deal with itself, "affiliated persons" of FCEM, the Sub-Adviser, the Trustees of the Trust or the Fund's distributor, as principals, agents, brokers or dealers in making purchases or sales of securities or other property for the account of the Fund, except as permitted by the 1940 Act and the rules, regulations and orders thereunder and subject to the prior written approval of the Adviser, (b) will not take a long or short position in the shares of the Fund except as permitted by the Declaration and (c) will comply with all other provisions of the Declaration and the By-Laws and the then-current Prospectus and Statement relative to FCEM and its trustees, officers, employees and affiliates. 10. Representations, Warranties and Additional Agreements of FCEM. FCEM represents, warrants and agrees that: (a) It: (i) is registered as an investment adviser under the U.S. Investment Advisers Act of 1940 (the "Advisers Act"), is authorized to undertake investment business in the United Kingdom by virtue of its membership in the Investment Management Regulatory Organisation ("IMRO") and is registered under the laws of any jurisdiction in which FCEM is required to be registered as an investment adviser in order to perform its obligations under this Agreement, and will continue to be so registered for so long as this Agreement remains in effect; (ii) is not prohibited by the 1940 Act or the Advisers Act from performing the services contemplated by this Agreement; (iii) has met, and will continue to meet for so long as this Agreement remains in effect, any other applicable Federal or State requirements, or the applicable requirements of any regulatory or industry self-regulatory agency, necessary to be met in order to perform the services contemplated by this Agreement; (iv) has the authority to enter into and perform the services contemplated by this Agreement; (v) will immediately notify the Adviser and the Sub-Adviser in writing of the occurrence of any event that would disqualify FCEM from serving as an investment adviser of an investment company pursuant to Section 9(a) of the 1940 Act or otherwise; and (vi) will immediately notify the Adviser and the Sub-Adviser in writing of any change of control of FCEM or any parent of FCEM resulting in an "assignment" of this Agreement. (b) It will maintain, keep current and preserve on behalf of the Fund, in the manner and for the periods of time required or permitted by the 1940 Act and the rules, regulations and orders thereunder and the Advisers Act and the rules, regulations and orders thereunder, records relating to investment transactions made by FCEM for the Fund as may be reasonably requested by the Adviser or the Fund from time to time. FCEM agrees that such records are the property of the Fund, and will be surrendered to the Fund promptly upon request; provided, however, that FCEM may retain copies of such records for archival purposes as required by IMRO. (c) FCEM has adopted a written code of ethics complying with the requirements of Rule 17j-1 under the 1940 Act and, if it has not already done so, will provide the Adviser, the Sub-Adviser and the Trust with a copy of such code of ethics, and upon any amendment to such code of ethics, promptly provide such amendment. At least annually FCEM will provide the Trust, the Sub-Adviser and the Adviser with a certificate signed by the chief compliance officer (or the person performing such function) of FCEM certifying, to the best of his or her knowledge, compliance with the code of ethics during the immediately preceding twelve (12) month period, including any material violations of or amendments to the code of ethics or the administration thereof. (d) It has provided the Adviser, the Sub-Adviser and the Trust with a copy of its Form ADV as most recently filed with the Securities and Exchange Commission (the "SEC") and will, promptly after filing any amendment to its Form ADV with the SEC, furnish a copy of such amendment to the Adviser, the Sub-Adviser and the Trust. 11. Duration and Termination 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, 1997 and each year thereafter but only so long as its continuance is "specifically approved at least annually" (a) by the vote of a majority of the Trustees of the Trust who are not "interested persons" of the Trust, the Adviser, the Sub-Adviser or FCEM at a meeting specifically called for the purpose of voting on such approval, and (b) 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 of the Trust, by "vote of a majority of the outstanding voting securities" of the Fund or by the Adviser or the Sub-Adviser, on not more than sixty days nor less than thirty days written notice, or by FCEM on not more than ninety days nor less than sixty days written notice. This Agreement shall automatically terminate in the event of its "assignment" or in the event that the FCM Sub-Advisory Agreement or the Advisory Agreement shall have terminated for any reason. 12. Amendments to this Agreement. This Agreement may be amended only if such amendment is approved by "vote of a majority of the outstanding voting securities" of the Fund, by the Adviser, by the Sub-Adviser and by FCEM. 13. Certain Definitions. The terms "specifically approved at least annually", "vote of a majority of the outstanding voting securities", "assignment", "control", "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 1940 Act and the rules, regulations and orders thereunder, subject, however, to such exemptions as may be granted by the SEC under the 1940 Act. 14. Survival of Representations and Warranties; Duty to Update Information. All representations and warranties made by FCEM pursuant to Section 9 hereof shall survive for the duration of this Agreement and FCEM shall immediately notify, but in no event later than five (5) business days, the Adviser and the Sub-Adviser in writing upon becoming aware that any of the foregoing representations and warranties are no longer true. 15. Miscellaneous. This Agreement shall be governed by and construed in accordance with the internal laws of The Commonwealth of Massachusetts. All notices provided for by this Agreement shall be in writing and shall be deemed given when received, against appropriate receipt, by the Sub-Adviser's Secretary in the case of the Sub-Adviser, by the Adviser's General Counsel in the case of the Adviser, by FCEM's Secretary in the case of FCEM and by the Trust's Secretary in the case of the Fund, or such other person as a party shall designate by notice to the other parties. This Agreement constitutes the entire agreement among the parties hereto and supersedes any prior agreement among the parties relating to the subject matter hereof. The section headings of this Agreement are for convenience of reference and do not constitute a part hereof. 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. FOREIGN & COLONIAL MANAGEMENT LTD. By: JAMES OGILVY James Ogilvy By: JONATHAN LUBRAN Jonathan Lubran FOREIGN & COLONIAL EMERGING MARKETS LIMITED By: AUDLEY TWISTON DAVIES Audley Twiston Davies By: KAREN CLARKE Karen Clarke The foregoing is hereby agreed to: A copy of the Declaration of Trust of the Trust is on file with the Secretary of State of The Commonwealth of Massachusetts. The parties hereto acknowledge 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 in accordance with its proportionate interest hereunder. If this instrument is executed by the Trust on behalf of one or more series of the Trust, the parties hereto acknowledge 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 parties hereto also agree that the obligations of each series hereunder shall be several and not joint, in accordance with its proportionate interest hereunder, and the parties hereto agree not to proceed against any series for the obligations of another series. MFS SERIES TRUST X on behalf of MFS/FOREIGN & COLONIAL EMERGING MARKETS EQUITY FUND By: A.KEITH BRODKIN A. Keith Brodkin Chairman MASSACHUSETTS FINANCIAL SERVICES COMPANY By: JEFFREY L. SHAMES Jeffrey L. Shames President EX-99.6(A) 13 DISTRIBUTION AGREEMENT EXHIBIT NO. 99.6(a) DISTRIBUTION AGREEMENT DISTRIBUTION AGREEMENT, made this 1st day of September, 1995, by and between MFS SERIES TRUST X, 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 Rules 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, however, that 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 charges 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 to 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, or 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 September 1, 1995 and shall continue in force until September 1, 1997 and each year thereafter but only so long as its continuance 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", "assignment" and "specifically approved at least annually" 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. This Agreement supersedes and terminates, as of the date hereof, the Distribution Agreement dated January 1, 1995 between MFS Government Mortgage Fund and the Distributor. 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 SERIES TRUST X On behalf of: MFS Government Mortgage Fund MFS/Foreign & Colonial Emerging Markets Equity Fund MFS/Foreign & Colonial International Growth and Income Fund MFS/Foreign & Colonial International Growth Fund By: A. KEITH BRODKIN A. Keith Brodkin, as President and not individually MFS FUND DISTRIBUTORS, INC. By: WILLIAM W. SCOTT, JR. William W. Scott, Jr. President EX-99.7 14 RETIREMENT PLAN EXHIBIT NO. 99.7 MFS GOVERNMENT INCOME PLUS TRUST RETIREMENT PLAN FOR NON-INTERESTED PERSON TRUSTEES MFS Government Income Plus Fund (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 this ss.3, benefits payable under this ss.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"). EX-99.8(A) 15 CUSTODIAN CONTRACT EXHIBIT NO. 99.8(a) CUSTODIAN CONTRACT BETWEEN MFS GOVERNMENT SECURITIES HIGH YIELD TRUST 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 Trust Held by the Custodian.............................................. 1 2.1 Holding Securities....................................... 1 2.2 Delivery of Securities................................... 2 2.3 Registration of Securities............................... 5 2.4 Bank Accounts............................................ 5 2.5 Payments for Shares...................................... 5 2.6 Investment and Availability of Federal Funds............. 6 2.7 Collection of Income..................................... 6 2.8 Payment of Trust Monies.................................. 7 2.9 Liability for Payment in Advance of Receipt of Securities Purchased..................................... 8 2.10 Payments for Repurchases or Redemptions of Shares of the Trust................................................ 8 2.11 Appointment of Agents.................................... 9 2.12 Deposit of Trust Assets in Securities System............. 9 2.13 Segregated Account....................................... 11 2.14 Ownership Certificates for Tax Purposes.................. 12 2.15 Proxies.................................................. 12 2.16 Communications Relating to Trust Portfolio Securities.... 12 2.17 Proper Instructions...................................... 13 2.18 Actions Permitted Without Express Authority.............. 13 2.19 Evidence of Authority.................................... 13 3. Duties of Custodian with Respect to the Books of Account and Calculation of Net Asset Value and Net Income...................... 14 4. Records............................................................ 14 5. Opinion of Trust's Independent Accountants ........................ 15 6. Reports to Trust by Independent Public Accountants................. 15 7. Compensation of Custodian.......................................... 15 8. Responsibility of Custodian........................................ 15 9. Effective Period, Termination and Amendment........................ 16 10. Successor Custodian................................................ 17 11. Interpretive and Additional Provisions............................. 18 12. Massachusetts Law to Apply......................................... 19 13. Prior Contracts.................................................... 19 CUSTODIAN CONTRACT This Contract between MFS Government Securities High Yield Trust, a business trust organized and existing under the laws of The Commonwealth 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. 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. Upon receipt of "Proper Instructions" (within the meaning of Section 2.17), the Custodian shall from time to time employ one or more subcustodians, but only in accordance with an applicable vote by the Board of Trustees of the Trust, and provided that the Custodian shall have no more or less responsibility or liability to the Trust 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 Trust Held By the Custodian 2.1 Holding Securities. The Custodian shall hold and physically segregate for the account of the Trust all non-cash property, including all securities owned by the Trust, other than securities which are maintained pursuant to Section 2.12 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." 2.2 Delivery of Securities. The Custodian shall release and deliver securities owned by the Trust held by the Custodian or in a Securities System account of the Custodian 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 Trust 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 Trust; 3) In the case of a sale effected through a Securities System, in accordance with the provisions of Section 2.12 hereof; 4) To the depository agent in connection with tender or other similar offers for portfolio securities of the Trust; 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 Trust 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 2.11 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 Trust, 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 Trust, but only against receipt of adequate collateral as agreed upon from time to time by the Custodian and the Trust, 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 Trust prior to the receipt of such collateral; 11) For delivery as security in connection with any borrowings by the Trust requiring a pledge of assets by the Trust, but only against receipt of amounts borrowed; 12) For delivery in accordance with the provisions of any agreement among the Trust, 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 Trust; 13) For delivery in accordance with the provisions of any agreement among the Trust, 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 Trust; 14) Upon receipt of instructions from the transfer agent ("Transfer Agent") for the Trust, 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 in the Trust'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 Trustees or of the Executive Committee signed by an officer of the Trust and certified by the Secretary or an Assistant Secretary, setting forth the purpose for which such delivery is to be made, declaring such purpose to be a proper corporate purpose, and naming the person or persons to whom delivery of such securities shall be made. 2.3 Registration of Securities. Securities held by the Custodian (other than bearer securities) shall be registered in the name of the Trust or in the name of any nominee of the Trust or of any nominee of the Custodian which nominee shall be assigned exclusively to the Trust, unless the Trust 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 Trust, or in the name or nominee name of any agent appointed pursuant to Section 2.11 or in the name or nominee name of any subcustodian appointed pursuant to Article 1. All securities accepted by the Custodian on behalf of the Trust 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 "Trust's Account or Accounts") in the name of the Trust, 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 Trust, other than cash maintained by the Trust 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 Trust 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 Trustees of the Trust. 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 Trust's Shares or from the Transfer Agent of the Trust and deposit into the Trust's Account such payments as are received for Shares of the Trust issued or sold from time to time by the Trust. The Custodian will provide timely notification to the Trust and the Transfer Agent of any receipt by it of payments for Shares of the Trust. 2.6 Investment and Availability of Federal Funds. Upon mutual agreement between the Trust 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 Trust; and 2) make federal funds available to the Trust as of specified times agreed upon from time to time by the Trust and the Custodian in the amount of any checks received in payment for Shares of the Trust which are deposited into the Trust's account. 2.7 Collection of Income. The Custodian shall collect on a timely basis all income and other payments with respect to registered securities held hereunder to which the Trust 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 securities if, on the date of payment by the issuer, such securities are held by the Custodian or its agent thereof and shall credit such income, as collected, to the Trust'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 securities held hereunder. Income due the Trust on securities loaned pursuant to the provisions of Section 2.2 (10) shall be the responsibility of the Trust. The Custodian will have no duty or responsibility in connection therewith, other than to provide the Trust with such information or data as may be necessary to assist the Trust in arranging for the timely delivery to the Custodian of the income to which the Trust is properly entitled. 2.8 Payment of Trust Monies. Upon receipt of Proper Instructions, which may continuing instructions when deemed appropriate by the parties, the Custodian shall pay out monies of the Trust in the following cases only: 1) Upon the purchase of securities, for the account of the Trust 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 Trust 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 2.12 hereof; or (c) in the case of repurchase agreements entered into between the Trust 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 Trust of securities owned by the Custodian along with written evidence of the agreement by the Custodian to repurchase such securities from the Trust; 2) In connection with conversion, exchange or surrender of securities owned by the Trust as set forth in Section 2.2 hereof; 3) For the redemption or repurchase of Shares issued by the Trust as set forth in Section 2.10 hereof; 4) For the payment of any expense or liability incurred by the Trust, including but not limited to the following payments for the account of the Trust: interest, taxes, management, accounting, transfer agent and legal fees, and operating expenses of the Trust 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 Trust; 6) For payment of the amount of dividends received in respect of 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 Trustees or of the Executive Committee of the Trust signed by an officer of the Trust 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 securities for the account of the Trust is made by the Custodian in advance of receipt of the securities purchased in the absence of specific written instructions from the Trust to so pay in advance, the Custodian shall be absolutely liable to the Trust 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 Trust 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 agreements 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 Payments for Repurchases or Redemptions of Shares of the Trust. From such funds as may be available for the purpose but subject to the limitations of the Declaration of Trust and any applicable votes of the Board of Trustees of the Trust 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 Trust, 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 Trust, the Custodian shall honor checks drawn on the Custodian by a holder of Shares, which checks have been furnished by the Trust 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 Trust and the Custodian. 2.11 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. 2.12 Deposit of Trust Assets in Securities Systems. The Custodian may deposit and/or maintain securities owned by the Trust 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 securities of the Trust 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 securities of the Trust which are maintained in a Securities System shall identify by book-entry those securities belonging to the Trust; 3) The Custodian shall pay for securities purchased for the account of the Trust 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 Trust. The Custodian shall transfer securities sold for the account of the Trust 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 Trust. Copies of all advices from the Securities System of transfers of securities for the account of the Trust shall identify the Trust, be maintained for the Trust by the Custodian and be provided to the Trust at its request. Upon request, the Custodian shall furnish the Trust confirmation of each transfer to or from the account of the Trust in the form of a written advice or notice and shall furnish to the Trust copies of daily transaction sheets reflecting each day's transactions in the Securities System for the account of the Trust. 4) The Custodian shall provide the Trust with any report obtained by the Custodian on the Securities System's accounting system, internal accounting control and procedures for safeguarding 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 9 hereof; 6) Anything to the contrary in this Contract notwithstanding, the Custodian shall be liable to the Trust for any loss or damage to the Trust 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 Trust, 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 Trust has not been made whole for any such loss or damage. 2.13 Segregated Account. The Custodian shall upon receipt of Proper Instructions establish and maintain a segregated account or accounts for and on behalf of the Trust, into which account or accounts may be transferred cash and/or securities, including securities maintained in an account by the Custodian pursuant to Section 2.12 hereof, (i) in accordance with the provisions of any agreement among the Trust, the Custodian and a broker-dealer registered under the Exchange Act and 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 Trust, (ii) for purposes of segregating cash or government securities in connection with options purchased, sold or written by the Trust or commodity futures contracts or options thereon purchased or sold by the Trust, (iii) for the purpose of compliance by the Trust 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 Trustees or of the Executive Committee signed by an officer of the Trust 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. 2.14 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 securities of the Trust held by it and in connection with transfers of securities. 2.15 Proxies. The Custodian shall, with respect to the securities held hereunder, cause to be promptly executed by the registered holder of such securities, if the securities are registered otherwise than in the name of the Trust or a nominee of the Trust, all proxies, without indication of the manner in which such proxies are to be voted, and shall promptly deliver to the Trust such proxies, all proxy soliciting materials and all notices relating to such securities. 2.16 Communications Relating to Trust Portfolio Securities. The Custodian shall transmit promptly to the Trust all written information (including, without limitation, pendency of calls and maturities of securities and expirations of rights in connection therewith and notices of exercise of call and put options written by the Trust and the maturity of futures contracts purchased or sold by the Trust) received by the Custodian from issuers of the securities being held for the Trust. With respect to tender or exchange offers, the Custodian shall transmit promptly to the Trust all written information received by the Custodian from issuers of the securities whose tender or exchange is sought and from the party (or his agents) making the tender or exchange offer. If the Trust desires to take action with respect to any tender offer, exchange offer or any other similar transaction, the Trust shall notify the Custodian at least three business days prior to the date on which the Custodian is to take such action. 2.17 Proper Instructions. Proper Instructions as used throughout this Article 2 means a writing signed or initialled by one or more person or persons as the Board of Trustees 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 Trust 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 Trustees of the Trust accompanied by a detailed description of procedures approved by the Board of Trustees, Proper Instructions may include communications effected directly between electro-mechanical or electronic devices provided that the Board of Trustees and the Custodian are satisfied that such procedures afford adequate safeguards for the Trust's assets. 2.18 Actions Permitted without Express Authority. The Custodian may in its discretion, without express authority from the Trust: 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 Trust; 2) surrender securities in temporary form for securities in definitive form; 3) endorse for collection, in the name of the Trust, 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 Trust except as otherwise directed by the Board of Trustees of the Trust. 2.19 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 Trust. The Custodian may receive and accept a certified copy of a vote of the Board of Trustees of the Trust 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 Trustees pursuant to the Declaration of Trust 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. 3. 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 Trustees of the Trust to keep the books of account of the Trust and/or compute the net asset value per share of the outstanding shares of the Trust or, if directed in writing to do so by the Trust, 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 Trust as described in the Trust's currently effective prospectus and shall advise the Trust and the Transfer Agent daily of the total amounts of such net income and, if instructed in writing by an officer of the Trust 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 Trust shall be made at the time or times described from time to time in the Trust's currently effective prospectus. 4. 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 Trust 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 Trust. All such records shall be the property of the Trust 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 Trust and employees and agents of the Securities and Exchange Commission. The Custodian shall, at the Trust's request, supply the Trust with a tabulation of securities owned by the Trust and held by the Custodian and shall, when requested to do so by the Trust and for such compensation as shall be agreed upon between the Trust and the Custodian, include certificate numbers in such tabulations. 5. Opinion of Trust's Independent Accountant The Custodian shall take all reasonable action, as the Trust may from time to time request, to obtain from year to year favorable opinions from the Trust's independent accountants with respect to its activities hereunder in connection with the preparation of the Trust'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. 6. Reports to Trust by Independent Public Accountants The Custodian shall provide the Trust, at such times as the Trust 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 Trust to provide reasonable assurance that any material inadequacies would be disclosed by such examination, and, if there are no such inadequacies, shall so state. 7. 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 Trust and the Custodian. 8. 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 Trust transaction taken or omitted by it in the proper execution of instructions from the Trust. It shall be entitled to rely on and may act upon advice of counsel for the Trust 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 Trust. The Trust 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 Trust 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 Trust for any purpose which results in the Trust incurring an overdraft at the end of any business day or for extraordinary or emergency purposes during any business day, the Trust 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 Trust's gross assets, the specific securities to be designated in writing from time to time by the Trust or its investment adviser (the "Pledged Securities"). Should the Trust 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. 9. 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 2.12 hereof in the absence of receipt of an initial certificate of the Secretary or an Assistant Secretary that the Board of Trustees of the Trust 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 Trustees has reviewed the use by the Trust of such Securities System, as required in each case by Rule 17f-4 under the Investment Company Act of 1940, as amended; provided further, however, that the Trust shall not amend or terminate this Contract in contravention of any applicable federal or state regulations, or any provision of the Declaration of Trust, and (b) that the Trust may at any time by action of its Board of Trustees (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 Trust 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. 10. Successor Custodian If a successor custodian shall be appointed by the Board of Trustees of the Trust, 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 Trust'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 Trustees of the Trust, 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 Trustees 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 Trust'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 Trust to procure the certified copy of the vote referred to or of the Board of Trustees 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. 11. Interpretive and Additional Provisions In connection with the operation of this Contract, the Custodian and the Trust 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 Declaration of Trust of the Trust. No interpretive or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Contract. 12. 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. 13. Prior Contracts This Contract supersedes and terminates, as of the date hereof, the existing custodian contract between the Trust and the Custodian. Any reference to the custodian contract between the Trust 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 19th day of February, 1988. ATTEST MFS GOVERNMENT SECURITIES HIGH YIELD TRUST ARNOLD D. SCOTT By: RICHARD B. BAILEY Arnold D. Scott Richard B. Bailey ATTEST STATE STREET BANK & TRUST COMPANY J. FARRELL By: ILLEGIBLE J. Farrell [Illegible] Assistant Secretary Vice President EX-99.8(B) 16 AMENDMENT TO CUSTODIAN CONTRACT EXHIBIT NO. 99.8(b) AMENDMENT TO CUSTODIAN CONTRACT Amendment to Custodian Contract between MFS Government Securities High Yield Trust, 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 February 19, 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 29th day of February, 1988. ATTEST: By: D. M. JAFFE By: W. T. LONDON D. M. Jaffe W. T. London Treasurer ATTEST: STATE STREET BANK & TRUST COMPANY By: K. M. KNEELAND By: PHYLLIS A. SCHRODER K. M. Kneeland Phyllis A. Schroder Assistant Secretary Vice President EX-99.8(C) 17 AMENDMENT TO CUSTODIAN CONTRACT EXHIBIT NO. 99.8(c) 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 MFS Government Income Plus Trust (the "Trust"). WHEREAS, the Custodian and the Trust are parties to a Custodian Contract dated February 19, 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 14 which shall read as follows: 14 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 14, 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 14. 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 MFS GOVERNMENT INCOME PLUS TRUST LINDA J. HOARD By: A. KEITH BRODKIN Linda J. Hoard A. Keith Brodkin ATTEST STATE STREET BANK & TRUST COMPANY MARK MORGAN By: PHYLLIS A. SCHRODER Mark Morgan Phyllis A. Schroder Assistant Secretary Vice President EX-99.8(D) 18 AMENDMENT EXHIBIT NO. 99.8(d) AMENDMENT The Custodian Contract dated February 19, 1988 between MFS Government Income Plus Trust (referred to herein as the "Trust") and State Street Bank and Trust Company (the "Custodian") is hereby amended as follows: I. Section 2.1 is amended to read as follows: "Holding Securities. The Custodian shall hold and physically segregate for the account of the Trust all non-cash property, including all securities owned by the Trust, other than (a) securities which are maintained pursuant to Section 2.12 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 "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 the Direct Paper System of the Custodian pursuant to Section 2.12A. II. Section 2.2 is amended to read, in relevant part as follows: "Delivery of Securities. The Custodian shall release and deliver securities owned by the Trust held by the Custodian or in a Securities System account of the Custodian or in the Custodian's Direct Paper book entry system account ("Direct Paper System Account") only upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, and only in following cases: 1) . . . . . . . 15) . . . ." III. Section 2.8(1) is amended to read in relevant part as follows: "Payment of Trust 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 Trust in the following cases only: 1) Upon the purchase of securities, options, futures contracts or options on futures contracts for the account of the Trust but only (a) against the delivery of such securities or evidence of title to such options, futures contracts or options on futures contracts, 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 Trust 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 2.12 hereof (c) in the case of a purchase involving the Direct Paper System, in accordance with the conditions set forth in Section 2.12A; or (d) in the case of repurchase agreements entered into between the Trust 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 Trust of securities owned by the Custodian along with written evidence of the agreement by the Custodian to repurchase such securities from the Trust or (e) for transfer to a time deposit account of the Trust in any bank, whether domestic or foreign; such transfer may be effected prior to receipt of a confirmation from a broker and/or the applicable bank pursuant to Proper Instructions from the Trust as defined in Section 2.17;" IV. Following Section 2.12 there is inserted a new Section 2.12.A to read as follows: 2.12.A "Trust Assets Held in the Custodian's Direct Paper System. The Custodian may deposit and/or maintain securities owned by the Trust in the Direct Paper System of the Custodian subject to the following provisions: 1) No transaction relating to securities in the Direct Paper System will be effected in the absence of Proper Instructions; 2) The Custodian may keep securities of the Trust in the Direct Paper System only if such securities are represented in an account ("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 securities of the Trust which are maintained in the Direct Paper System shall identify by book-entry those securities belonging to the Trust; 4) The Custodian shall pay for securities purchased for the account of the Trust 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 Trust. The Custodian shall transfer securities sold for the account of the Trust 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 Trust: 5) The Custodian shall furnish the Trust confirmation of each transfer to or from the account of the Trust, in the form of a written advice or notice, of Direct Paper on the next business day following such transfer and shall furnish to the Trust copies of daily transaction sheets reflecting each day's transaction in the Securities System for the account of the Trust; 6) The Custodian shall provide the Trust with any report on its system of internal accounting control as the Trust may reasonably request from time to time." V. Section 9 is hereby amended to read as follows: "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 2.12 hereof in the absence of receipt of an initial certificate of the Secretary or an Assistant Secretary that the Board of Trustees of the Trust 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 Trustees has reviewed the use by the Trust 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 2.12.A hereof in the absence of receipt of an initial certificate of the Secretary or an Assistant Secretary that the Board of Trustees 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 Trustees has reviewed the use by the Trust of the Direct Paper System; provided further, however, that the Trust shall not amend or terminate this Contract in contravention of any applicable federal or state regulations, or any provision of the Declaration of Trust, and further provided, that the Trust may at any time by action of its Board of Trustees (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 by the Comptroller of the Currency 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 Trust 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." Except as otherwise expressly amended and modified herein, the provisions of the Custodian Contract shall remain in full force and effect. IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be executed in its name and on its behalf by its duly authorized representatives and its Seal to be hereto affixed as of the 17th day of September, 1991. ATTEST: MFS GOVERNMENT INCOME PLUS TRUST LINDA J. HOARD By: W. T. LONDON Linda J. Hoard W. T. London Assistant Secretary Treasurer ATTEST: STATE STREET BANK & TRUST COMPANY JOE KENNALLY By: JOHN HENRICH Joe Kennally John Henrich Assistant Secretary Vice President EX-99.9(A) 19 SHAREHOLDER SERVICING AGREEMENT EXHIBIT NO. 99.9(a) MFS SERIES TRUST X 500 Boylston Street Boston, Massachusetts 02116 September 1, 1995 MFS Service Center, Inc. 500 Boylston Street Boston, Massachusetts 02116 Shareholder Servicing Agent Agreement Dear Sir: MFS Series Trust X which is a Massachusetts business trust (referred to as the "Fund"), is an open-end registered investment company. The Fund has selected you to act as its Shareholder Servicing Agent and you hereby agree to act as such Agent and to 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 for the Fund 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 500 Boylston 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 "MFS 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 the 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 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, or 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 estimated 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 any 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 calculated daily and paid monthly based upon the average daily net assets of the Fund or any series thereof, as set forth in Exhibit A hereto. 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 regulations of the Securities and Exchange Commission, including but not limited to records required to be maintained by Section 31(a) of the Investment Company Act of 1940 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 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. 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. A copy of the Fund's Declaration of Trust is on file with the Secretary of State of The Commonwealth of Massachusetts. The obligations of or arising out of this instrument are not binding upon any of the Fund's trustees, officers, employees, agents or shareholders individually, but are binding solely upon the assets and property of the Fund in accordance with its proportionate interest hereunder. If this Agreement is executed by the Fund on behalf of one or more series of the Fund, you further acknowledge that the assets and liabilities of each series of the Fund are separate and distinct and that the obligations of or arising out of this Agreement are binding solely upon the assets and property of the series on whose behalf the Fund has executed this Agreement. If the Fund has executed this Agreement on behalf of more than one series of the Fund, you also agree that the obligations of each series hereunder shall be several and not joint, in accordance with its proportionate interest hereunder, and you agree not to proceed against any series for the obligations of another series. This Agreement supersedes and terminates, as of the date hereof, the Shareholder Servicing Agent Agreement dated December 19, 1985, as modified, among you, MFS and MFS Government Mortgage Fund. Very truly yours, MFS SERIES TRUST X A. KEITH BRODKIN A. Keith Brodkin Chairman The foregoing is hereby accepted as of the date thereof. MASSACHUSETTS FINANCIAL SERVICES COMPANY JEFFREY L. SHAMES Jeffrey L. Shames President MFS SERVICE CENTER, INC. JANET A. CLIFFORD Janet A. Clifford Executive Vice President ATTACHMENT 1 September 1, 1995 EXHIBIT A 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; and 0.09% of the assets of the series attributable to such class over $1 billion. 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; and 0.13% of the assets of the series attributable to such class over $1 billion EX-99.9(B) 20 EXCHANGE PRIVILEGE AGREEMENT EXHIBIT NO. 99.9(b) EXCHANGE PRIVILEGE AGREEMENT AGREEMENT, dated as of September 1, 1993 and as amended and restated as of September 1, 1995, by and among each of the trusts (on behalf of each Series thereof from time to time) listed below (collectively, the "Funds") and MFS Fund Distributors, Inc. ("MFD"). WITNESSETH THAT: WHEREAS, pursuant to the terms of a distribution agreement by and between each Trust and MFD, MFD has the exclusive right to arrange for the sale of shares of each class of each Fund at the net asset value used in determining the public offering price on which orders for shares were based, but subject to the exceptions therein set forth or referred to; WHEREAS, the Funds have differing investment objectives as set out in their offering prospectuses and consider it appropriate to make available to existing and future shareholders of the Funds the opportunity to implement changes in their investment objective through the acquisition, without sales charge or reinitiating the time period used in calculating the amount of contingent deferred sales charge assessable upon redemption, of the shares of a class of any one or more of the Funds by use of the proceeds of redemption of shares of the same class of any other Fund (herein referred to in various grammatical forms of the word "exchange"), subject to reasonable conditions designed to limit expense and administrative inconvenience or imposed in the best interest of the other shareholders of any of the Funds; WHEREAS, while MFS Money Market Fund, MFS Government Money Market Fund and MFS Cash Reserve Fund (the "Money Market Funds") offer their respective shares (Class A shares only in the case of MFS Cash Reserve Fund), to the public without a sales charge, each recognizes the utility of permitting its shares acquired through an exchange from Class A shares of another Fund to be reexchanged for Class A shares of any other Fund, subject to the restrictions hereinafter set forth; WHEREAS, while certain Funds offer their respective Class A shares at a sales charge less than that of the other Funds, each recognizes the utility of permitting its Class A shares acquired through an exchange from Class A shares of another Fund (except the Money Market Funds) or otherwise to be reexchanged for Class A shares of any other Fund, subject to the restrictions hereinafter set forth; and WHEREAS, MFD currently acts as the distributor of each of the Funds; NOW, THEREFORE, the parties hereto agree as follows: 1(a). During the term of this Agreement, shares of each class of a Fund may, subject to the restrictions hereinafter set forth, be offered by MFD as agent at net asset value to shareholders of the same class (e.g., Class A for Class A, Class B for Class B, etc.) of each of the other Funds, who wish to apply the proceeds of redemption of shares of the same class of any such Fund, provided that either the net asset value of the shares to be redeemed in the exchange is at least $1,000 ($50 in the case of 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 MFS Service Center, Inc.) or such other amount or amounts as from time to time described in the current Prospectuses of the Funds or all the shares owned by the shareholder in a particular class are to be redeemed. MFD may specify the manner in which such shareholders may accept its offer to arrange for the sale of such shares at net asset value (each such acceptance is hereinafter referred to as an "Exchange Request"). 1(b). For the purpose of calculating any applicable contingent deferred sales charge upon redemption of shares acquired in an exchange, the purchase of shares acquired in one or more exchanges will be deemed to have occurred at the time of the original purchase of the exchanged shares (prior to their exchange). 1(c). Shares of the Money Market Funds (Class A shares only in the case of MFS Cash Reserve Fund) may be exchanged for Class A shares of any other Fund in accordance with paragraph 1(a) hereof, but only if they have been acquired by an exchange effected in accordance with paragraph 1(a) hereof from Class A shares of another Fund (except the Money Market Funds) or in the form of dividends on Money Market Fund shares (Class A shares only in the case of MFS Cash Reserve Fund) reinvested on and after June 1, 1992. Shares of the Money Market Funds (Class A shares only in the case of MFS Cash Reserve Fund) acquired through direct purchase or in the form of dividends on such shares reinvested prior to June 1, 1992 may not be exchanged for shares of another Fund. 2. MFD shall process all exchanges in the usual manner as though they were unrelated purchases and sales. MFD may charge the shareholder a reasonable amount for its services in effecting the exchange. MFD shall report daily to the Funds concerning all exchanges made pursuant to this Agreement. MFD will not seek reimbursement from the Funds for any expenses incurred by it in connection with any such purchases. 3. Each of the Funds may, by written notice to each of the other Funds and MFD, terminate its exchange offer provided by this Agreement and require MFD and the other Funds to terminate the exchange offer in respect of the shares of the Fund so giving notice. MFD may by written notice to any Fund terminate its services in effecting such exchanges on behalf of such Fund. The exchange offers with respect to shares of a Fund made by MFD to the shareholders of the other Funds pursuant to this Agreement shall in any event be terminated effective upon the termination of the services of MFD as distributor of the shares of such Fund. 4. Nothing in this Agreement shall modify or reduce the obligations of a Fund or MFD contained in the distribution agreement, if any, between MFD and such Fund as the same may from time to time be modified or amended. 5. To the extent that a Fund's current Prospectus contains provisions that are inconsistent with the terms of this Agreement, the terms of the Prospectus shall be controlling. 6. This Agreement hereby supersedes all prior or contemporaneous agreements between the parties hereto relating to the subject matter hereof. 7. The terms of this Agreement shall become effective as of the date first above written. 8. A copy of the Declaration of Trust of each Fund is on file with the Secretary of State of The Commonwealth of Massachusetts. MFD acknowledges that the obligations of or arising out of this instrument are not binding upon any of the Funds' trustees, officers, employees, agents or shareholders individually, but are binding solely upon the assets and property of the Fund. If this instrument is executed by a Fund on behalf of one or more series of the Fund, MFD further acknowledges that the assets and liabilities of each series of the Fund 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 Fund has executed this instrument. If a Fund has executed this instrument on behalf of more than one series of the Fund, MFD also agrees that the obligations of each series hereunder shall be several and not joint, in accordance with its proportionate interest hereunder, and MFD 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 date first above written and caused their seals to be affixed by their representatives thereunto duly authorized. MFS SERIES TRUST I MFS SERIES TRUST II MFS SERIES TRUST III MFS SERIES TRUST IV MFS SERIES TRUST V MFS SERIES TRUST VI MFS SERIES TRUST VII MFS SERIES TRUST VIII MFS SERIES TRUST IX MFS SERIES TRUST X MFS MUNICIPAL SERIES TRUST MFS GROWTH OPPORTUNITIES FUND MFS GOVERNMENT SECURITIES FUND MASSACHUSETTS INVESTORS GROWTH STOCK FUND MFS GOVERNMENT LIMITED MATURITY FUND MASSACHUSETTS INVESTORS TRUST By: A. KEITH BRODKIN A. Keith Brodkin Chairman MFS FUND DISTRIBUTORS, INC. By: WILLIAM W. SCOTT, JR. William W. Scott, Jr., President EX-99.10 21 24-E2 CONSENT November 28, 1995 MFS Series Trust X 500 Boylston Street Boston, MA 02116 Re: Post-Effective Amendment No. 13 to Registration Statement on Form N-1A (File No. 33-1657) (the "Registration Statement") for MFS Series Trust X (the "Trust") on Behalf of MFS Government Mortgage Fund Gentlemen: I am Senior Counsel of Massachusetts Financial Services Company, which serves as investment adviser to the Trust, and the Assistant Secretary Pro Tempore 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 November 18, 1985, and executed and delivered in Boston, Massachusetts, as amended and restated January 19, 1995 and amended June 2, 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 (without par value) ("Shares") 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, 58,685,834 shares of beneficial interest by Post-Effective Amendment No. 13 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 July 31, 1995, including the 58,642,744 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. 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. 13 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 by the Trust upon receipt by the Trust or its agent of consideration thereof in accordance with the terms described in the Registration Statement, subject to compliance with the Securities Act of 1933, the Investment Company Act of 1940 and applicable state laws regulating the sale of securities. I consent to your filing this opinion with the Securities and Exchange Commission as an exhibit to Post-Effective Amendment No. 13 to the Registration Statement. Very truly yours, JAMES F. DESMARAIS James F. DesMarais Assistant Secretary Pro Tempore JFD/bjn EX-99.11 22 INDEPENDENT AUDITORS' CONSENT EXHIBIT NO. 99.11 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Post-Effective Amendment No. 13 to Registration Statement No. 33-1657 of MFS Series Trust X on behalf of MFS Government Mortgage Fund of our report dated September 8, 1995 appearing in the annual report to shareholders for the year ended July 31, 1995 of MFS Government Mortgage Fund, 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, which are part of such Registration Statement. /s/DELOITTE & TOUCHE, LLP Boston, Massachusetts November 27, 1995 EX-99.13 23 INVESTMENT REP LETTER EXHIBIT NO. 99.13 MASSACHUSETTS FINANCIAL SERVICES COMPANY 200 BERKELEY STREET, BOSTON, MASSACHUSETTS 617 423-3500 December 13, 1986 MFS Goverment Securities High Yield Trust 200 Berkeley Street Boston, Massachusetts 02116 Gentlemen: In connection with our purchase of 10,499 Shares of Beneficial Interest (without par value) of MFS Government Securities High Yield Trust, we hereby represent and warrant to you that we are purchasing said shares as an investment with no intention of redeeming or reselling said shares until a date at least two years hereafter. Very truly yours, By: RICHARD B. BAILEY Richard B. Bailey Chairman EX-99.15(C) 24 DISTRIBUTION PLAN EXHIBIT NO. 99.15(c) MFS SERIES TRUST X MFS/FOREIGN & COLONIAL INTERNATIONAL GROWTH FUND DISTRIBUTION PLAN DISTRIBUTION PLAN with respect to the shares of beneficial interest to be designated "Class A" of the MFS/Foreign & Colonial International Growth Fund (the "Fund"), a series of MFS Series Trust X (the "Trust"), a Massachusetts business trust, dated the 1st of September, 1995. 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 the 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 any ongoing maintenance commissions to Dealers (excluding service fees described in paragraph 4), 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 as specified in the Distribution Agreement 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 0.25% 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"). All or a portion of the distribution fee paid by the Fund to the Distributor may be paid by the Distributor to Dealers in consideration of the Dealer's services as a dealer of the Shares. The Distributor may from time to time establish minimum amount requirements and additional or different dealer qualification standards or other criteria to be met by dealers for payment of any fee under this paragraph 3. It is understood that the Distributor may, but is not required to, pay reduced fees or no fees under this paragraph 3 to Dealers with respect to assets represented by Shares that have converted from shares of beneficial interest of the Fund designated "Class B." 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 with respect to Shares sold prior to a 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 0.50% 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, however, 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 a 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 1940 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. EX-99.15(D) 25 DISTRIBUTION PLAN EXHIBIT NO. 99.15(d) MFS SERIES TRUST X MFS/FOREIGN & COLONIAL INTERNATIONAL GROWTH AND INCOME FUND DISTRIBUTION PLAN DISTRIBUTION PLAN with respect to the shares of beneficial interest to be designated "Class A" of the MFS/Foreign & Colonial International Growth and Income Fund (the "Fund"), a series of MFS Series Trust X (the "Trust"), a Massachusetts business trust, dated the 1st day of September, 1995. 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 the 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 any ongoing maintenance commissions to Dealers (excluding service fees described in paragraph 4), 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 as specified in the Distribution Agreement 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 0.25% 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"). All or a portion of the distribution fee paid by the Fund to the Distributor may be paid by the Distributor to Dealers in consideration of the Dealer's services as a dealer of the Shares. The Distributor may from time to time establish minimum amount requirements and additional or different dealer qualification standards or other criteria to be met by dealers for payment of any fee under this paragraph 3. It is understood that the Distributor may, but is not required to, pay reduced fees or no fees under this paragraph 3 to Dealers with respect to assets represented by Shares that have converted from shares of beneficial interest of the Fund designated "Class B." 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 with respect to Shares sold prior to a 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 0.50% 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, however, 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 a 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 1940 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. EX-99.15(E) 26 DISTRIBUTION PLAN EXHIBIT NO. 99.15(e) MFS SERIES TRUST X MFS/FOREIGN & COLONIAL EMERGING MARKETS EQUITY FUND DISTRIBUTION PLAN DISTRIBUTION PLAN with respect to the shares of beneficial interest to be designated "Class A" of the MFS/Foreign & Colonial Emerging Markets Equity Fund (the "Fund"), a series of MFS Series Trust X (the "Trust"), a Massachusetts business trust, dated the 1st of September, 1995. 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 the 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 any ongoing maintenance commissions to Dealers (excluding service fees described in paragraph 4), 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 as specified in the Distribution Agreement 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 0.25% 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"). All or a portion of the distribution fee paid by the Fund to the Distributor may be paid by the Distributor to Dealers in consideration of the Dealer's services as a dealer of the Shares. The Distributor may from time to time establish minimum amount requirements and additional or different dealer qualification standards or other criteria to be met by dealers for payment of any fee under this paragraph 3. It is understood that the Distributor may, but is not required to, pay reduced fees or no fees under this paragraph 3 to Dealers with respect to assets represented by Shares that have converted from shares of beneficial interest of the Fund designated "Class B." 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 with respect to Shares sold prior to a 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 0.50% 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, however, 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 a 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 1940 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. EX-99.15(F) 27 PLAN OF DISTRIBUTION EXHIBIT NO. 99.15(f) MFS SERIES TRUST X MFS/FOREIGN & COLONIAL INTERNATIONAL GROWTH FUND PLAN OF DISTRIBUTION PLAN OF DISTRIBUTION with respect to the shares of beneficial interest to be designated "Class B" of the MFS/Foreign & Colonial International Growth Fund (the "Fund"), a series of MFS Series Trust X (the "Trust"), a Massachusetts business trust, dated the 1st day of September, 1995. 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 a 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, however, 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, however, 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. EX-99.15(G) 28 PLAN OF DISTRIBUTION EXHIBIT NO. 15(g) MFS SERIES TRUST X MFS/FOREIGN & COLONIAL INTERNATIONAL GROWTH AND INCOME FUND PLAN OF DISTRIBUTION PLAN OF DISTRIBUTION with respect to the shares of beneficial interest to be designated "Class B" of the MFS/Foreign & Colonial International Growth and Income Fund (the "Fund"), a series of MFS Series Trust X (the "Trust"), a Massachusetts business trust, dated the 1st day of September, 1995. 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 a 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, however, 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, however, 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. EX-99.15(H) 29 PLAN OF DISTRIBUTION EXHIBIT NO. 99.15(h) MFS SERIES TRUST X MFS/FOREIGN & COLONIAL EMERGING MARKETS EQUITY FUND PLAN OF DISTRIBUTION PLAN OF DISTRIBUTION with respect to the shares of beneficial interest to be designated "Class B" of the MFS/Foreign & Colonial Emerging Markets Equity Fund (the "Fund"), a series of MFS Series Trust X (the "Trust"), a Massachusetts business trust, dated the 1st day of September, 1995. 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 a 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, however, 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, however, 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. EX-27 30 ARTICLE 6FDS CLASS A
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF MFS GOVERNMENT MORTGAGE FUND CLASS A AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 001 MFS GOVERNMENT MORTGAGE FUND CLASS A YEAR JUL-31-1995 JUL-31-1995 1,353,250,045 1,355,622,211 13,642,208 19,877 157,067 1,369,441,363 20,134,375 0 3,254,191 23,388,566 0 1,471,569,421 80,276,379 65,284,398 0 121,221 0 127,510,438 2,115,035 (1,346,052,797) 0 120,116,845 0 25,579,049 (94,537,796) (44,236,628) 68,708,743 119,009,911 0 (26,574,630) 0 (2,036,802) 27,491,721 14,375,598 1,875,858 (306,930,559) 0 0 50,624 88,989,835 9,450,684 0 25,579,049 1,454,041,604 6.49 0.45 0.14 (0.42) 0.00 (0.01) 6.65 1.25 0 0
EX-27 31 ARTICLE 6 FDS CLASS B
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF MFS GOVERNMENT MORTGAGE FUND CLASS B AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 002 MFS GOVERNMENT MORTGAGE FUND CLASS B YEAR JUL-31-1995 JUL-31-1995 1,353,250,045 1,355,622,211 13,642,208 19,877 157,067 1,369,441,363 20,134,375 0 3,254,191 23,388,566 0 1,471,569,421 122,148,159 189,497,087 0 121,221 0 127,510,438 2,115,035 (1,346,052,797) 0 120,116,845 0 25,579,049 (94,537,796) (44,236,628) 68,708,743 119,009,911 0 (62,269,346) 0 0 4,039,025 75,797,892 4,409,939 (306,930,559) 0 0 50,624 88,989,835 9,450,684 0 25,579,049 1,454,041,604 6.49 0.41 0.14 (0.38) 0.00 (0.01) 6.65 1.96 0 0
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