Edgar Filing: MFS MULTIMARKET INCOME TRUST

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON

FEBRUARY 28, 2006

1940 ACT FILE NO. 811-4975

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM N-2

REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|

Amendment No. 13 |X|

MFS(R) MULTIMARKET INCOME TRUST
(Exact Name of Registrant as Specified in Charter)

500 Boylston Street, Boston, Massachusetts 02116
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code: 617-954-5000

Susan S. Newton
Assistant Secretary and Assistant Clerk

MFS Special Value Trust
c/o Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
(Name and Address of Agent for Service)

MFS MULTIMARKET INCOME TRUST
PART A.

INFORMATION REQUIRED IN A PROSPECTUS

Items 1 and 2: Omitted pursuant to General Instruction G.3 to Form N-2.

Item 3.1 Fee Table: Inapplicable - 1940 Act filing only.

Items 3.2, 4, 5, 6 and 7: Omitted pursuant to General Instruction G.3 to Form
N-2.

Item 8. General Description of Registrant:

8.1. General: The MFS Multimarket Income Trust ("Trust") is a closed-end,
diversified management investment company which was organized as a business
trust under the laws of The Commonwealth of Massachusetts on January 9, 1987.

8.2, 8.3, and 8.4. Investment Objectives and Policies, Risk Factors and Other
Policies:

INVESTMENT OBJECTIVE AND POLICIES

The Trust's investment objective is to provide a high level of current income
through investment in fixed income securities. The investment objective and
policies of the Trust may, unless otherwise specifically stated, be changed by
the Trustees of the Trust without a vote of the shareholders. A change in the
Trust's objective may result in the Trust having an investment objective
different from the objective which a shareholder considered appropriate at the
time of investment in the Trust. The Trust will attempt to achieve this
objective by allocating portfolio assets among various categories of fixed
income securities. The investment adviser, Massachusetts Financial Services
Company, a Delaware corporation ("MFS" or "the Investment Adviser"), will
monitor the Trust's portfolio performance on an ongoing basis and reallocate
assets in response to actual and anticipated market and economic changes. In
pursuing this objective, preservation of capital will be a consideration,
although capital appreciation, if any, will be incidental. There can be no
assurance that the Trust will achieve its investment objective.

The Trust will rely on the Investment Adviser to determine, based upon yields
currently available for various categories of fixed income securities, the
relative portions of the Trust's assets which should be invested in particular
markets. Markets selected will be those which offer the highest income
available, except where differences in yield are not sufficient to justify
investments in higher risk securities. For the risk considerations involved, see
"Special Considerations" below.

The market categories in which the Trust may invest its assets are: (i) high
yielding corporate fixed income securities, some of which may involve equity
features; (ii) debt securities issued by foreign governments and their political
subdivisions; (iii) securities

that are issued or guaranteed as to interest and principal by the U.S.
Government, its agencies, authorities or instrumentalities ("Government
Securities"), with related options; (iv) long-term or short-term municipal
securities; (v) short-term corporate obligations and higher quality long-term
corporate obligations; (vi) obligations of banks or savings and loan
associations (including certificates of deposit and bankers' acceptances); and
(vii) to the extent available and permissible, options and futures contracts on
securities, currencies and indices as more fully described below. At any given
time, the Trust's portfolio may be entirely or only partially invested in a
particular securities category. Under normal economic or market conditions, at
least 80% of the Trust's portfolio will be invested in fixed income securities.
For this purpose the Trust will consider preferred stocks to be convertible into
fixed income securities. Up to 20% of the Trust's assets may be invested in
equity securities.

Government Securities. The Trust may invest in Government Securities, which
include (i) U.S. Treasury obligations, which differ only in their interest
rates, maturities and times of issuance: U.S. Treasury bills (maturity 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; (ii) 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, e.g., direct
pass-through certificates of the Government National Mortgage Association
("GNMA"); some of which are supported by the right of the issuer to borrow from
the U.S. Government, e.g., obligations of Federal Home Loan Banks; and some of
which are backed only by the credit of the issuer itself, e.g., obligations of
the Student Loan Marketing Association; and (iii) interests in trusts or other
entities representing interests in obligations that are issued and guaranteed by
the U.S. Government, its agencies, authorities or instrumentalities. For a
description of obligations issued or guaranteed by U.S. Government agencies or
instrumentalities, see "Description of Obligations Issued or Guaranteed by U.S.
Government Agencies or Instrumentalities" below.

Government Securities do not generally involve the credit risks associated with
other types of interest bearing securities, although, as a result, the yields
available from Government Securities are generally lower than the yields
available from corporate interest bearing securities. Like other interest
bearing securities, however, the values of Government Securities change as
interest rates fluctuate.

Foreign Securities. The Trust may invest up to 70% of its total assets in
foreign securities which are not traded on a U.S. exchange (excluding American
Depositary Receipts), which include fixed income securities that are issued by
foreign governments or any of their political subdivisions that are considered
stable by the Investment Adviser. The Trustees do not believe that the credit
risk inherent in the obligations of stable foreign governments is significantly
greater than that of U.S. Government obligations. For the risk considerations
involved, see "Special Considerations" below. Although the percentage of the
Trust's assets invested in securities issued abroad and denominated in foreign
currencies ("non-U.S. dollar securities") will vary depending on

the relative yield of such securities, the state of the economies of the
countries in which the investments are made and such countries' financial
markets, and the relationship of such countries' currencies to the U.S. dollar,
under normal conditions the Trust's portfolio of foreign securities will include
those of a number of foreign countries. The Trust may also invest in fixed
income securities issued by foreign companies and may hold foreign currency for
hedging purposes. The Trust may also hold foreign currency in anticipation of
purchasing foreign securities.

Investments in non-U.S. dollar securities are evaluated primarily on the
strength of a particular currency against the U.S. dollar and on the interest
rate climate of that country. Currency is judged on the basis of fundamental
economic criteria (e.g., relative inflation levels and trends, growth rate
forecasts, balance of payments status, and economic policies) as well as
technical and political data. In addition to the foregoing, interest rates are
evaluated on the basis of differentials or anomalies that may exist between
different countries.

Brady Bonds. The Trust may invest in Brady Bonds, which are securities created
through the exchange of existing commercial bank loans to public and private
entities in certain emerging markets for new bonds in connection with debt
restructurings under a debt restructuring plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Plan debt
restructurings have been implemented to date in Argentina, Brazil, Bulgaria,
Costa Rica, Croatia, the Dominican Republic, Ecuador, Jordan, Mexico, Morocco,
Nigeria, Panama, Peru, the Phillippines, Poland, Slovenia, Uruguay and
Venezuela. Brady Bonds have been issued only recently, and for that reason do
not have a long payment history. Brady Bonds may be collateralized or
uncollateralized, are issued in various currencies (but primarily the U.S.
dollar) and are actively traded in over-the-counter secondary markets. U.S.
dollar-denominated, collateralized Brady Bonds, which may be fixed-rate bonds or
floating-rate bonds, are generally collateralized in full as to principal by
U.S. Treasury zero coupon bonds having the same maturity as the bonds. Brady
Bonds are often viewed as having three or four valuation components; the
collateralized repayment of principal at final maturity; the collateralized
interest payments; the uncollateralized interest payments; and any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constituting the "residual risk"). In light of the residual risk of
Brady Bonds and the history of defaults of countries issuing Brady Bonds with
respect to commercial bank loans by public and private entities, investments in
Brady Bonds may be viewed as speculative.

American Depositary Receipts. The Trust may invest in American Depositary
Receipts ("ADRs") which are certificates issued by a U.S. depository (usually a
bank) and represent a specified quantity of shares of an underlying non-U.S.
stock on deposit with a custodian bank as collateral. ADRs may be sponsored or
unsponsored. A sponsored ADR is issued by a depository which has an exclusive
relationship with the issuer of the underlying security. An unsponsored ADR may
be issued by any number of U.S. depositories. Under the terms of most sponsored
arrangements, depositories agree to distribute notices of shareholder meetings
and voting instructions, and to provide

shareholder communications and other information to the ADR holders at the
request of the issuer of the deposited securities. The depository of an
unsponsored ADR, on the other hand, is under no obligation to distribute
shareholder communications received from the issuer of the deposited securities
or to pass through voting rights to ADR holders in respect of the deposited
securities. The Trust may invest in either type of ADR. Although the U.S.
investor holds a substitute receipt of ownership rather than direct stock
certificates, the use of the depositary receipts in the United States can reduce
costs and delays as well as potential currency exchange and other difficulties.
The Trust may purchase securities in local markets and direct delivery of these
ordinary shares to the local depository of an ADR agent bank in the foreign
country. Simultaneously, the ADR agents create a certificate which settles at
the Trust's custodian in five days. The Trust may also execute trades on the
U.S. markets using existing ADRs. A foreign issuer of the security underlying an
ADR is generally not subject to the same reporting requirements in the United
States as a domestic issuer. Accordingly the information available to a U.S.
investor will be limited to the information the foreign issuer is required to
disclose in its own country and the market value of an ADR may not reflect
undisclosed material information concerning the issuer of the underlying
security. ADRs may also be subject to exchange rate risks if the underlying
foreign securities are traded in foreign currency.

Emerging Market Securities. Consistent with the Trust's objective and policies,
the Trust may invest in securities of issuers whose principal activities are
located in emerging market countries. Emerging market countries include any
country determined by the Investment Adviser to have an emerging market economy,
taking into account a number of factors, including whether the country has a
low- to middle-income economy according to the International Bank for
Reconstruction and Development, the country's foreign currency debt rating, its
political and economic stability and the development of its financial and
capital markets. The Investment Adviser determines whether an issuer's principal
activities are located in an emerging market country by considering such factors
as its country of organization, the principal trading market for its securities
and the source of its revenues and location of its assets. The issuer's
principal activities generally are deemed to be located in a particular country
if: (a) the security is issued or guaranteed by the government of that country
or any of its agencies, authorities or instrumentalities; (b) the issuer is
organized under the laws of, and maintains a principal office in, that country;
(c) the issuer has its principal securities trading market in that country; (d)
the issuer derives 50% or more of its total revenues from goods sold or services
performed in that country; or (e) the issuer has 50% or more of its assets in
that country.

The risks of investing in foreign securities may be intensified in the case of
investments in emerging markets. Securities of many issuers in emerging markets
may be less liquid and more volatile than securities of comparable domestic
issuers. Emerging markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when a portion of the assets of the Trust is

uninvested and no return is earned thereon. The inability of the Trust to make
intended security purchases due to settlement problems could cause the Trust to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result in losses to the Trust due to
subsequent declines in value of the portfolio security, a decrease in the level
of liquidity in the Trust's portfolio, or, if the Trust has entered into a
contract to sell the security, in possible liability to the purchaser. Certain
markets may require payment for securities before delivery, and in such markets
the Trust bears the risk that the securities will not be delivered and that the
Trust's payments will not be returned. Securities prices in emerging markets can
be significantly more volatile than in the more developed nations of the world,
reflecting the greater uncertainties of investing in less established markets
and economies. In particular, countries with emerging markets may have
relatively unstable governments, present the risk of nationalization of
businesses, restrictions on foreign ownership, or prohibitions of repatriation
of assets, and may have less protection of property rights than more developed
countries. The economies of countries of emerging markets may be predominantly
based on only a few industries, may be highly vulnerable to changes in local or
global trade conditions and may suffer from extreme and volatile debt burdens or
inflation rates. Local securities markets may trade a small number of securities
and may be unable to respond effectively to increases in trading volume
potentially making prompt liquidation of substantial holdings difficult or
impossible at times. Securities of issuers located in countries with emerging
markets may have limited marketability and may be subject to more abrupt or
erratic price movements.

Certain emerging markets may require governmental approval for the repatriation
of investment income, capital or the proceeds of sale of securities of foreign
investors. In addition, if a deterioration occurs in an emerging market's
balance of payments or for other reasons a country could impose temporary
restrictions on foreign capital remittances. The Trust could be adversely
effected by delays in, or a refusal to grant, any required governmental approval
for repatriation of capital, as well as by the application to the Trust of any
restrictions on investments.

Investment in certain foreign emerging market debt obligations may be restricted
or controlled to varying degrees. These restrictions or controls may at times
preclude investment in certain foreign emerging market debt obligations and
increase the expenses of the Trust.

Corporate Fixed Income Securities. Corporate fixed income securities of both
domestic and foreign issuers in which the Trust may invest include preferred and
preference stock and all types of long-term or short-term debt obligations, such
as bonds, debentures, notes, equipment lease certificates, equipment trust
certificates, conditional sales contracts and commercial paper (including
obligations, such as repurchase agreements, secured by such instruments).
Corporate fixed income securities may involve equity features, such as
conversion or exchange rights or warrants for the acquisition of stock of the
same or a different issuer; participations based on revenues, sales or profits;
or the purchase of common stock in a unit transaction (where corporate debt
securities and common stock are offered as a unit).

High yield corporate fixed income securities in which the Trust may invest are
ordinarily unrated or in the lower rating categories of recognized rating
agencies (that is, ratings of Baa or lower by Moody's Investors Services, Inc.
("Moody's") or BBB or lower by Standard & Poor's Ratings Services ("S&P") or
Fitch IBCA, Inc. ("Fitch")) and will involve greater volatility of price and
risk of principal and income (including the possibility of default or bankruptcy
of the issuers of such securities) than securities in the higher rating
categories. Certain unrated or lower rated fixed income securities, e.g., "junk
bonds", are very speculative, involve high risk and may be questionable as to
principal and interest payments. Securities rated Baa have speculative
characteristics, securities rated Ba or BB or lower are considered speculative
and securities rated below BBB or Baa may be questionable as to principal and
interest payments. For a description of these and other rating categories, see
"Description of Bond Ratings; Moody's Investors Service, Inc." and "Standard &
Poor's Ratings Services" and "Fitch IBCA, Inc." below. No minimum rating
standard is required for a purchase by the Trust.

The Trust may invest up to 40% of the value of its total assets in each of the
electric utility and telephone industries, but will not invest more than 25% in
either of those industries unless yields available for four consecutive weeks in
the four highest rating categories on new issue bonds in such industry (issue
size of $50 million or more) have averaged in excess of 105% of yields of new
issue long-term industrial bonds similarly rated (issue size of $50 million or
more).

Bank Obligations. The Trust may invest in obligations of domestic and foreign
banks which, at the date of investment, have capital, surplus and undivided
profits (as of the date of their most recently published financial statements)
in excess of $100 million. The Trust may invest in obligations of other banks or
savings and loan associations if such obligations are insured by the Federal
Deposit Insurance Corporation.

Municipal Obligations. The Trust may invest in municipal obligations issued by
or on behalf of states, territories and possessions of the United States and the
District of Columbia and their political subdivisions, agencies or
instrumentalities when the Investment Adviser determines that they offer the
highest income available, except where differences in yield are not sufficient
to justify assuming the investment risk of such securities. Such municipal
obligations may be unrated or in the medium and lower rating categories of
recognized rating agencies, in which securities are speculative, involve high
risk and are questionable as to principal and interest payments. For the risk
considerations involved, see "Special Considerations" below.

Other Investments. When the Investment Adviser believes that investing for
temporary defensive purposes is appropriate, such as during periods of unusual
market conditions, or when relative yields are deemed attractive, part or all of
the Trust's assets may be invested in cash (including foreign currency) or cash
equivalent short-term obligations including, but not limited to, certificates of
deposit, commercial paper, short-term notes, obligations issued or guaranteed by
the U.S. Government or any of its agencies or instrumentalities and repurchase
agreements.

The investment objective and policies described above may be changed without
shareholder approval, except that the requirement that at least 80% of the
Trust's assets under normal circumstances be invested in fixed income securities
is a fundamental policy and may not be changed without the approval of the
holders of a majority of its shares (as defined below under "Investment
Restrictions").

INVESTMENT PRACTICES

The following investment practices apply to the portfolio investments of the
Trust:

Options on U.S. and Foreign Government Securities. In an effort to increase
current income and to reduce fluctuations in net asset value, the Trust may
write covered put and call options and purchase put and call options on U.S. and
foreign government securities that are traded on United States and foreign
securities exchanges and over-the-counter. This practice may result in the loss
of principal under certain market conditions. For a further discussion of the
use, risks and costs of options trading, see "Options and Futures" below.

"Reset Options". In certain instances, the Trust may enter into options on
Treasury securities which provide for 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 Trust 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 Trust
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.

Futures Contracts and Options on Futures Contracts. The Trust may enter into
contracts for the purchase or sale for future delivery of fixed income
securities or contracts based on municipal bond or other financial indices
including any index of U.S. or foreign government securities ("Futures
Contracts") and may purchase and write options to buy or sell Futures Contracts
("Options on Futures Contracts"). Options on Futures Contracts to be written or
purchased by the Trust will be traded on U.S. and

foreign exchanges. These investment techniques are designed only to hedge
against anticipated future changes in interest rates which otherwise might
either adversely affect the value of the Trust's portfolio securities or
adversely affect the prices of securities which the Trust intends to purchase at
a later date. Should interest rates move in an unexpected manner, the Trust may
not achieve the anticipated benefits of Futures Contracts or Options on Futures
Contracts or may realize a loss. For further discussion of the use, risks and
costs of Futures Contracts and Options on Futures Contracts, see "Options and
Futures" below. The Trustees have adopted the requirement that Futures Contracts
and Options on Futures Contracts only be used as a hedge and not for
speculation.

Options on Foreign Currencies. The Trust may purchase and write put and call
options on foreign currencies for the purpose of protecting against declines in
the dollar value of foreign portfolio securities and against increases in the
dollar cost of foreign securities to be acquired. As in the case of other kinds
of options, however, the writing of an option on foreign currency will
constitute only a partial hedge, up to the amount of the premium received, and
the Trust could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements adverse
to the Trust's position, it may forfeit the entire amount of the premium plus
related transactions costs. Options on foreign currencies to be written or
purchased by the Trust will be traded on U.S. and foreign exchanges or
over-the-counter. For further discussion of the use, risks and costs of options
on foreign currencies, see "Options and Futures" below.

Forward Foreign Currency Exchange Contracts. The Trust may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
currency at a future date at a price set at the time of the contract (a "Forward
Contract"). The Trust will enter into Forward Contracts for hedging purposes as
well as for non-hedging purposes. The Trust may also enter into a Forward
Contract on one currency in order to hedge against risk of loss arising from
fluctuations in the value of a second currency (referred to as a "cross hedge")
if, in the judgment of the Investment Adviser, a reasonable degree of
correlation can be expected between movements in the values of the two
currencies. Transactions in Forward Contracts entered into for hedging purposes
will include forward purchases or sales of foreign currencies for the purpose of
protecting the dollar value of securities denominated in a foreign currency or
protecting the dollar equivalent of interest or dividends to be paid on such
securities. By entering into such transactions, however, the Trust may be
required to forego the benefits of advantageous changes in exchange rates. The
Trust may also enter into transactions in Forward Contracts for other than
hedging purposes. For example, if the Investment Adviser expects that the value
of a particular foreign currency will increase or decrease relative to the value
of the U.S. dollar, the Trust may purchase or sell such currency, respectively,
through a Forward Contract. If the expected changes in the value of the currency
occur, the Trust will realize profits which will increase its gross income.
Where

exchange rates do not move in the direction or to the extent anticipated,
however, the Trust may sustain losses which will reduce its gross income. Such
transactions could involve significant risk of loss.

The Trust has established procedures which require the use of segregated assets
or "cover" in connection with the purchase and sale of such contracts. In those
instances in which the Trust satisfies this requirement through segregation of
assets, it will segregate liquid assets, which will be marked to market on a
daily basis, in an amount equal to the value of its commitments under Forward
Contracts entered into by the Trust. While these contracts are not presently
regulated by the Commodity Futures Trading Commission ("CFTC"), the CFTC may in
the future assert authority to regulate Forward Contracts. In such event, the
Trust's ability to utilize Forward Contracts in the manner set forth above may
be restricted.

Lending of Portfolio Securities. The Trust may seek to increase its income by
lending portfolio securities under present regulatory policies, including those
of the Board of Governors of the Federal Reserve System and the SEC. Such loans
will usually be made only to member banks of the Federal Reserve System and
member firms (and subsidiaries thereof) of the New York Stock Exchange, and
would be required to be secured continuously by collateral in cash, U.S.
Treasury securities, an irrevocable letter of credit or other collateral
permissible under SEC policies and maintained on a current basis in an amount at
least equal to the market value of the securities loaned. The Trust would have
the right to call a loan and obtain the securities loaned at any time on
customary industry settlement notice. For the duration of a loan, the Trust
would continue to receive the equivalent of the interest or dividends paid by
the issuer on the securities loaned. The Trust would also receive a fee from the
borrower. The Trust would also receive compensation from the investment of the
collateral, less a fee paid to the borrower, if the collateral is in the form of
cash. The Trust would not, however, have the right to vote any securities having
voting rights during the existence of the loan, but the Trust would call the
loan in anticipation of an important vote to be taken among holders of the
securities or of the giving or withholding of their consent on a material matter
affecting the investment. As with other extensions of credit, there are risks of
delay in recovery or even loss of rights in the collateral should the borrower
of the securities fail financially. However, the loans would be made only to
entities deemed by the Investment Adviser to be of good standing, and when, in
the judgment of the Investment Adviser, the consideration which can be earned
currently from securities loans of this type justifies the attendant risk. If
the Investment Adviser determines to make securities loans, it is intended that
the value of the securities loaned would not exceed 30% of the value of the
Trust's assets.

"When-Issued Securities". Securities may be purchased on a "when-issued" or on a
"forward delivery" basis, which means that the obligations will usually be
delivered at a future date 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 Trust is not limited to the amount of
securities for

which it may have commitments to purchase on such basis, it is expected that
under normal circumstances, the Trust will not commit more than 30% of its
assets to such purchases. The Trust does not pay for the securities until
received or start earning interest on them until the contractual settlement
date. While awaiting delivery of securities purchased on such bases, the Trust
will segregate liquid assets sufficient to cover its commitments. Although the
Trust does not intend to make such purchases for speculative purposes, purchases
of securities on such bases may involve more risk than other types of purchases.

Repurchase Agreements. The Trust may enter into repurchase agreements in order
to earn income on available cash or as a temporary defensive measure. Under a
repurchase agreement, the Trust 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 Trust's right to liquidate the securities may be
restricted (during which time the value of the securities could decline).

The Trust may enter into repurchase agreements with sellers who are member firms
(or subsidiaries thereof) of the New York Stock Exchange, members of the Federal
Reserve System, or recognized primary Government Securities dealers or
institutions which the Investment Adviser has determined to be of comparable
creditworthiness. The securities that the Trust 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 Trust, or the purchase and repurchase prices may be the same, with
interest at a standard rate due to the Trust together with the repurchase price
on repurchase. In either case, the income to the Trust is unrelated to the
interest rate on the Government Securities.

The repurchase agreement provides that in the event the seller fails to pay the
amount agreed upon on the agreed upon delivery date or upon demand, as the case
may be, the Trust will have the right to liquidate the securities. If at the
time the Trust 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 Trust's exercise of its
right to liquidate the securities may be delayed (during which time the market
value of the securities could decline, resulting in a net loss to the Trust) and
the Trust may incur certain costs in attempting to exercise this right. The
Trust has adopted and follows procedures which are intended to minimize the
risks of repurchase agreements. For example, the Trust only enters into
repurchase agreements after the Investment Adviser has determined that the
seller is creditworthy, and the Investment Adviser monitors the 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

Trust has the right to make margin calls at any time if the value of the
securities falls below the agreed upon collateral.

Mortgage Pass-Through Securities. The Trust 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 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 a part
of a premium if any has been paid, and the actual yield (or total return) to the
Trust may be different than the quoted yield on the securities. Mortgage
prepayments generally increase with falling interest rates and decrease with
rising interest rates. Like other fixed income securities, when interest rates
rise the value of the 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.

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. 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 government guarantor of mortgage pass-through securities is GNMA.
GNMA is a wholly owned U.S. Government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the U.S. Government, the timely payment of principal and
interest on securities issued by institutions approved by GNMA (such as savings
and loan institutions, commercial banks and mortgage bankers) and backed by
pools of FHA-insured or VA-guaranteed mortgages. These guarantees, however, do
not apply to the market value or yield of mortgage pass-through securities. GNMA
securities are often purchased at a premium over the maturity value of the
underlying mortgages. This premium is not guaranteed and will be lost if
prepayment occurs.

Government-related guarantors (i.e., whose guarantees are not backed by the full
faith and credit of the U.S. Government) include the Federal National Mortgage
Association ("FNMA") and 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
sellers/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 of principal and interest by FNMA and not guaranteed by the U.S.
Government.

FHLMC was created by Congress in 1970 as a corporate instrumentality of the U.S.
Government for the purpose of increasing the availability of mortgage credit for
residential housing. FHLMC issues Participation Certificates ("PCs") which
represent interests in conventional mortgages (i.e., not federally insured or
guaranteed) from FHLMC's national portfolio. FHLMC guarantees timely payment of
interest and ultimate collection of principal regardless of the status of the
underlying mortgage loans. Bonds issued by FHLMC are not guaranteed by the U.S.
Government.

Corporate Asset-Backed Securities. The Trust may invest in corporate
asset-backed securities. These securities, issued by trusts and special purpose
corporations are backed by a pool of assets, such as credit card and automobile
loan receivables, representing the obligations of a number of different parties.

Corporate asset-backed securities present certain risks. For instance, in the
case of credit card receivables, these securities may not have the benefit of
any security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of automobile receivables permit the servicers to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is the risk that the purchaser would
acquire an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there is
the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.

Corporate asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors to make payments on underlying assets, the
securities may contain elements of credit support which fall into two
categories: (1) liquidity protection and (2) protection against losses resulting
from ultimate default by an obligor on the underlying assets.

Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
resulting from ultimate default ensures payment through insurance policies or
letters of credit obtained by the issuer or sponsor from third parties. The
Trust will not pay any additional or separate fees for credit support. The
degree of credit support provided for each issue is generally based on
historical information with respect to the level of credit risk associated with
the underlying assets. Delinquency or loss in excess of that anticipated credit
support or failure of the credit support could adversely affect the return on an
investment in such a security.

Mortgage "Dollar Roll" Transactions. The Trust may enter into mortgage "dollar
roll" transactions with selected banks and broker-dealers pursuant to which the
Trust 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
Trust records these transactions as sale and purchase transactions rather than
as borrowing transactions. The Trust 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. During
the roll period, the Trust forgoes principal and interest paid on the mortgage-
backed securities. The Trust 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 Trust may also be compensated by
receipt of a commitment fee.

Leveraging. The Trust may borrow money for investment from banks and through the
issuance of bonds, debentures, notes or other instruments evidencing
indebtedness ("Senior Securities") and invest the proceeds in accordance with
the Trust's investment objective and policies. In determining whether to employ
leverage, the Trustees will consider such factors as the estimated spread
between interest required to be paid on money borrowed by the Trust and interest
which can be earned by investing the proceeds of borrowings, as well as the
level of distributions currently being made by the Trust to its shareholders.
Under the 1940 Act, the Trust must maintain asset coverage (which is the ratio
where the value of the total assets of the Trust plus all liabilities and
indebtedness not represented by Senior Securities bears to the aggregate amount
of Senior Securities representing any indebtedness of the Trust) of at least
300% with respect to Senior Securities representing indebtedness. The Trust
would issue Senior Securities to raise money to purchase securities for the
Trust's portfolio to preserve or enhance the Trust's payment of dividends.

Reverse Repurchase Agreements. The Trust may enter into reverse repurchase
agreements. In a reverse repurchase agreement, the Trust will sell securities
and receive cash proceeds, subject to its agreement to repurchase the

securities at a later date for a fixed price reflecting a market rate of
interest. There is a risk that the counterparty to a reverse repurchase
agreement will be unable or unwilling to complete the transaction as scheduled,
which may result in losses to the Trust. The Trust will invest the proceeds
received under a reverse repurchase agreement in accordance with its investment
objective and policies. In determining whether to engage in reverse repurchase
agreements, the Trustees will consider factors such as the estimated spread
between the imputed interest required to be paid by the Trust under the
agreement and interest which can be earned by investing the proceeds received
under the agreement, as well as the level of distributions currently being made
by the Trust to its shareholders. Reverse repurchase agreements are considered
borrowings for purposes of the Trust's investment policies and restrictions
concerning borrowings, and therefore these borrowing limitations apply to this
investment practice. The Trust must segregate liquid assets, marked to market
daily, in an amount at least equal to the Trust's obligations under the
agreement, which is generally satisfied by the Trust providing the counterparty
with collateral in the form of the securities subject to the repurchase
agreement.

Zero Coupon Bonds, Deferred Interest Bonds and PIK Bonds. The Trust may invest
in zero coupon bonds as well as in deferred interest bonds and bonds on which
the interest is payable in kind ("PIK bonds"). Zero coupon and deferred interest
bonds are debt obligations which are issued at a significant discount from face
value. The discount approximates the total amount of interest the bonds will
accrue and compound over the period until maturity or the first interest payment
date at a rate of interest reflecting the market rate of the security at the
time of issuance. While zero coupon bonds do not require the periodic payment of
interest, deferred interest bonds provide for a period of delay before the
regular payment of interest begins. PIK bonds are debt obligations which provide
that the issuer thereof may, at its option, pay interest on such bonds in cash
or in the form of additional debt obligations. Such investments benefit the
issuer by mitigating its need for cash to meet debt service, but also require a
higher rate of return to attract investors who are willing to defer receipt of
such cash. Such investments may experience greater volatility in market value
than debt obligations which make regular payments of interest. The Trust will
accrue income on such investments for tax and accounting purposes, which is
distributable to shareholders and which because no cash is received at the time
of accrual may require the liquidation of other portfolio securities to satisfy
the Trust's distribution obligations.

Collateralized Mortgage Obligations and Multiclass Pass-Through Securities. The
Trust may invest a portion of its assets in collateralized mortgage obligations
or "CMOs", which are debt obligations collateralized by mortgage loans or
mortgage pass- through securities which in the case of Government Securities are
issued or guaranteed by the U.S. Government, its agencies, authorities or
instrumentalities. Typically, CMOs are collateralized by certificates issued by
the GNMA, the FNMA or the FHLMC but also may be collateralized by whole loans or
private mortgage pass-through securities (such collateral collectively
hereinafter referred to as "Mortgage Assets").

The Trust may also invest a portion of its assets in multiclass pass-through
securities which are equity 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 and interest on the
Mortgage Assets, and any reinvestment income thereon, provide the funds to pay
debt service on the CMOs. CMOs may be issued by agencies or instrumentalities of
the U.S. Government or by private originators of, or investors in, mortgage
loans, including savings and loan associations, mortgage banks, commercial
banks, investment banks and special purpose subsidiaries of the foregoing. The
issuer of a series of CMOs may elect to be treated as a Real Estate Mortgage
Investment Conduit (a "REMIC").

In a CMO, a series of bonds or certificates may be 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 accrued 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 Trust 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 Trust may invest a portion of its
assets in stripped mortgage-backed securities ("SMBS"), which are derivative
multiclass mortgage securities issued by agencies or instrumentalities of the
U.S. Government, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks and
investment banks.

SMBS are usually structured with two classes that receive different proportions
of interest and principal distributions from a pool of mortgage assets. A common
type of SMBS will have one class receiving some of the interest and most of the
principal from the Mortgage Assets, while the other class will receive most of
the interest and the remainder of the principal. In the most extreme case, one
class will receive all of the interest (the interest only or "IO" class) while
the other class will receive all of the principal (the principal only or "PO"
class). The yield to maturity on an IO is extremely sensitive to the rate of
principal payments (including prepayments on the related underlying Mortgage
Assets) and a rapid rate of principal payments may have a material adverse
effect on such security's yield to maturity. If the underlying Mortgage Assets
experience greater than anticipated prepayments of principal, the Trust may fail
to fully recoup its initial investment in these securities. The market value of
the class consisting primarily or entirely of principal payments may be
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 and some liquidity is available.

Yield Curve Options. The Trust may also enter into options on the "spread", or
differential, between two U.S. or foreign government 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
U.S. or foreign government securities, rather than the prices of the individual
securities, and is usually settled through cash payments. Accordingly, a yield
curve option is profitable to the holder if this differential widens (in the
case of a call) or narrows (in the case of a put), regardless of whether the
yields of the underlying securities increase or decrease.

Yield curve options may be used for the same purposes as other options on
securities. Specifically, the Trust may purchase or write such options in order
to protect against the adverse effects of a potential widening or narrowing of
the spreads between U.S. or foreign government securities, or other interest
rate sensitive instruments, held in the Trust's portfolio. The Trust may also
purchase or write yield curve options for other than hedging purposes if, in the
judgment of the Investment Adviser, the Trust will be able to profit from
movements in the spread between the yields of the underlying U.S. or foreign
government 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 Trust
will be covered. A call (or put) option is covered if the Trust holds another
call (or put) option on the spread between the same two securities and
segregates liquid assets sufficient to cover the Trust's net liability under the
two options. Yield curve options may also be covered in such other manner as may
be in accordance with the requirements of the 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.

Swaps and Related Transactions. As one way of managing its exposure to different
types of investments, the Trust may enter into interest rate swaps, currency
swaps or structures with embedded swaps and other types of available swap
agreements, such as caps, collars and floors. Swaps involve the exchange by the
Trust with another party of cash payments based upon different interest rate
indexes, currencies, and other prices or rates such as the value of mortgage
prepayment rates. For example, in the typical interest rate swap, the Trust
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 notional principal amount determined by the parties.

The Trust may also purchase and sell caps, floors and collars. In a typical cap
or floor agreement, one party agrees to make payments only under specified
circumstances, usually in return for payment of a fee by the counterparty. For
example, the purchase of an interest rate cap entitles the buyer, to the extent
that a specified index exceeds a predetermined interest rate, to receive
payments of interest on a contractually-based principal amount from the
counterparty selling such interest rate cap. The sale of an interest rate floor
obligates the seller to make payments to the extent that a specified interest
rate falls below an agreed-upon level. A collar arrangement combines elements of
buying a cap and selling a floor.

Swap agreements could be used to shift the Trust's investment exposure from one
type of investment to another. For example, if the Trust agreed to exchange
payments in dollars for payments in foreign currency, in each case based on a
fixed rate, the swap agreement would tend to decrease the Trust's exposure to
U.S. interest rates and increase its exposure to foreign currency and interest
rates. Caps and floors have an effect similar to buying or writing options.
Depending on how they are used, swap agreements may increase or decrease the
overall volatility of the Trust's investments and its share price and yield.

Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risks assumed, or no
investment of cash. As a result, swaps can be highly volatile and may have a
considerable impact on the Trust's performance. Swap agreements are subject to
risks related to the counterparty's ability to perform, and may decline in value
if the counterparty's creditworthiness deteriorates. The Trust may also suffer
losses if it is unable to terminate outstanding swap agreements or reduce its
exposure through offsetting transactions.

Swaps, caps, floors and collars are highly specialized activities which involve
certain risks. Swap agreements may be individually negotiated and structured to
include exposure to a variety of different types of investments or market
factors. Depending on

their structure, swap agreements may increase or decrease the Trust's exposure
to long or short-term interest rates (in the U.S. or abroad), foreign currency
values, mortgage securities, corporate borrowing rates, or other factors such as
securities prices or inflation rates. Swap agreements can take many different
forms and are known by a variety of names. The Trust is not limited to any
particular form or variety of swap agreements if MFS determines it is consistent
with the Trust's investment objective and policies.

The Trust will maintain liquid assets to cover its current obligations under
swap transactions. If the Trust enters into a swap agreement on a net basis
(i.e., the two payment streams are netted out, with the Trust receiving or
paying, as the case may be, only the net amount of the two payments), the Trust
will maintain liquid assets with a daily value at least equal to the excess, if
any, of the Trust's accrued obligations under the swap agreement over the
accrued amount the Trust is entitled to receive under the agreement. If the
Trust 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 Trust's
accrued obligations under the agreement.

The most significant factor in the performance of swaps, caps, floors and
collars is the change in the specific interest rate, currency or other factor
that determines the amount of payments to be made under the arrangement. If MFS
is incorrect in its forecasts of such factors, the investment performance of the
Trust would be less than what it would have been if these investment techniques
had not been used. If a swap agreement calls for payments by the Trust, the
Trust must be prepared to make such payments when due. In addition, if the
counterparty's creditworthiness declines, the value of the swap agreement would
be likely to decline, potentially resulting in losses. If the counterparty
defaults, the Trust's risk of loss consists of the net amount of payments that
the Trust is contractually entitled to receive. The Trust 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.

Indexed Securities. The Trust may purchase securities whose prices are indexed
to the prices of other securities, securities indices, currencies, precious
metals or other commodities, or other financial indicators. Indexed securities
typically, but not always, are debt securities or deposits whose value at
maturity (i.e., principal value) or coupon rate is determined by reference to a
specific instrument or statistic, the value of which may vary. Gold-indexed
securities, for example, typically provide for a maturity value that depends on
the price of gold, resulting in a security whose price tends to rise and fall
together with gold prices. Currency-indexed securities typically are short-term
to intermediate-term debt securities whose maturity values or interest rates are
determined by reference to the values of one or more specified foreign
currencies, and may offer higher yields than U.S. dollar-denominated securities
of equivalent issuers. Currency-indexed securities may be positively or
negatively indexed; that is, their maturity value or interest rates may increase
when the specified

currency value increases, resulting in a security that performs similarly to a
foreign-denominated instrument, or their maturity value may decline when foreign
currencies increase, resulting in a security whose price characteristics are
similar to a put on the underlying currency and could involve the loss of all or
a portion of the principal amount of the instrument. Currency-indexed securities
may also have prices that depend on the values of a number of different foreign
currencies relative to each other.

Indexed securities may be more volatile than the underlying instrument itself
and could involve the loss of all or a portion of the principal amount or
interest on the instrument. The performance of indexed securities depends to a
great extent on the performance of the security, currency, or other instrument
to which they are indexed, and may also be influenced by interest rate changes
in the U.S. and abroad. At the same time, indexed securities are subject to the
credit risks associated with the issuer of the security, and their values may
decline substantially if the issuer's credit worthiness deteriorates. Recent
issuers of indexed securities have included banks, corporations, and certain
U.S. government agencies.

Inverse Floating Rate Obligations. The Trust may invest in so-called "inverse
floating rate obligations" or "residual interest" bonds or other obligations or
certificates relating thereto structured to have similar features. Such
obligations generally have floating or variable interest rates that move in the
opposite direction of short-term interest rates and generally increase or
decrease in value in response to changes in short-term interest rates at a rate
which is a multiple (approximately two times) of the rate at which fixed-rate
long-term tax-exempt securities increase or decrease in response to such
changes. As a result, such obligations have the effect of providing investment
leverage and may be more volatile than long-term fixed-rate tax-exempt
obligations.

Loan Participations and Other Direct Indebtedness. The Trust may invest a
portion of its assets in loan participations and other direct indebtedness. By
purchasing a loan participation, the Trust acquires some or all of the interest
of a bank or other lending institution in a loan to a corporate borrower. Many
such loans are secured, and most impose restrictive covenants which must be met
by the borrower. These loans are made generally to finance internal growth,
mergers, acquisitions, stock repurchases, leveraged buy-outs and other corporate
activities. Such loans may be in default at the time of purchase. The Trust may
also purchase trade or other claims against companies, which generally represent
money owed by the company to a supplier of goods and services. These claims may
also be purchased at a time when the company is in default. Certain of the loan
participations acquired by the Trust may involve revolving credit facilities or
other standby financing commitments which obligate the Trust to pay additional
cash on a certain date or on demand.

The highly leveraged nature of many such loans may make such loans especially
vulnerable to adverse changes in economic or market conditions. Loan
participations

and other direct investments may not be in the form of securities or may be
subject to restrictions on transfer, and only limited opportunities may exist to
resell such instruments. As a result, the Trust may be unable to sell such
investments at an opportune time or may have to resell them at less than fair
market value.

To the extent that the Trust is committed to advance additional funds, it will
at all times hold and maintain in a segregated account cash or other high grade
debt obligations in an amount sufficient to meet such commitments.

The Trust's ability to receive payments of principal, interest and other amounts
due in connection with these investments will depend primarily on the financial
condition of the borrower. In selecting the loan participations and other direct
investments which the Trust will purchase, the Investment Adviser will rely upon
its (and not that of the original lending institution's) own credit analysis of
the borrower. As the Trust may be required to rely upon another lending
institution to collect and pass on to the Trust amounts payable with respect to
the loan and to enforce the Trust's rights under the loan, an insolvency,
bankruptcy or reorganization of the lending institution may delay or prevent the
Trust from receiving such amounts. In such cases, the Trust will evaluate as
well the creditworthiness of the lending institution and will treat both the
borrower and the lending institution as an "issuer" of the loan participation
for purposes of certain investment restrictions pertaining to the
diversification of the Trust's portfolio investments. The highly leveraged
nature of many such loans may make such loans especially vulnerable to adverse
changes in economic or market conditions. Investments in such loans may involve
additional risks to the Trust. For example, if a loan is foreclosed, the Trust
could become part owner of any collateral, and would bear the costs and
liabilities associated with owning and disposing of the collateral. In addition,
it is conceivable that under emerging legal theories of lender liability, the
Trust could be held liable as a co-lender. It is unclear whether loans and other
forms of direct indebtedness offer securities law protections against fraud and
misrepresentation. In the absence of definitive regulatory guidance, the Trust
relies on the Investment Adviser's research in an attempt to avoid situations
where fraud or misrepresentation could adversely affect the Trust. In addition,
loan participations and other direct investments may not be in the form of
securities or may be subject to restrictions on transfer, and only limited
opportunities may exist to resell such instruments. As a result, the Trust may
be unable to sell such investments at an opportune time or may have to resell
them at less than fair market value. To the extent that the Investment Adviser
determines that any such investments are illiquid, the Trust will include them
in the investment limitations described below.

When and if available, fixed income securities may be purchased at a discount
from face value. However, the Trust 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.

The general investment practices described above may be changed without
shareholder approval.

SPECIAL CONSIDERATIONS

Investments in fixed income securities offering the high current income sought
by the Trust, while generally providing greater income than investments in
higher rated securities, usually entail greater risk (including the possibility
of default or bankruptcy of the issuers of such securities) and, accordingly, an
investment in shares of the Trust should not constitute a complete investment
program and may not be appropriate for all investors. The Trust will seek to
reduce risk by investing its assets in a number of markets and issuers,
performing credit analyses of potential investments and monitoring current
developments and trends in both the economy and financial markets. The Trust's
use of options, Futures Contracts, Options on Futures Contracts, Forward
Contracts and options on foreign currencies may result in the loss of principal
under certain market conditions. See "Options and Futures" below.

The Trust may invest in fixed income securities rated Baa by Moody's or BBB by
S&P or Fitch (and comparable unrated securities). These securities, while
normally exhibiting adequate protection parameters, have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than in the case of higher grade fixed income securities.

The Trust may also invest up to 50% of its net assets in corporate fixed income
securities rated Ba or lower by Moody's or BB or lower by S&P or Fitch (and
comparable unrated securities) (commonly known as "junk bonds"). No minimum
rating standard is required by the Trust. These securities are considered
speculative and, while generally providing greater income than investments in
higher rated securities, will involve greater risk of principal and income
(including the possibility of default or bankruptcy of the issuers of such
securities) and may involve greater volatility of price (especially during
periods of economic uncertainty or change) than securities in the higher rating
categories and because yields vary over time, no specific level of income can
ever be assured.

These lower rated high yielding fixed income securities generally tend to
reflect economic changes (and the outlook for economic growth), short-term
corporate and industry developments and the market's perception of their credit
quality (especially during times of adverse publicity) to a greater extent than
higher rated securities which react primarily to fluctuations in the general
level of interest rates although they are also affected by changes in interest
rates. In the past, economic downturns or an increase in interest rates have,
under certain circumstances, caused a higher incidence of default by the issuers
of these securities and may do so in the future, especially in the case of
highly leveraged issuers. During certain periods, the higher yields on the

Trust's lower rated high yielding fixed income securities are paid primarily
because of the increased risk of loss of principal and income, arising from such
factors as the heightened possibility of default or bankruptcy of the issuers of
such securities. Due to the fixed income payments of these securities, the Trust
may continue to earn the same level of interest income while its net asset value
declines due to portfolio losses, which could result in an increase in the
Trust's yield (based on net asset value) despite the actual loss of principal.

The prices for these securities may be affected by legislative and regulatory
developments. The market for these lower rated fixed income securities may be
less liquid than the market for investment grade fixed income securities.
Furthermore, the liquidity of these lower rated securities may be affected by
the market's perception of their credit quality. Therefore, the Investment
Adviser's judgment may at times play a greater role in valuing these securities
than in the case of investment grade fixed income securities, and it also may be
more difficult during times of certain adverse market conditions to sell these
lower rated securities to respond to changes in the market. While the Investment
Adviser may refer to ratings issued by established credit rating agencies, it is
not the Trust's policy to rely exclusively on ratings issued by these rating
agencies, but rather to supplement such ratings with the Investment Adviser's
own independent and ongoing review of credit quality. To the extent the Trust
invests in these lower rated securities, the achievement of its investment
objectives may be more dependent on the Investment Adviser's own credit analysis
than in the case of a fund investing in higher quality fixed income securities.
These lower rated securities may also include zero coupon bonds, deferred
interest bonds and PIK bonds which are described above.

The Trust may also invest in municipal obligations rated BB or lower by S&P or
Fitch or Ba or lower by Moody's (and comparable rated and unrated securities).
While these high risk securities may have some quality and protective
characteristics, these can be expected to be outweighed by large uncertainties
or major risk exposures to adverse conditions. Such securities will be affected
by the market's perception of their credit quality, economic changes and the
outlook for economic growth to a greater extent than higher rated securities
which react primarily to fluctuations in the general level of interest rates.
Furthermore, an economic downturn may result in a higher incidence of defaults
by issuers of these securities. In addition, these lower rated or unrated high
risk tax-exempt securities are frequently traded only in markets where the
number of potential purchasers, if any, is very limited. Therefore, judgment may
at times play a greater role in valuing these securities than in the case of
higher grade tax- exempt securities. This consideration may have the effect of
limiting the ability of the Trust to sell such securities at their fair value
either to meet redemption requests or to respond to changes in the economy or
the financial markets.

While the Investment Adviser may refer to ratings issued by established credit
rating agencies, it is not a policy of the Trust to rely exclusively on ratings
issued by these agencies, but rather to supplement such ratings with the
Investment Adviser's own independent and ongoing review of credit quality.
Furthermore, no minimum rating

standard is required by the Trust. With respect to those municipal obligations
which are not rated by a major rating agency, the Trust will be more reliant on
the Investment Adviser's judgment, analysis and experience than would be the
case if such municipal obligations were rated. In evaluating the
creditworthiness of an issuer, whether rated or unrated, the Investment Adviser
may take into consideration, among other things, the issuer's financial
resources, its sensitivity to economic conditions and trends, the operating
history of and the community support for the facility financed by the issuer, or
the ability of the issuer's management and regulatory matters.

The value of shares of the Trust will vary as the aggregate value of the Trust's
portfolio securities increases or decreases. The net asset value of the Trust
may change 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. Moreover the value of the
lower-rated fixed income securities that the Trust purchases will fluctuate more
than the value of higher- rated fixed income securities. These lower-rated fixed
income securities generally tend to reflect short-term corporate and market
developments to a greater extent than higher-rated securities, which react
primarily to fluctuations in the general level of interest rates.

Although changes in the value of the Trust's portfolio securities subsequent to
their acquisition are reflected in the net asset value of shares of the Trust,
such changes will not affect the income received by the Trust from such
securities. The dividends paid by the Trust will increase or decrease in
relation to the income received by the Trust from its investments, which will in
any case be reduced by the Trust's expenses before being distributed to the
Trust's shareholders.

If the Trust's expectations of changes in interest rates or its evaluation of
the normal yield relationship between two securities proves to be incorrect, the
Trust's income, net asset value and potential capital gain may be decreased or
its potential capital loss may be increased.

Investing in foreign securities involves considerations and possible risks not
typically associated with investing in U.S. securities. The value of foreign
securities investments will be affected by changes in currency rates or exchange
control regulations, changes in governmental administration or economic or
monetary policy (in this country or abroad) or changed circumstances in dealings
between nations. Costs may be incurred in connection with conversions between
various currencies. Moreover, there may be less publicly available information
about foreign issuers than about domestic issuers, and foreign issuers may not
be subject to accounting, auditing and financial reporting standards and
requirements comparable to those of domestic issuers. Securities of some foreign
issuers are less liquid and more volatile than securities of comparable domestic
issuers and foreign brokerage commissions are generally higher than in the
United States. Foreign securities markets may also be less liquid, more volatile
and less

subject to governmental supervision than in the United States. Investments in
foreign countries could be affected by other factors not present in the United
States, including expropriation, confiscatory taxation and potential
difficulties in enforcing contractual obligations and could be subject to
extended settlement periods.

For a discussion of the risks involved in trading options on securities and
currencies, Futures Contracts, Options on Futures Contracts and Forward
Contracts, see "Options and Futures" below.

Risks of Leverage. To the extent that securities are purchased with proceeds
from the issuance of Senior Securities, the net asset value of the Trust's
shares generally will increase or decrease at a greater rate than would
otherwise be the case. Any investment income or gains earned from the securities
purchased with these proceeds which is in excess of the expenses associated
therewith can be expected to cause the value of the Trust's shares and
distributions on the Trust's shares to rise more quickly than would otherwise be
the case. Conversely, if the investment income or gains earned from the
securities purchased with proceeds from the issuance of Senior Securities fails
to cover the expenses associated therewith, the value of the Trust's shares is
likely to decrease more quickly than otherwise would be the case and
distributions thereon will be reduced or eliminated. Hence, the issuance of
Senior Securities (leverage) is speculative and increases the risk of owning or
investing in the shares of an investment company which employs that technique.
The issuance of Senior Securities also increases the Trust's expenses because of
interest payments and administrative expenses associated with the issuance of
the Senior Securities. Unless the appreciation and income on assets purchased
with proceeds from the issuance of Senior Securities exceed the costs associated
with the Senior Securities, the use of leverage would diminish the investment
performance of the Trust compared with what it would have been without leverage.

The Trust will not be permitted to declare dividends or other distributions with
respect to the Trust's shares or repurchase the Trust's shares unless at the
time thereof (and after giving effect thereto), asset coverage with respect to
the Trust's Senior Securities would be at least 300% (or such other percentage
as may in the future be required by law). Under the Internal Revenue Code of
1986, as amended (the "Code"), the Trust must, among other things (i) distribute
at least 90% of its investment company taxable income each fiscal year in order
to maintain its qualification for tax treatment as a regulated investment
company, (ii) distribute the remaining 10% of its investment company taxable
income and all of its net capital gains each fiscal year in order to avoid
federal income tax and (iii) distribute substantially all of its income on a
calendar-year basis in accordance with the timing requirements of the Code in
order to avoid excise taxes. The foregoing limitations on dividends and
distributions may under certain circumstances impair the Trust's ability to
maintain such qualification (which would result in the Trust being taxed as a
corporation), or may result in the Trust being subject to income or excise
taxes. To the extent any Senior Securities are given a prior claim against the
income of the Trust and against the net assets of the

Trust in a liquidation, they may be a substantial lien and burden on the Trust's
shares.

For these reasons, an investment in shares of the Trust should not constitute a
complete investment program and may not be appropriate for investors who cannot
assume the greater risk of capital depreciation inherent in seeking higher
income.

OPTIONS AND FUTURES

Options on U.S. and Foreign Government Securities. The Trust may write covered
put and call options and purchase put and call options on U.S. or foreign
government securities that are traded on United States and foreign securities
exchanges and over-the-counter options.

Call options written by the Trust give the holder the right to buy the
underlying securities from the Trust at a stated exercise price; put options
written by the Trust give the holder the right to sell the underlying security
to the Trust at a stated exercise price. A call option written by the Trust is
"covered" if the Trust owns the underlying security covered by the call or has
an absolute and immediate right to acquire that security without additional cash
consideration (or for liquid assets) upon conversion or exchange of other
securities held in its portfolio. A call option is also covered if the Trust
holds a call on the same security and in the same principal amount as the call
written where the exercise price of the call held is (a) equal to or less than
the exercise price of the call written or (b) greater than the exercise price of
the call written if liquid assets representing the difference is segregated by
the Trust. A put option written by the Trust is "covered" if the Trust
segregates liquid assets with a value equal to the exercise price in a
segregated account, 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) less
than the exercise price of the put written if liquid assets representing the
difference is segregated by the Trust. Put and call options written by the Trust
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. The premium paid by the
purchaser of an option will reflect, among other things, the relationship of the
exercise price to the market price and volatility of the underlying security,
and the remaining term of the option, supply and demand and interest rates.

The writer of an option may have no control over when the underlying securities
must be sold, in the case of a call option, or purchased, in the case of a put
option, since with regard to certain options, the writer may be assigned an
exercise notice at any time prior to the termination of the obligation. Whether
or not an option expires unexercised, the writer retains the amount of the
premium. This amount, of course, may, in the case of a covered call option, be
offset by a decline in the market value of

the underlying security during the option period. If a call option is exercised,
the writer experiences a profit or loss from the sale of the underlying
security. If a put option is exercised, the writer must fulfill the obligation
to purchase the underlying security at the exercise price, which will usually
exceed the then market value of the underlying security.

The writer of an option that wishes to terminate its obligation may effect a
"closing purchase transaction." This is accomplished by buying an option of the
same series as the option previously written. The effect of the purchase is that
the writer's position will be canceled by the clearing corporation. However, a
writer may not effect a closing purchase transaction after being notified of the
exercise of an option. Likewise, an investor who is the holder of an option may
liquidate its position by effecting a "closing sale transaction". This is
accomplished by selling an option of the same series as the option previously
purchased. There is no guarantee that either a closing purchase or a closing
sale transaction can be effected.

Effecting a closing transaction in the case of a written call option will permit
the Trust to write another call option on the underlying security with either a
different exercise date or both, or in the case of a written put option
effecting a transaction will permit the Trust to write another put option to the
extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other Trust investments. If the Trust desires to sell a
particular security from its portfolio on which it has written a call option, it
will effect a closing transaction prior to or concurrent with the sale of
security.

The Trust will realize a profit from a closing transaction if the price of the
transaction is less than the premium received from writing the option or is more
than the premium paid to purchase the option; the Trust will realize a loss from
a closing transaction if the price of the transaction is more than the premium
received from writing the option or is less than the premium paid to purchase
the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned by the Trust.

An option position may be closed out only where there exists a secondary market
for an option of the same series, if a secondary market does not exist, it might
not be possible to effect closing transactions in particular options with the
result that the Trust would have to exercise the options in order to realize any
profit. If the Trust is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security until the
option expires or it delivers the underlying security upon exercise. Reasons for
the absence of a liquid secondary market include the following: (i) there may be
insufficient trading interest in certain options; (ii) restrictions may be
imposed by a national securities exchange

("Exchange") on opening transactions or closing transactions or both; (iii)
trading halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of options or underlying securities; (iv) unusual
or unforeseen circumstances may interrupt normal operations on an Exchange; (v)
the facilities of an Exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume; or (vi) one or more
Exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that Exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that Exchange that had been issued by the Options Clearing
Corporation as a result of trades on that Exchange would continue to be
exercisable in accordance with their terms.

The Trust may write options in connection with buy-and-write transactions; that
is, the Trust may purchase a security and then write a call option against that
security. The exercise price of the call the Trust determines to write will
depend upon the expected price movement of the underlying security. The exercise
price of a call option may be below ("in-the-money"), equal to ("at-the-money")
or above ("out-of-the-money") the current value of the underlying security at
the time the option is written. Buy-and-write transactions using in-the-money
call options may be used when it is expected that the price of the underlying
security will remain flat or decline moderately during the option period.
Buy-and- write transactions using at-the-money call options may be used when it
is expected that the price of the underlying security will remain fixed or
advance moderately during the option period. Buy-and-write transactions using
out-of-the-money call options may be used when it is expected that the exercise
price will be greater than the appreciation in the price of the underlying
security alone. If the call options are exercised in such transactions, the
Trust's maximum gain will be the premium received by it for writing the option,
adjusted upwards or downwards by the difference between the Trust's purchase
price of the security and the exercise price. If the options are not exercised
and the price of the underlying security declines, the amount of such decline
will be offset in part, or entirely, by the premium received.

The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and the Trust's gain will be limited to the premium
received. If the market price of the underlying security declines or otherwise
is below the exercise price, the Trust may elect to close the position or take
delivery of the security at the exercise price and the Trust's return will be
the premium received from the put options minus the amount by which the market
price of the security is below the exercise price. Out-of-the-money,
at-the-money, and in-the- money put options may be used by the Trust in the same
market environments that call options are used in equivalent buy-and-write
transactions.

The Trust may purchase put options to hedge against a decline in the value of
its portfolio. By using put options in this way, the Trust will reduce any
profit it might otherwise have realized in the underlying security by the amount
of the premium paid for the put option and by transaction costs.

The Trust may purchase call options to hedge against an increase in the price of
U.S. or foreign government securities that the Trust anticipates purchasing in
the future. The premium paid for the call option plus any transaction costs will
reduce the benefit, if any, realized by the Trust upon exercise of the option,
and, unless the price of the underlying security rises sufficiently, the option
may expire worthless to the Trust.

Futures Contracts. The Trust may enter into contracts for the purchase or sale
for future delivery of fixed income securities or contracts based on municipal
bond or other financial indices, including any index of U.S. or foreign
government securities ("Futures Contract"). A "sale" of a Futures Contract means
a contractual obligation to deliver the securities called for by the contract at
a specified price on a specified date or, in the case of a Futures Contract on
an index, a contractual obligation to make or receive a cash settlement. A
"purchase" of a Futures Contract means a contractual obligation to acquire the
securities called for by the contract at a specified price on a specified date
or, in the case of a Futures Contract on an index, a contractual obligation to
make or receive a cash settlement. U.S. Futures Contracts have been designed by
exchanges which have been designated "contract markets" by the CFTC, and must be
executed through a futures commission merchant, or brokerage firm, which is a
member of the relevant contract market. Existing contract markets include the
Chicago Board of Trade and International Monetary Market of the Chicago
Mercantile Exchange. Futures Contracts trade on these markets and, through their
clearing corporations, the exchanges guarantee performance of the contracts as
between the clearing members of the exchange. The Trust will enter into Futures
Contracts which are based on debt securities that are backed by the full faith
and credit of the U.S. Government, such as long-term U.S. Treasury Bonds,
Treasury Notes and three-month U.S. Treasury Bills. The Trust may also enter
into Futures Contracts which are based on corporate securities, non- U.S.
Government bonds and Eurodollar deposits.

At the same time a Futures Contract is purchased or sold, the Trust must
allocate cash or securities as a deposit payment ("initial deposit"). The
initial deposit varies but may be as low as 5% or less of the value of the
contract. Daily thereafter, the Futures Contract is valued on a marked-to-market
basis and a "variation margin" must be paid or received based on the change in
value of the contract from the preceding day.

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 from that specified in the contract.
In some (but not many) cases, securities called for by a Futures Contract may
not have been issued when the contract was written.

Although Futures Contracts by their terms call for the actual delivery or
acquisition of securities, or, in the case of Futures Contracts based on an
index, the making or acceptance of a cash settlement at a specified future time,
in most cases the contractual obligation is fulfilled before the date of the
contract by buying (or selling, as the case may be) on a commodities exchange an
identical Futures Contract calling for delivery in the same month, subject to
the availability of a liquid secondary market. Such a transaction, which is
effected through a member of an exchange, cancels the obligation to make or take
delivery of the securities. Since all transactions in the futures market are
made, offset or fulfilled through a brokerage firm which is a member of the
exchange on which the contracts are traded, the Trust will incur brokerage fees
when it purchases and sells Futures Contracts.

The purpose of the acquisition or sale of a Futures Contract, in the case of a
portfolio, such as the portfolio of the Trust, which holds or intends to acquire
long-term fixed income securities, is to attempt to protect the Trust from
fluctuations in interest rates without actually buying or selling long- term
fixed income securities. For example, if the Trust owns long-term bonds, and
interest rates were expected to increase, the Trust might enter into Futures
Contracts for the sale of debt securities. Such a sale would have much the same
effect as selling an equivalent value of the long-term bonds owned by the Trust.
If interest rates did increase, the value of the debt securities in the
portfolio would decline, but the value of the Futures Contracts to the Trust
would increase at approximately the same rate, thereby keeping the net asset
value of the Trust from declining as much as it otherwise would have. The Trust
could accomplish similar results by selling bonds with long maturities and
investing in bonds with short maturities when interest rates are expected to
increase. However, since the futures market is more liquid than the cash market,
the use of Futures Contracts as an investment technique allows the Trust to
maintain a defensive position without having to sell its portfolio securities.

Similarly, when it is expected that interest rates may decline, Futures
Contracts may be purchased to hedge against anticipated purchases of long-term
bonds at higher prices. Since the fluctuations in the value of Futures Contracts
should be similar to that of long- term bonds, the Trust could take advantage of
the anticipated rise in the value of long-term bonds without actually buying
them until the market had stabilized. At that time, the Futures Contracts could
be liquidated and the Trust could then buy long- term bonds on the cash market.
To the extent the Trust enters into Futures Contracts for this purpose, the
Trust will maintain cash or cash equivalents in a segregated account in an
amount equal to the difference between the fluctuating market value of such
Futures Contracts and the aggregate value of the initial and variation margin
payments made by the Trust with respect to such Futures Contracts, thereby
ensuring that the leveraging effect of such Futures is minimized.

The ordinary spreads between prices in the cash and futures markets, due to
differences in the natures of those markets, are subject to distortions. First,
all participants in the

futures market are subject to initial deposit and variation margin requirements.
Rather than meeting additional variation margin requirements, investors may
close Futures Contracts through offsetting transactions which could distort the
normal relationship between the cash and futures markets. Second, the liquidity
of the futures market depends on participants entering into offsetting
transactions, rather than making or taking delivery, which could distort the
normal relationship between the cash and futures markets. To the extent
participants decide to make or take delivery, liquidity in the futures market
could be reduced, thus producing distortion. Third, from the point of view of
speculators, the margin deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may cause temporary price
distortions. Due to the possibility of distortion, a correct forecast of general
interest rate trends by the Investment Adviser may still not result in a
successful transaction.

In addition, Futures Contracts entail risks. Although the Trust believes that
use of such contracts will benefit the Trust, if the Investment Adviser's
investment judgment about the general direction of interest rates is incorrect,
the Trust's overall performance would be poorer than if it had not entered into
any such contract. For example, if the Trust has hedged against the possibility
of an increase in interest rates which would adversely affect the price of bonds
held in its portfolio and interest rates decrease instead, the Trust will lose
part or all of the benefit of the increased value of its bonds which it has
hedged because it will have offsetting losses in its futures positions. In
addition, in such situations, if the Trust has insufficient cash, it may have to
sell bonds from its portfolio to meet daily variation margin requirements. Such
sales of bonds may be, but will not necessarily be, at increased prices which
reflect the rising market. The Trust may have to sell securities at a time when
it may be disadvantageous to do so.

Options on Futures Contracts. The Trust may purchase and write options on
Futures Contracts for hedging purposes. The purchase of a call option on a
Futures Contract is similar in some respects to the purchase of a call option on
an individual security. Depending on the pricing of the option compared to
either the price of the Futures Contract upon which it is based or the price of
the underlying debt securities, it may or may not be less risky than ownership
of the Futures Contract or underlying debt securities. As with the purchase of
Futures Contracts, when the Trust is not fully invested it may purchase a call
option on a Futures Contract to hedge against a market advance due to declining
interest rates.

The writing of a call option on a Futures Contract constitutes a partial hedge
against declining prices of the securities which are deliverable upon exercise
of the Futures Contract. If the futures price at expiration of the option is
below the exercise price, the Trust will retain the full amount of the option
premium which provides a partial hedge against any decline that may have
occurred in the Trust's portfolio holdings. The writing of a put option on a
Futures Contract constitutes a partial hedge against increasing prices of the
securities which are deliverable upon

exercise of the Futures Contract. If the futures price at expiration of the
option is higher than the exercise price, the Trust will retain the full amount
of the option premium which provides a partial hedge against any increase in the
price of Government Securities which the Trust intends to purchase. If a put or
call option the Trust has written is exercised, the Trust 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 Trust's losses from
existing options on futures may to some extent be reduced or increased by
changes in the value of portfolio securities.

The purchase of a put option on a Futures Contract is similar in some respects
to the purchase of protective put options on portfolio securities. The Trust
will purchase a put option on a Futures Contract to hedge the Trust's portfolio
against the risk of rising interest rates.

The amount of risk the Trust assumes when it purchases an option on a Futures
Contract is the premium paid for the option plus related transaction costs. In
addition to the correlation risks discussed above, the purchase of an option
also entails the risk that changes in the value of the underlying Futures
Contract will not be fully reflected in the value of the option purchased.

The Trust's ability to engage in the options and futures strategies described
above will depend on the availability of liquid markets in such instruments.
Markets in options and futures with respect to Government Securities are
relatively new and still developing. It is impossible to predict the amount of
trading interest that may exist in various types of options or futures.
Therefore no assurance can be given that the Trust will be able to utilize these
instruments effectively for the purposes set forth above. Furthermore, the
Trust's ability to engage in options and futures transactions may be limited by
tax considerations.

Options on Foreign Currencies. The Trust may purchase and write options on
foreign currencies for hedging purposes in a manner similar to that in which
Futures Contracts on foreign currencies, or Forward Contracts, will be utilized.
For example, a decline in the dollar value of a foreign currency in which
portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of portfolio securities,
the Trust may purchase put options on the foreign currency. If the value of the
currency does decline, the Trust will have the right to sell such currency for a
fixed amount in dollars and will thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have resulted.

Conversely, where a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the cost of such
securities, the Trust may purchase call options thereon. The purchase of such
options

could offset, at least partially, the effects of the adverse movements in
exchange rates. As in the case of other types of options, however, the benefit
to the Trust deriving from purchases of foreign currency options will be reduced
by the amount of the premium and related transaction costs. In addition, where
currency rates do not move in the direction or to the extent anticipated, the
Trust could sustain losses on transactions in foreign currency options which
would require it to forego a portion or all of the benefits of advantageous
changes in such rates.

The Trust may write options on foreign currencies for the same types of hedging
purposes. For example, where the Trust anticipates a decline in the dollar value
of foreign-denominated securities due to adverse fluctuations in exchange rates
it could, instead of purchasing a put option, write a call option on the
relevant currency. If the expected decline occurs, the option will most likely
not be exercised, and the diminution in value of portfolio securities will be
offset by the amount of the premium, and only if rates move in the expected
direction. If this does not occur, the option may be exercised and the Trust
would be required to purchase or sell the underlying currency at a loss which
may not be offset by the amount of the premium. Through the writing of options
on foreign currencies, the Trust also may be required to forego all or a portion
of the benefits which might otherwise have been obtained from favorable
movements in exchange rates.

All call options written on foreign currencies will be covered. A call option
written on foreign currencies by the Trust is "covered" if the Trust owns the
underlying foreign currency covered by the call or has an absolute and immediate
right to acquire that foreign currency without additional cash consideration (or
for liquid assets) upon conversion or exchange of other foreign currency held in
its portfolio. A call option is also covered if the Trust has a call on the same
foreign currency and in the same principal amount as the call written where the
exercise price of the call held is (a) equal to or less than the exercise price
of the call written or (b) greater than the exercise price of the call written
if liquid assets representing the difference is segregated by the Trust.

Additional Risks of Options on Securities, Options on Futures Contracts, Forward
Contracts and Options on Foreign Currencies. Unlike transactions entered into by
the Trust in Futures Contracts, options on foreign currencies and Forward
Contracts are not traded on contract markets regulated by the CFTC or with the
exception of certain foreign currency options by the SEC. To the contrary, such
instruments are traded through financial institutions acting as market-makers,
although foreign currency options are also traded on certain national securities
exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options
Exchange, subject to SEC regulation. Similarly, options on securities may be
traded over-the- counter. In an over-the-counter trading environment, many of
the protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchase of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.

Moreover, the option writer and a trader of Forward Contracts could lose amounts
substantially in excess of their initial investments, due to the margin and
collateral requirements associated with such positions.

Options on foreign currencies traded on national securities exchanges are within
the jurisdiction of the SEC, as are other securities traded on such exchanges.
As a result, many of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In particular, all foreign
currency option positions entered into on a national securities exchange are
cleared and guaranteed by the Options Clearing Corporation ("OCC"), thereby
reducing the risk of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more readily available
than in the over-the-counter market, potentially permitting the Trust to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.

The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of the availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exchange- traded options on foreign currencies
involve certain risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively through the
OCC, which has established banking relationships in applicable foreign countries
for this purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions on taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on the OCC
or its clearing member, impose special procedures on exercise and settlement,
such as technical changes in the mechanics of delivery of currency, the fixing
of dollar settlement prices or prohibitions, on exercise.

In addition, options on securities, Futures Contracts, Options on Futures
Contracts, Forward Contracts and Options on Foreign Currencies may be traded on
foreign exchanges. Such transactions are subject to the risk of governmental
actions affecting trading in or the prices of foreign currencies or securities.
The value of such positions also could be adversely affected by (i) other
complex foreign political and economic factors, (ii) the availability of data on
which to make trading decisions, (iii) delays in the Trust's ability to act upon
economic events occurring in foreign markets during non-business hours in the
United States, (iv) the imposition of different exercise and settlement terms
and procedures and margin requirements than in the United States, and (v) less
trading volume.

In order to assure that the Trust will not be deemed to be a "commodity pool"
for purposes of the Commodity Exchange Act, regulations of the CFTC require that
the Trust enter into transactions in Futures Contracts, Options on Futures
Contracts and Options on Foreign Currencies traded on CFTC - regulated exchange
only (i) for bona fide hedging purposes (as defined in CFTC regulations), or
(ii) for non-bona

fide hedging purposes, provided that the aggregate initial margin and premiums
to establish such non-bona fide positions do not exceed 5% of the liquidation
value of the Trust's assets, after taking into account unrealized profits and
unrealized losses on any such contracts the Trust has entered into, and
excluding, in computing such 5%, the in-the-money amount with respect to an
option that is in-the-money at the time of purchase.

In addition, the Trust must comply with the requirements of various state
securities laws in connection with such transactions.

Future Developments. The Trust proposes to take advantage of investment
opportunities in the area of Options and Futures Contracts and Options on
Futures Contracts which are not presently contemplated for use by the Trust or
which are not currently available but which may be developed, to the extent such
opportunities are both consistent with the Trust's investment objective and
legally permissible investments for the Trust. Such opportunities, if they
arise, may involve risks which exceed those involved in the options and futures
activities described above.

PORTFOLIO MANAGEMENT

The Trust's portfolio management may include the following strategies:

(1) selling all or a portion of the Trust's securities in one market and
investing the proceeds in one or more different markets;

(2) buying and selling particular securities within one of the fixed income
securities markets in which the Trust may invest;

(3) varying the maturity, mix and quality profile of its portfolio.

The Trust will also use the techniques described above under "Investment
Practices" to manage its portfolio.

While these strategies are designed to result in increases in the Trust's
current income available for distribution to its shareholders, if the Trust's
expectations of changes in interest rates or its evaluation of the normal yield
relationship between two securities or obligations proves to be incorrect, the
Trust's income and net asset value may be reduced.

In addition to the methods of "cover" set forth in "Options and Futures" above,
the Trust may also cover options on securities, Options on Futures Contracts and
Options on Foreign Currencies in such other manner as may be in accordance with
the requirements of the exchange on which, or the counterparty with which, such
instrument is traded and applicable laws and regulations.

As a result of its investments in foreign securities, the Trust may receive
interest payments, or the proceeds of the sale or redemption of such securities,
in foreign currencies. In that event, the Trust may promptly convert such
currencies into dollars at the then-current exchange rate. Under certain
circumstances, alternatively, such as where the Investment Adviser anticipates
that the exchange rate will improve, the Trust may hold such currencies for an
indefinite period of time.

In addition, the Trust may be required or elect to receive delivery of the
foreign currencies underlying Options on Foreign Currencies or Forward Contracts
it has entered into. This could occur, for example, if an option written by the
Trust is exercised or the Trust is unable to close out a Forward Contract it has
entered into. The Trust may also elect to take delivery of the currencies
underlying options or Forward Contracts if, in the judgment of the Investment
Adviser, it is in the best interest of the Trust to do so. The holding of
currencies exposes the Trust to risk of loss if currency exchange rates move in
a direction adverse to the Trust's position. Such losses could reduce any
profits or increase any losses sustained by the Trust from the sale or
redemption of securities, and could reduce the dollar value of interest or
dividend payments received. In addition, the holding of currencies could
adversely affect the Trust's profit or loss on currency options or Forward
Contracts, as well as its hedging strategies.

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.
Therefore, such options and assets, together with other illiquid securities,
cannot exceed 15% of the Trust's assets under its investment restrictions.
Although the Investment Adviser disagrees with this position, the Investment
Adviser intends to limit the Trust's writing of over-the-counter options in
accordance with the following procedure. Except as provided below, the Trust
intends to write over- the-counter options only with primary Government
Securities dealers recognized by the Federal Reserve Bank of New York. Also, the
contracts which the Trust has in place with such primary dealers will provide
that the Trust 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 Trust for
writing the option, plus the amount, if any, of the option's intrinsic value
(i.e., the amount that the option is in-the-money). The formula may also include
a factor to account for the difference between the price of the security and the
strike price of the option if the option is written out-of-the-money. The Trust
will treat all or a part of the formula price as illiquid for purposes of its
investment restrictions. The Trust may also write over-the- counter options with
non-primary dealers, including foreign dealers, and will treat the assets used
to cover these options as illiquid for purposes of such 15% test.

INVESTMENT RESTRICTIONS

The Trust has adopted the following policies which cannot be changed without the
approval of the holders of a majority of its shares (which means the lesser of
(i) more than 50% of the outstanding shares of the Trust, or (ii) 67% or more of
the outstanding shares of the Trust present at a meeting at which holders of
more than 50% of its outstanding shares are represented in person or by proxy).
Except with respect to Investment Restriction #1 and the Trust's non-fundamental
policy regarding illiquid securities, all percentage limitations set forth below
apply immediately after a purchase or initial investment and any subsequent
change in any applicable percentage resulting from market fluctuations does not
require elimination of any security from the portfolio. The Trust may not:

(1) borrow money or pledge, mortgage or hypothecate its assets, except
(i) as a temporary measure for extraordinary or emergency purposes,
(ii) for a repurchase of its shares, or (iii) for investment in
accordance with its investment objective and policies, and in no event
shall the Trust borrow in excess of 1/3 of its assets;

(2) purchase any security or evidence of interest therein on margin,
except that the Trust may obtain such short-term credit as may be
necessary for the clearance of purchases and sales of securities and
except that the Trust may make deposits on margin in connection with
Futures Contracts and options;

(3) underwrite securities issued by other persons except insofar as the
Trust may technically be deemed an underwriter under the Securities Act
of 1933 in selling a portfolio security;

(4) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests
therein), interests in oil, gas or mineral leases, commodities or
commodity contracts (except contracts for the future acquisition or
delivery of fixed income securities) in the ordinary course of the
business of the Trust (the Trust reserves the freedom of action to hold
and to sell real estate acquired as a result of the ownership of
securities);

(5) 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 Trust;

(6) issue any senior security (as that term is defined in the
Investment Company Act of 1940 (the "1940 Act")), if such issuance is
specifically prohibited by the 1940 Act or the rules and regulations
promulgated thereunder (for the purposes 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);

(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, the
purchase of commercial paper or the purchase of all or a portion of an
issue of debt securities in accordance with its investment objective,
policies and restrictions;

(8) 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 ("short sales
against the box"), and unless not more than 10% of the Trust's net
assets (taken at market value) is held as collateral for such sales at
any one time; and

(9) invest more than 25% of the value of its total assets in any
industry, except as described under the subsection "Corporate Fixed
Income Securities" of the section "Investment Objective and Policies"
above.

As a matter of non-fundamental policy, the Trust may not: (i) invest in illiquid
investments, including securities which are subject to legal or contractual
restrictions on resale or for which there is no readily available market (e.g.,
trading in the security is suspended or, in the case of unlisted securities,
market makers do not exist or will not entertain bids or offers), unless the
Board of Trustees has determined that such securities are liquid based on
trading markets for the specific security, if more than 15% of the Trust's
assets (taken at market value) would be invested in such securities; and (ii)
invest 25% or more of the market value of its total assets in securities of
issuers in any one industry, except as described under Subsection "Corporate
Fixed Income Securities" of the Section "Investment Objective and Policies"
above. These investment restrictions are not fundamental and may be changed
without shareholder approval.

DESCRIPTION OF OBLIGATIONS ISSUED OR GUARANTEED
BY U.S. GOVERNMENT AGENCIES OR INSTRUMENTALITIES.

Federal Farm Credit System Notes and Bonds-

are bonds issued by a cooperatively owned nationwide system of banks and
associations supervised by the Farm Credit Administration, an independent
agency of the U.S. Government. These bonds are not guaranteed by the U.S.
Government.

Maritime Administration Bonds-

are bonds issued and provided by the Department of Transportation of the
U.S. Government and are guaranteed by the United States.

FHA Debentures-

are debentures issued by the Federal Housing Administration of the U.S.
Government and are guaranteed by the United States.

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.

FHLMC Bonds-

are bonds issued and guaranteed by the Federal Home Loan Mortgage
Corporation and are not guaranteed by the U.S. Government.

FNMA Bonds-

are bonds issued and guaranteed by the Federal National Mortgage
Association and are not guaranteed by the U.S. Government.

Federal Home Loan Bank Notes and Bonds-

are notes and bonds issued by the Federal Home Loan Bank System and are not
guaranteed by the U.S. Government.

Although this list includes a description of the primary types of U.S.
Government agency or instrumentality obligations in which the Trust intends to
invest, the

Trust may invest in obligations of U.S. Government agencies or instrumentalities
other than those listed above.

DESCRIPTION OF BOND RATINGS

The ratings of Moody's, S&P and Fitch represent their opinions as to the quality
of various debt instruments. It should be emphasized, however, that ratings are
not absolute standards of quality. Consequently, debt instruments with the same
maturity, coupon and rating may have different yields while debt instruments of
the same maturity and coupon with different ratings may have the same yield.

MOODY'S INVESTORS SERVICE, INC.

Aaa: Obligations rated Aaa are judged to be of the highest quality with minimal
credit risk.

Aa: Obligations rated Aa are judged to be of high quality and are subject to
very low credit risk.

A: Obligations rated A are considered upper-medium-grade and are subject to low
credit risk.

Baa: Obligations rated Baa are subject to moderate credit risk. They are
considered medium-grade and as such may possess certain speculative
characteristics.

Ba: Obligations rated Ba are judged to have speculative elements and are subject
to substantial credit risk.

B: Obligations rated B are considered speculative and are subject to high credit
risk.

Caa: Obligations rated Caa are judged to be of poor standing and are subject to
very high credit risk.

Ca: Obligations rated Ca are highly speculative and are likely in, or very near
default, with some prospect of recovery of principal and interest.

C: Obligations rated C are the lowest rated class of bonds and are typically in
default, with little prospect for recovery of principal or interest.

Note: Moody's applies numerical modifiers "1", "2" and "3" in each generic
rating classification from "Aa" through "Caa." The modifier "1" indicates that
the obligation ranks in the higher end of its generic rating category; the
modifier "2" indicates a mid-range ranking; and the modifier "3" indicates a
ranking in the lower end of that generic rating category.

STANDARD AND POOR'S RATINGS GROUP

Issue credit ratings are based in varying degrees, on the following
considerations: (1) likelihood of payment capacity and willingness of the
obligor to meet its financial commitment on an obligation in accordance with the
terms of the obligation; (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization, or other arrangement under the laws of bankruptcy
and other laws affecting creditors' rights.

The issue ratings definitions are expressed in terms of default risk. As such,
they pertain to senior obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to reflect the lower priority in
bankruptcy, as noted above.

AAA: An obligation rated "AAA" has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitments on the
obligation is extremely strong.

AA: An obligation rated "AA" differs from the highest-rated obligations only in
small degree. The obligor's capacity to meet its financial obligations is
extremely strong.

A: An obligation rated "A" is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher-rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.

BBB: An obligation rated "BBB" exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligator to meet its financial obligations is very
strong.

BB, B, CCC, CC, and C: Obligations rated "BB", "B", "CCC", "CC", and "C" are
regarded as having significant speculative characteristics. `B' indicates the
least degree of speculation and `C' the highest. While such obligations will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions.

BB: An obligation rated "BB" is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions, which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.

B: An obligation rated "B" is more vulnerable to non-payment than obligations
rated `BB', but the obligor currently has the capacity to meet its financial
commitment on the obligations. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.

CCC: An obligation rated "CCC" is currently vulnerability to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligator to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions is not likely to have the
capacity to meet its financial commitment on the obligation.

CC: An obligation rated "CC" is currently vulnerable to nonpayment.

C: The "C" rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.

CC: An obligation rated "CC" is currently highly vulnerable to nonpayment.

C: The "C" rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.

D: An obligation rated "D" is in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if debt
service payments are jeopardized.

Plus (+) or Minus (-): The "AA" and "CCC" ratings may be modified by the
addition of a plus or minus sign to show relative standing within the applicable
rating category.

The `c' subscript is used to provide additional information to investors that
the bank may terminate its obligation to purchase tendered bonds if the
long-term credit rating of the issuer is below an investment-grade level and/or
the issuer's bonds are deemed taxable.

The letter `p' indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project financed by the debt being
rated and indicates that payment of debt service requirements is largely or
entirely dependent upon the successful, timely completion of the project. This
rating, however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of or the risk of default upon
failure of such completion. The investor should exercise his own judgment with
respect to such likelihood and risk.

Asterisk (*): Continuance of the ratings is contingent upon Standard & Poor's
receipt of an executed copy of the escrow agreement or closing documentation
confirming investments and cash flows.

The `r' highlights derivative, hybrid, and certain other obligations that
Standard & Poor's believes may experience high volatility or high variability in
expected returns as

a result of noncredit risks. Examples of such obligations are securities with
principal or interest return indexed to equities, commodities, or currencies;
certain swaps and options; and interest-only and principal-only mortgage
securities. The absence of an `r' symbol should not be taken as an indication
that an obligation will exhibit no volatility or variability in total return.

N.R.: Not rated.

Debt obligations of issuers outside the United States and its territories are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.

Bond Investment Quality Standards: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories (`AAA', `AA', `A', `BBB', commonly known as investment-grade ratings)
generally are regarded as eligible for bank investment. Also, the laws of
various states governing legal investments impose certain rating or other
standards for obligations eligible for investment by savings banks, trust
companies, insurance companies, and fiduciaries in general.

FITCH

Investment Grade

AAA: Highest credit quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong capacity for
timely payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.

AA: Very high credit quality. "AA" ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.

A: High credit quality. "A" ratings denote a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.

BBB: Good credit quality. "BBB" ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.

Speculative Grade

BB: Speculative. "BB" ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time; however, business or financial alternatives may be available to allow
financial commitments to be met. Securities rated in this category are not
investment grade.

B: Highly speculative. "B" ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.

CCC, CC, C: High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A "CC" rating indicates that default of some
kind appears probable. "C" ratings signal imminent default.

DDD, DD, D: Default. Entities rated in this category have defaulted on some or
all of the obligations. The ratings of obligations in this category are based on
their prospects for achieving partial or full recovery in a reorganization or
liquidation of the obligor. While expected recovery values are highly
speculative and cannot be estimated with any precision, the following serve as
general guidelines. "DDD" obligations have the highest potential for recovery,
around 90% - 100% of outstanding amounts and accrued interest. "DD" indicates
expected recoveries in the range of 50% - 90% and "D" the lowest recovery
potential, i.e. below 50%.

"+" or "-" may be appended to a rating to denote relative status within major
rating categories. Such suffixes are not added to the `AAA' long-term rating
category, or to categorize below `CCC'.

NR indicates that Fitch Ratings does not rate the issuer or issue in question.

Withdrawn: A rating is withdrawn when Fitch Ratings deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.

Rating Watch: Ratings are placed on Rating Watch to notify investors that there
is a reasonable probability of a rating change and the likely direction of such
change. These are designated as "Positive", indicating a potential upgrade,
"Negative", for a potential downgrade, or "Evolving", if ratings may be raised,
lowered or maintained. Rating Watch is typically resolved over a relatively
short period.

A Rating Outlook indicates the direction a rating is likely to move over a one-
to two-year period. Outlooks may be positive, stable, or negative. A positive or
negative Rating Outlook does not imply a rating change is inevitable. Similarly,
ratings for which outlooks are "stable" could be upgraded or downgraded before
an outlook moves to

positive or negative if circumstances warrant such an action. Occasionally,
Fitch may be unable to identify the fundamental trend and in these cases, the
Rating Outlook may be described as "evolving".

8.5. Share Price Data: Inapplicable

8.6 Business Development Companies: Inapplicable

Item 9. Management:

9.1.a. General - Board of Trustees: Management of the Trust's business and
affairs is the responsibility of the Board of Trustees of the Trust.

9.1.b. General - Investment Adviser: MFS, a Delaware corporation, is the Trust's
investment adviser. MFS and its predecessor organizations have a history of
money management dating from 1924. MFS is a majority owned subsidiary of Sun
Life of Canada (U.S.) Financial Services Holdings, Inc., 500 Boylston Street,
Boston, MA 02116, which in turn is an indirect majority owned subsidiary of Sun
Life Financial, Inc. (a diversified financial services organization) at the same
address. .The executive officers of MFS report to the Chairman of Sun Life. The
principal business address of MFS is 500 Boylston Street, Boston, Massachusetts
02116.

MFS serves as investment adviser to the following open-end Funds comprising the
MFS Family of Funds: Massachusetts Investors Growth Stock Fund; Massachusetts
Investors Trust; MFS Government Limited Maturity Fund; MFS Government Securities
Fund; MFS Growth Opportunities Fund; MFS Series Trust I (which has 8 series: MFS
Cash Reserve Fund, MFS Core Equity Fund, MFS Core Growth Fund, MFS New Discovery
Fund, MFS Research International Fund, MFS Strategic Growth Fund, MFS Technology
Fund and MFS Value Fund); MFS Series Trust II (which has one series: MFS
Emerging Growth Fund); MFS Series Trust III (which has three series: MFS High
Income Fund, MFS High Yield Opportunities Fund and MFS Municipal High Income
Fund); MFS Series Trust IV (which has four series: MFS Government Money Market
Fund, MFS Mid Cap Growth Fund, MFS Money Market Fund and MFS Municipal Bond
Fund); MFS Series Trust V (which has three series: MFS International New
Discovery Fund, MFS Research Fund and MFS Total Return Fund); MFS Series Trust
VI (which has three series: MFS Global Equity Fund, MFS Global Total Return Fund
and MFS Utilities Fund); MFS Series Trust VII (which has one series: MFS Capital
Opportunities Fund); MFS Series Trust VIII (which has two series: MFS Global
Growth Fund and MFS Strategic Income Fund); MFS Series Trust IX (which has seven
series: MFS Bond Fund, MFS Inflation-Adjusted Bond Fund, MFS Intermediate
Investment Grade Bond Fund, MFS Limited Maturity Fund, MFS Municipal Limited
Maturity Fund, MFS Research Bond Fund and MFS Research Bond Fund J); MFS Series
Trust X (which has 12 series: MFS Aggressive Growth Allocation Fund, MFS
Conservative Allocation Fund, MFS Emerging Markets Debt Fund, MFS Emerging
Markets Equity Fund, MFS Floating Rate High Income Fund, MFS Growth Allocation
Fund, MFS International Diversification Fund, MFS International Growth Fund, MFS
International Value Fund, MFS Moderate Allocation Fund, MFS New Endeavor Fund
and

MFS Strategic Value Fund); MFS Series Trust XI (which has two series: MFS Mid
Cap Value Fund and MFS Union Standard Equity Fund); MFS Series Trust XII (which
has 5 series: MFS Lifetime Retirement Income Fund, MFS Lifetime 2010 Fund, MFS
Lifetime 2020 Fund, MFS Lifetime 2030 Fund and MFS Lifetime 2040 Fund; and MFS
Municipal Series Trust (which has 16 series: MFS Alabama Municipal Bond Fund,
MFS Arkansas Municipal Bond Fund, MFS California Municipal Bond Fund, MFS
Florida Municipal Bond Fund, MFS Georgia Municipal Bond Fund, MFS Maryland
Municipal Bond Fund, MFS Massachusetts Municipal Bond Fund, MFS Mississippi
Municipal Bond Fund, MFS Municipal Income Fund, MFS New York Municipal Bond
Fund, MFS North Carolina Municipal Bond Fund, MFS Pennsylvania Municipal Bond
Fund, MFS South Carolina Municipal Bond Fund, MFS Tennessee Municipal Bond Fund,
MFS Virginia Municipal Bond Fund and MFS West Virginia Municipal Bond Fund (the
"MFS Funds"). The principal business address of each of the MFS Funds is 500
Boylston Street, Boston, Massachusetts, 02116.

MFS also serves as investment adviser of the following open-end Funds: MFS
Institutional Trust ("MFSIT") (which has four series) and MFS Variable Insurance
Trust ("MVI") (which has 16 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 Charter Income Trust, MFS Government Markets Income Trust, MFS Intermediate
Income Trust, MFS Multimarket Income Trust, MFS Municipal Income Trust and MFS
Special Value Trust (the "MFS Closed-End Funds"). The principal business address
of each of the MFS Closed-End Funds is 500 Boylston Street, Boston,
Massachusetts, 02116.

Lastly, MFS serves as investment adviser to MFS/Sun Life Series Trust ("MFS/SL")
(which has 28 series), Capital Appreciation Variable Account, Global Governments
Variable Account, Government Securities Variable Account, High Yield Variable
Account, Money Market Variable Account and Total Return Variable Account
(collectively, the "Accounts"). The principal business address of MFS/SL is 500
Boylston Street, Boston, Massachusetts, 02116. The principal business address of
each of the aforementioned Accounts is One Sun Life Executive Park, Wellesley
Hills, Massachusetts, 02181.

MFS and its subsidiaries, provide investment advice to retailed institutional
clients. Net assets under the management of the MFS organization were
approximately $163 billion as of December 31, 2005.

INVESTMENT ADVISORY AGREEMENT

General. The Investment Adviser manages the Trust pursuant to an Investment
Advisory Agreement (the "Advisory Agreement"). Under the Advisory Agreement, the
Investment Adviser provides the Trust with overall investment advisory services.
Subject to such policies as the Trustees may determine, the Investment Adviser
makes investment decisions for the Trust. For these services and facilities, the
Investment Adviser receives an annual investment advisory fee, computed and paid
monthly.

The Investment Adviser pays the compensation of the Trust's officers and of any
Trustee who is an officer of the Adviser. The Investment Adviser also furnishes
at its own expense investment advisory and administrative services, including
office space, equipment, clerical personnel, investment advisory facilities, and
all executive and supervisory personnel necessary for managing the Trust's
investments and effecting its portfolio transactions.

The Trust pays the compensation of the Trustees who are "not affiliated" with
the Investment Adviser and all expenses of the Trust (other than those assumed
by the Investment Adviser) including but not limited to: 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, shareholder reports, notices, proxy statements and reports to
governmental officers and commissions; brokerage and other expenses connected
with the execution, recording and settlement of portfolio security transactions;
insurance premiums; fees and expenses of the Trust's 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; organizational and start up costs; and such non-recurring
or extraordinary expenses as may arise, including those relating to actions,
suits or proceedings to which the Trust is a party or otherwise may have an
exposure, and the legal obligation which the Trust may have to indemnify the
Trust's Trustees and officers with respect thereto. Expenses relating to the
issuance, registration and qualification of shares of the Trust and the
preparation, printing and mailing of prospectuses for such purposes are borne by
the Trust.

The Advisory Agreement has an initial two year term and continues in effect
thereafter only if such continuance is specifically approved at least annually
by the Board of Trustees or by the affirmative vote of a majority of the
outstanding voting securities of the Trust. The Advisory Agreement terminates
automatically if it is assigned and may be terminated without penalty by the
affirmative vote of the outstanding voting securities of the Trust, or by either
party on not more than 60 days' nor less than 30 days' written notice.

The Advisory Agreement grants the Trust a non-exclusive and non-transferable
right and sub-license to use the names "Massachusetts Financial Services," "MFS"
or any derivatives or logos associated with those names. If MFS for any reason
no longer serves as investment adviser to the Trust, the Trust will promptly
cease to use these MFS marks. MFS may permit other clients to use these MFS
marks in their names or other material.

The Advisory Agreement also provides that neither the Investment 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 Trust, except for willful misfeasance, bad faith, gross
negligence, or reckless disregard of its or their duties and obligations under
the Advisory Agreement.

The Investment Adviser is free to render investment and/or other services to
others, but the Investment Adviser will at all times endeavor to treat all of
its clients in a fair and equitable manner. Whenever the Trust and one or more
other Trusts or accounts advised by the Investment Adviser have money available
for investment, investments or opportunities to sell investments will be
allocated in a manner believed by the Adviser to be fair and equitable to each
client. The Investment Adviser may cause the Trust to pay a broker or dealer a
higher commission than another broker or dealer might have charged for effecting
that transaction, if the Investment Adviser determines, in good faith, that the
higher commission was reasonable in relation to the value of brokerage and
research services provided by the broker or dealer.

Advisory Fee. For the services provided by MFS under the Advisory Agreement, the
Trust will pay MFS an annual fee computed and paid monthly in an amount equal to
the sum of 0.34% of the average daily net assets of the Trust and 5.40% of the
daily gross income (i.e., income other than gains from the sale of securities,
gains from options and futures transactions and premium income from options
written). This advisory fee is greater than that paid by most funds.

A discussion regarding the basis for the Board of Trustees' approval of the
Investment Advisory Agreement between the Trust and MFS is available in the
Trust's Annual Report to shareholders for the fiscal year ended October 31,
2005.

9.1.c. General - Portfolio Management: John Addeo, James J. Calmas, Scott B.
Richards, Matthew W. Ryan and Peter C. Vaream are the portfolio managers of the
Trust. Mr. Addeo, a Vice President of the Adviser, has been employed in the
investment management area of MFS since 1998. Mr. Calmas, a Senior Vice
President of the Adviser, has been employed in the investment management area of
MFS since 1988. Mr. Richards, has been employed in the investment management
area of the Adviser since 2004. Mr. Richards was head of the High Yield Group at
Columbia Management Group from 1999 to 2003. Mr. Ryan, a Senior Vice President
of the Adviser has been employed in the investment management area of MFS since
1997. Mr. Vaream, a Senior Vice President of the Adviser, has been employed in
the investment management area of MFS since 1992. Further information regarding
the portfolio managers, including other accounts managed, compensation,
ownership of Trust shares and possible conflicts of interest, is available in
the Trust's Statement of Additional Information. The portfolio managers are
jointly responsible for the day-to-day management of the Trust.

9.1.d. General - Administrators: Inapplicable.

9.1.e. Custodian: State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110 is the custodian and dividend disbursing agent for
the Trust. The Chase Manhattan Bank, 270 Park Avenue, New York, NY 20017 has
been employed as the global custodian as of July 2, 2001. MFS Services Center,
Inc., 500 Boylston Street,

Boston, Massachusetts 02116, a wholly owned subsidiary of MFS, is the
shareholder servicing agent.

9.1.f. General - Expenses: See Item 9.1.b.

9.1.g. General - Affiliated Brokerage: Inapplicable.

9.2. Non-resident Managers: Inapplicable.

9.3. Control Persons: Inapplicable.

Item 10. Capital Stock, Long-Term Debt, and Other Securities:

10.1. Capital Stock:

a. and f. Description of Shares. The Trust's Declaration of Trust permits the
Trustees to issue an unlimited number of full and fractional Shares of
Beneficial Interest, without par value. Shareholders are entitled to one vote
for each share held and to vote in the election of Trustees and on other matters
submitted to meetings of shareholders. No material amendment may be made to the
Trust's Declaration of Trust without the affirmative vote of a majority of its
shares. Under certain circumstances, shareholders have the right to communicate
with other shareholders and to remove Trustees. Shareholders have no pre-emptive
or conversion rights. Shares when issued are fully paid and non-assessable,
except as set forth below under "Certain Provisions of the Declaration of
Trust."

The Trust's Declaration of Trust permits the Trustees to divide or combine the
shares into a greater or lesser number of shares without thereby changing the
proportionate beneficial interests in the Trust. Each share represents an equal
proportionate interest in the Trust with each other share. The Trust has no
present intention of offering additional shares, except that additional shares
may be issued under the Plan. Other offerings of its shares, if made, will
require approval of the Trust's Board of Trustees. Any additional offering will
be subject to the requirements of the Investment Company Act of 1940, as
amended, that shares may not be sold at a price below the then-current net asset
value, exclusive of underwriting discounts and commissions, except, among other
things, in connection with an offering to existing shareholders or with the
consent of the holders of a majority of the Trust's outstanding voting
securities.

The Trust may be terminated (i) upon the sale of its assets to a diversified
open-end management investment company, if approved by the vote of the holders
of two-thirds of its outstanding shares, except that if the Trustees recommend
such sale of assets, the approval by the vote of the holders of a majority of
its outstanding shares will be sufficient, or (ii) upon liquidation and
distribution of its assets, if approved by the vote of the holders of two-thirds
of its outstanding shares, or (iii) by the Trustees by written notice to the
Trust's shareholders. If not so terminated, the

Trust will continue indefinitely. Upon liquidation of the Trust the Trust's
shareholders are entitled to share pro rata in the Trust's net assets available
for distribution to its shareholders.

Repurchase of Shares. The Trust is a closed-end management investment company
and as such its shareholders do not, and will not, have the right to redeem
their shares of the Trust. The Trust, however, may purchase its shares from time
to time in the open market or otherwise as and when it is deemed advisable by
the Trustees. Such repurchases will be made only when the Trust's shares are
trading at any discount from the net asset value of the shares. Shares
repurchased by the Trust will be held in treasury. The Trust may incur debt to
finance share repurchase transactions. See "Investment Restrictions" in Items
8.2, 8.3 and 8.4 above.

The shares of the Trust will trade in the open market at a price which will be a
function of several factors, including their net asset value and yield. The
shares of closed-end investment companies generally sell at market prices
varying from their net asset values. When the Trust repurchases its shares for a
price below their net asset value, the net asset value of those shares that
remain outstanding will be enhanced, but this does not necessarily mean that the
market price of those outstanding shares will be affected, either positively or
negatively. Further, interest on borrowings to finance share repurchase
transactions will reduce the Trust's net income.

Certain Provisions of the Declaration of Trust. The Trust is an entity of the
type commonly known as a "Massachusetts business trust." Under Massachusetts
law, shareholders of such a trust may, under certain circumstances, be held
personally liable as partners for its obligations. However, the Declaration of
Trust contains an express disclaimer of shareholder liability for acts or
obligations of the Trust and provides for indemnification and reimbursement of
expenses out of the Trust's property for any shareholder held personally liable
for the obligations of the Trust. The Declaration of Trust also provides that
the Trust shall maintain appropriate insurance (for example, fidelity bonding
and errors and omissions insurance) for the protection of the Trust, its
shareholders, Trustees, officers, employees and agents covering possible tort
and other liabilities. Thus, the risk of a shareholder incurring financial loss
on account of shareholder liability is limited to circumstances in which both
inadequate insurance exists and the Trust itself is unable to meet its
obligations.

The Declaration of Trust further provides that obligations of the Trust are not
binding upon the Trustees individually but only upon the property of the Trust
and that the Trustees will not be liable for 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.

Anti-Takeover Provisions. The Trust presently has certain anti-takeover
provisions in its Declaration of Trust which could have the effect of limiting
the ability of other entities or persons to acquire control of the Trust, to
cause it to engage in certain transactions or to modify its structure. The Board
of Trustees is divided into three classes, each having a term of three years.
Each year the term of one class expires. This provision could delay for up to
two years the replacement of a majority of the Board of Trustees. In addition,
the affirmative vote or consent of the holders of 66% percent of the shares of
the Trust (a greater vote than that required by the 1940 Act) is required to
authorize the conversion of the Trust from a closed-end to an open-end
investment company, or generally to authorize any of the following transactions:

(i) merger or consolidation of the Trust with or into any other
corporation;

(ii) issuance of any securities of the Trust to any person or entity
for cash;

(iii) sale, lease or exchange of all or any substantial part of the
assets of the Trust to any entity or person (except assets having an
aggregate fair market value of less than $1,000,000); or

(iv) sale, lease or exchange to the Trust, in exchange for securities
of the Trust, of any assets of any entity or person (except assets
having an aggregate fair market value of less than $1,000,000)

if such corporation, person or entity is directly, or indirectly through
affiliates, the beneficial owner of five percent or more of the outstanding
shares of the Trust. However, such vote or consent will not be required with
respect to the foregoing transactions where the Board of Trustees under certain
conditions approves the transaction. Reference is made to the Declaration of
Trust of the Trust, on file with the SEC, for the full text of these provisions.

The foregoing provisions will make more difficult a change in the Trust's
management, or consummation of the foregoing transactions without the Trustees'
approval, and could have the effect of depriving shareholders of an opportunity
to sell their shares at a premium over prevailing market prices by discouraging
a third party from seeking to obtain control of the Trust in a tender offer or
similar transaction. However, the Board of Trustees has considered these
anti-takeover provisions and believes that they are in the shareholders' best
interests and benefit shareholders by providing the advantage of potentially
requiring persons seeking control of the Trust to negotiate with its management
regarding the price to be paid and facilitating the continuity of the Trust's
management.

b. Inapplicable.

c. Inapplicable.

d. Inapplicable.

e. Dividends and Distributions; Dividend Reinvestment and Cash Purchase Plan.
The Trust intends to distribute monthly to shareholders substantially all of its
net investment income (non-capital gain income less expense) and capital gains,
if any, will be distributed at least annually. See Item 10.4. If any monthly
distribution exceeds the net investment income available for distribution, the
excess will be distributed from other Trust assets. The Trust's final
distribution for each calendar year will include any remaining net investment
income and net short-term capital gains deemed, for federal income tax purposes,
undistributed during the year, as well as any net long-term capital gains; the
excess, if any, distributed from other Trust assets, will generally be treated
as a tax-free return of capital (up to the amount of the shareholder's tax basis
in his shares) which would be, in effect, a return of the shareholder's
investment. Such excess, however, will be treated as ordinary dividend income up
to the amount of the Trust's current and accumulated earnings and profits. The
amount treated as a tax-free return of capital will reduce a shareholder's
adjusted basis in his shares, thereby increasing his potential gain or reducing
his potential loss on the sale of his shares. Such distribution policy may,
under certain circumstances, have certain adverse consequences to the Trust and
its shareholders. Shareholders will be sent annual notices reporting the tax
status of such distributions. The notices will indicate whether any portion of
such distributions represent a return of capital. See Item 10.4.

Shareholders holding shares in their own names may elect to have all income
dividend and/or other distributions automatically reinvested by State Street
Bank and Trust Company ("State Street"), as Plan agent, pursuant to the Trust's
Dividend Reinvestment and Cash Purchase Plan (the "Plan"), the provisions of
which are set forth below. Shareholders not making such election will receive
all such amounts in cash paid by check mailed directly to the shareholder by
State Street, as dividend paying agent. Shareholders whose shares are held in
the name of a broker or nominee, if a dividend reinvestment service is provided
by the broker or nominee, may elect to have dividends and/or distributions
automatically reinvested by the broker under the Plan. Shareholders whose shares
are held by a broker or nominee which does not provide a dividend reinvestment
service will be required to have their shares registered in their own names to
participate in the Plan.

Under the Plan, if the Trustees of the Trust declare a dividend from net
investment income or other distribution, the non participants in the Plan will
receive such dividend or distribution in cash and participants in the Plan will
receive the equivalent of such dividend and/or distribution in shares of the
Trust. Whenever the market price of the shares on the payment date for the
dividend or distribution is equal to or exceeds their net asset value on that
date, participants will be issued shares of the Trust at the higher of net asset
value or 95% of the market price. This discount reflects savings in underwriting
and other costs which the Trust would otherwise be required to incur to raise
additional capital. If net asset value exceeds the market price of Trust shares
at

such time or if the Trust should declare a dividend or other distribution
payable only in cash, State Street will, if possible, as agent for the
participants, buy Trust shares in the open market, on the New York Stock
Exchange or elsewhere, for the participants' accounts. If, before State Street
has completed its purchases, the market price exceeds the net asset value of the
Trust's shares, the average per share purchase price paid by State Street may
exceed the net asset value of the Trust's shares, resulting in the acquisition
of fewer shares than if the dividend or distribution had been paid in shares
issued by the Trust.

Participants in the Plan may withdraw from the Plan upon written notice to State
Street. When a participant withdraws from the Plan or upon termination of the
Plan as provided below, certificates for whole shares credited to his account
under the Plan will be issued and a cash payment will be made for any fraction
of a share credited to such account.

Participants in the Plan have the option of making additional cash payments to
State Street, semi-annually, for investment in the Trust's shares. Such payments
may be made in any amount from $100 to $500. State Street will use all funds
received from participantsto purchase Trust shares in the open market
semi-annually. Interest will not be paid on any uninvested cash payments.

State Street maintains all shareholder accounts in the Plan and furnishes
monthly written confirmations of all transactions in the account, including
information needed by shareholders for personal and tax records. Shares in the
account of each Plan participant will be held by State Street in
non-certificated form in the name of the participant, and each shareholder's
proxy will include those shares purchased pursuant to the Plan. While the Trust
has no plans to issue additional shares other than pursuant to the Plan, if
participants in the Plan desire to exercise any rights which may be issued or
granted with respect to shares, they should request that certificates for whole
shares be issued to them. Each participant nevertheless has the right to receive
certificates for whole shares owned by him.

The Trust will distribute proxy material to nominee and record shareholders in
accordance with SEC rules and regulations.

There is no charge to participants for reinvesting dividends or distributions,
except for certain brokerage commissions, as described below. State Street's
fees for the handling of the reinvestment of dividends and distributions will be
paid by the Trust. There will be no brokerage charges with respect to shares
issued directly by the Trust as a result of dividends or distributions payable
either in stock or in cash. However, each participant will pay a pro rata share
of brokerage commissions incurred with respect to State Street's open market
purchases in connection with the reinvestment of dividends or distributions as
well as from voluntary cash payments.

With respect to purchases from voluntary cash payments, State Street will charge
a pro rata share of the brokerage commissions and a service fee of $0.75 for
each cash

purchase. Brokerage charges for purchasing small amounts of stock for
individual accounts through the Plan are expected to be less than the usual
brokerage charges for such transactions, as State Street will be purchasing
shares for all participants in blocks and pro-rating the lower commission thus
attainable.

The automatic reinvestment of dividends and distributions will not relieve
participants of any income tax which may be payable on such dividends or
distributions.

Experience under the Plan may indicate that changes are desirable. Accordingly,
the Trust reserves the right to amend or terminate the Plan as applied to any
voluntary cash payments made and any dividend or distribution paid subsequent to
written notice of the change sent to the participants in the Plan at least 90
days before the record date for such dividend or distribution. The Plan also may
be amended or terminated by State Street on at least 90 days' written notice to
participants in the Plan. All correspondence concerning the Plan should be
directed to State Street at 225 Franklin Street, Boston, Massachusetts 02110.

10.2. Long-term debt: Inapplicable.

10.3. General: Inapplicable.

10.4. Taxes: The Trust 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, including requirements of Subchapter M as to the nature of the
Trust's gross income, the amount of Trust distributions, and the composition of
the Trust's portfolio assets. Because the Trust 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 Trust will be required to pay any federal income or excise taxes,
although the Trust's foreign-source income may be subject to foreign withholding
taxes. If the Trust should fail to qualify as a regulated investment company in
any year, the Trust would incur a regular corporate federal income tax upon its
taxable income, and distributions received from the Trust (including
distributions of net capital gains) would generally be taxable in the same
manner as regular corporate dividends to shareholders.

Shareholders 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 Trust. Dividends from ordinary income and any distributions from net
short-term capital gains are taxable to shareholders as ordinary income for
federal income tax purposes. A portion of such distributions may be eligible for
the dividends-received deduction for corporate shareholders if the recipient
otherwise qualifies for that deduction with respect to its holding of Trust
shares. Deducted amounts may be subject to the alternative minimum tax and may
result in adjustments in the tax basis of a shareholder's shares. Properly
designated distributions of net capital gains (i.e., the excess of net long-term

capital gains over net short-term capital losses) are taxable to shareholders as
long-term capital gains, for federal income tax purposes, regardless of the
length of time the shareholders have held their shares. For taxable years
beginning before January 1, 2009, "qualified dividend income" received by an
individual will be taxed at the rates applicable to long-term capital gain. In
order for some portion of the dividends received by a Trust shareholder to be
qualified dividend income, the Trust must meet holding period and other
requirements with respect to some portion of the dividend-paying stocks in its
portfolio and the shareholder must meet holding period and other requirements
with respect to the Trust's shares. A dividend will not be treated as qualified
dividend income (at either the Trust or shareholder level) (i) if the dividend
is received with respect to any share of stock held for fewer than 61 days
during the 121-day period beginning on the date which is 60 days before the date
on which such share becomes ex-dividend with respect to such dividend (or, in
the case of certain preferred stock, 91 days during the 181-day period beginning
90 days before such date), (ii) to the extent that the recipient is under an
obligation (whether pursuant to a short sale or otherwise) to make related
payments with respect to positions in substantially similar or related property,
(iii) if the recipient elects to have the dividend income treated as investment
interest, or (iv) if the dividend is received from a foreign corporation that is
(a) not eligible for the benefits of a comprehensive income tax treaty with the
United States (with the exception of dividends paid on stock of such a foreign
corporation readily tradable on an established securities market in the United
States) or (b) treated as a passive foreign investment company. Distributions
that are treated for federal income tax purposes as a return of capital will
reduce each shareholder's basis in his shares and, to the extent the return of
capital exceeds such basis, will be treated as gain to the shareholder from a
sale of shares. Any dividend that is declared by the Trust in October, November
or December of any calendar year, that is payable to shareholders of record in
such a month, and that is paid the following January, will be treated as if
received by the shareholders on December 31 of the year in which the dividend is
declared. The Trust will notify shareholders regarding the federal tax status of
its distributions after the end of each calendar year.

Distributions will be taxable as described above, whether received in cash or
reinvested in additional shares under the Plan. With respect to distributions
received in cash or reinvested in shares purchased on the open market, the
amount of the distribution for tax purposes is the amount of cash distributed or
allocated to the shareholder. However, with respect to distributions made in
shares issued by the Trust pursuant to the Plan, the amount of the distribution
for tax purposes is the fair market value of the issued shares on the payment
date and a portion of such distribution may be treated as a return of capital.
In the case of shares purchased on the open market, a participating
shareholder's tax basis in each share received is its cost. In the case of
shares issued by the Trust, the shareholder's tax basis in each share received
is its fair market value on the payment date.

Any distribution by the Trust will result in a reduction in the fair market
value of the Trust's shares by the amount of the distribution. Should a
distribution reduce the fair market value below a shareholder's cost basis, the
distribution is nevertheless taxable to the shareholder as ordinary income or
capital gain, as described above, even though,

from an investment standpoint, it may constitute a partial return of capital.
Shareholders who purchase shares of the Trust shortly before a distribution may
therefore 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 Trust by a shareholder that holds such shares as a capital asset will be
treated as long-term capital gain or loss if the shares have been held for more
than twelve months and otherwise as short-term capital gain or loss. However,
any loss realized upon a taxable disposition of shares within six months from
the date of their purchase will be treated as a long-term capital loss to the
extent of any net capital gain distributions paid by the Trust during such
six-month period. Any loss realized upon a taxable disposition of Trust shares
may be disallowed under rules relating to wash sales.

The Trust'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
investments in zero coupon bonds, deferred interest bonds, option notes, PIK
bonds, SMBS, inflation-indexed securities and certain securities purchased at a
market discount will cause the Trust to recognize income prior to the receipt of
cash payments with respect to those securities. In order to distribute this
income and avoid a tax on the Trust, the Trust 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 Trust. A direct or indirect
investment in residual interests of a CMO that has elected to be treated as a
REMIC can create complex tax problems, especially if the Trust has state or
local governments or other tax-exempt organizations as shareholders.

The Trust's transactions in options, Futures Contracts, Options on Futures
Contracts, Forward Contracts and swaps and related transactions will be subject
to special tax rules that could affect the amount, timing and character of
distributions to shareholders. For example, certain positions held by the Trust
on the last business day of each taxable year will be marked to market (i.e.,
treated as if closed out) on that day, and any gain or loss associated with the
positions will be treated as 60% long-term and 40% short-term capital gain or
loss. Certain positions held by the Trust that substantially diminish its risk
of loss with respect to other positions in its portfolio may constitute
"straddles," which are subject to special tax rules that may cause deferral of
Trust losses, adjustments in the holding periods of Trust securities and
conversion of short-term into long-term capital losses. Certain tax elections
exist for straddles that could alter the effects of these rules. The Trust will
limit its activities in options, Futures Contracts, Options on Futures
Contracts, Forward Contracts and swaps and related transactions to the extent
necessary to meet the requirements of Subchapter M of the Code.

Special tax considerations apply with respect to foreign investments of the
Trust. Foreign exchange gains and losses realized by the Trust will generally be
treated as ordinary income and losses. Use of foreign currencies for non-hedging
purposes may be

limited in order to avoid a tax on the Trust. The Trust may elect to market any
investments in "passive foreign investment companies" on the last day of each
year. This election may cause the Trust to recognize income prior to the receipt
of cash payments with respect to those investments; in order to distribute this
income and avoid a tax on the Trust, the Trust 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 Trust.

Investment income received by the Trust from foreign securities may be subject
to foreign income taxes withheld at the source; the Trust does not expect to be
able to pass through to shareholders foreign tax credits with respect to such
foreign taxes. The United States has entered into tax treaties with many foreign
countries that may entitle the Trust to a reduced rate of tax or an exemption
from tax on such income; the Trust intends to qualify for treaty reduced rates
where available. It is not possible, however, to determine the Trust's effective
rate of foreign tax in advance since the amount of the Trust's assets to be
invested within various countries is not known.

Dividends and certain other payments to persons who are not citizens or
residents of the United States ("Non-U.S. Persons") are generally subject to
U.S. tax withholding at the rate of 30%. The Trust intends to withhold U.S.
federal income tax at the rate of 30% on any payments made to Non-U.S. Persons
that are subject to withholding. The Trust may withhold at a lower rate
permitted by an applicable treaty if the shareholder provides the documentation
required by the Trust. Any amounts overwithheld may be recovered by filing a
claim for refund with the U.S. Internal Revenue Service within the time period
applicable to such claims. Distributions received from the Trust by Non-U.S.
Persons may also be subject to tax under the laws of their own jurisdiction.
Capital gain dividends are generally not subject to withholding of U.S. federal
income tax. Special tax considerations may apply to distributions derived from
the sale or exchange of certain United States real property interests. Non-U.S.
shareholders are urged to consult their tax advisors to determine the
consequences of investing in the Trust in light of their own particular
circumstances.

Under the American Jobs Creation Act of 2004 (the "2004 Act"), effective for
taxable years of the Trust beginning before January 1, 2008, the Trust will not
be required to withhold any amounts (i) with respect to distributions (other
than distributions to a foreign shareholder that has not provided a satisfactory
statement that the beneficial owner is not a U.S. person, to the extent that the
dividend is attributable to certain interest on an obligation if the foreign
shareholder is the issuer or is a 10% shareholder of the issuer, that is within
certain foreign countries that have inadequate information exchange with the
United States, or to the extent the dividend is attributable to interest paid by
a person that is a related person of the foreign shareholder and the foreign
shareholder is a controlled foreign corporation) from U.S.-source interest
income that would not be subject to U.S. federal income tax if earned directly
by an individual foreign shareholder, to the extent such distributions are
properly designated by the Fund (the "interest-related dividends"), and (ii)
with respect to distributions (other than distributions to an individual foreign
shareholder who is present in the

United States for a period or periods aggregating 183 days or more during the
year of the distribution) of net short-term capital gains in excess of net
long-term capital losses, to the extent such distributions are properly
designated by the Trust (the "short-term capital gain dividends"). The Trust may
opt not to designate dividends as interest-related dividends or short-term
capital gain dividends to the full extent permitted by the Code.

The Trust is also required in certain circumstances to apply backup withholding
at the rate of 28% (the backup withholding tax rate will be 31% for amounts paid
after December 31, 2010) on taxable dividends, redemption proceeds and certain
other payments that are paid to any shareholder (including a shareholder who is
a Non-U.S. Person) who does not furnish to the Trust certain information and
certifications or who is otherwise subject to backup withholding. Backup
withholding will not be applied to payments that have been subject to the 30%
withholding tax on payments to Non-U.S. Persons.

Under present law, the Trust will not be subject to any excise or income taxes
in Massachusetts as long as it qualifies as a regulated investment company under
the Code.

Distributions of the Trust that are derived from interest on obligations of the
U.S. Government and certain of its agencies and instrumentalities (but generally
not capital gains realized upon the disposition of such obligations) may be
exempt from state and local taxes. The Trust intends to advise shareholders of
the proportion of its dividends which consists of such interest. Shareholders
should 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 Trust.

The Trust will send written notices to shareholders regarding the federal income
tax status of all distributions made during each calendar year. 10.5.
Outstanding Securities: The following information is furnished as of January 31,
2006:

------------------------------- ---------------------------- ---------------------------- ----------------------------
(1) (2) (3) (4)
------------------------------- ---------------------------- ---------------------------- ----------------------------
Amount
Outstanding
Amount Held by Exclusive
Amount Trust or for of Amount Shown
Title of Class Authorized its Account Under (3)
------------------------------- ---------------------------- ---------------------------- ----------------------------
Shares of 90,140,455.8325 9,642,802 80,497,653.8325 shares
Beneficial Interest,
without par value
------------------------------- ---------------------------- ---------------------------- ----------------------------

*Treasury Shares

10.6. Securities Ratings: Inapplicable.

Item 11. Defaults and Arrears on Senior Securities: None.

Item 12. Legal Proceedings: On March 31, 2004, MFS settled an administrative
proceeding with the Securities and Exchange Commission ("SEC") regarding
disclosure of brokerage allocation practices in connection with MFS fund sales
(the term "MFS funds" means the open-end registered management investment
companies sponsored by MFS). The brokerage allocation practices which were the
subject of this proceeding were discontinued by MFS in November 2003. In
addition, in February 2004, MFS reached agreement with the SEC, the New York
Attorney General ("NYAG") and the Bureau of Securities Regulation of the State
of New Hampshire to settle administrative proceedings alleging false and
misleading information in certain MFS open-end retail fund prospectuses
regarding market timing and related matters.

Since December 2003, MFS, MFS Fund Distributors, Inc., MFS Service Center, Inc.,
MFS Corporation Retirement Committee, Sun Life Financial Inc., various MFS
funds, certain current and/or former Trustees of these MFS funds, and certain
officers of MFS have been named as defendants in multiple lawsuits filed in
federal and state courts. The lawsuits variously have been commenced as class
actions or individual actions on behalf of investors who purchased, held or
redeemed shares of the MFS funds during specified periods, as ERISA actions by
participants in certain retirement plan accounts on behalf of those accounts, or
as derivative actions on behalf of the MFS funds. The lawsuits relating to
market timing and related matters have been transferred to, and consolidated
before, the United States District Court for the District of Maryland, as part
of a multi-district litigation of market timing and related claims involving
several other fund complexes (In re Mutual Funds Investment Litigation (Alger,
Columbia, Janus, MFS, One Group, Putnam, Allianz Dresdner), No. 1:04-md-15863
(transfer began March 19, 2004)). The market timing cases related to the MFS
complex are Riggs v. MFS et al., Case No. 04-CV-01162-JFM (direct), Hammerslough
v. MFS et al., Case No. 04-MD-01620 (derivative), Anita Walker v. MFS et al.,
Case No. 1:04-CV-01758 (ERISA), and Reaves v. MFS Series Trust I, et al., Case
No. 1:05-CV-02220-JFM (Class B Shares). The plaintiffs in these consolidated
lawsuits generally seek injunctive relief including removal of the named
Trustees, adviser and distributor, rescission of contracts and 12b-1 Plans,
disgorgement of fees and profits, monetary damages, punitive damages, attorney's
fees and costs and other equitable and declaratory relief. Two lawsuits alleging
improper brokerage allocation practices and excessive compensation are pending
in the United States District Court for the District of Massachusetts (Forsythe
v. Sun Life Financial Inc., et al., No. 04cv10584 (GAO) (a consolidated action)
and Marcus Dumond, et al. v. Massachusetts Financial Servs. Co., et al., No.
04cv11458 (GAO)). The plaintiffs in these lawsuits generally seek compensatory
damages, punitive damages, recovery of fees, rescission of contracts, an
accounting, restitution, declaratory relief, equitable and/or injunctive relief
and attorney's fees and costs. The various lawsuits generally allege that some
or all of the defendants (i) permitted or acquiesced in market timing and/or
late trading in some of the MFS funds, inadequately disclosed MFS' internal
policies concerning market timing and such matters, (ii)

received excessive compensation as fiduciaries to the MFS funds, or (iii)
permitted or acquiesced in the improper use of fund assets by MFS to support the
distribution of MFS fund shares and inadequately disclosed MFS' use of fund
assets in this manner. The actions assert that some or all of the defendants
violated the federal securities laws, including the Securities Act of 1933 and
the Securities Exchange Act of 1934, the Investment Company Act of 1940 and the
Investment Advisers Act of 1940, the Employee Retirement Income Security Act of
1974, as well as fiduciary duties and other violations of common law. Insofar as
any of the actions is appropriately brought derivatively on behalf of any of the
MFS funds, any recovery will inure to the benefit of the MFS funds. The
defendants filed separate motions to dismiss all claims of the various lawsuits
(except Reaves, which has not been separately briefed). On November 3, 2005, the
district judge considering the motions to dismiss the Riggs and Hammerslough
actions issued memoranda indicating that he intends to grant in part and deny in
part defendants' motions in these actions. A formal order consistent with the
court's memoranda is forthcoming. On January 19, 2006, the district judge
considering the Forsythe and Dumond actions denied defendants' motion to dismiss
the Dumond action and granted in part (including dismissing all claims against
the Trustees and Sun Life Financial, Inc.) and denied in part defendants' motion
to dismiss the Forsythe action. Additional lawsuits based on similar allegations
may be filed in the future.

Any potential resolution of these matters may include, but not be limited to,
judgments or settlements for damages against MFS, the MFS funds, or any other
named defendant. It is not clear whether any amounts paid in connection with the
above regulatory settlements will be sufficient to compensate shareholders for
all of the damage they allegedly sustained, whether certain shareholders or
putative class members may have additional claims to compensation, or whether
the damages that may be awarded in any of the actions will exceed these amounts.
In the event the MFS funds incur any losses, costs or expenses in connection
with such lawsuits, the Boards of Trustees of the affected MFS funds may pursue
claims on behalf of such funds against any party that may have liability to the
funds in respect thereof. There can be no assurance that these regulatory
actions and lawsuits, or the adverse publicity associated with these
developments, will not result in increased fund redemptions, reduced sales of
fund shares, or other adverse consequences to the MFS funds.

Item 13. Table of Contents of Statement of Additional Information: Inapplicable

PART B

INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION

Item 14. Cover Page: Inapplicable.

Item 15. Table of Contents: Inapplicable.

Item 16. General Information and History: Inapplicable.

Item 17. Investment Objective and Policies:

17.1, 17.2 and 17.3: None that are not described in the Prospectus.

17.4. For fiscal year 2005, the Trust's portfolio turnover rate was 67%. In
fiscal year 2004, the Trust's portfolio turnover rate was 59%.

A high turnover rate necessarily involves greater expenses to the Trust. The
Trust will engage in portfolio trading if it believes that a transaction net of
costs (including custodian transaction charges) will help in achieving its
investment objective.

Item 18. Management:

18.1 and 18.2: Trustees, Officers and Advisory Board Members: The Trustees and
officers of the Trust, as of February 1, 2006, are listed below, together with
their principal occupations during the last five years. (Their titles may have
varied during that period.) The address of each Trustee and officer is 500
Boylston Street, Boston, Massachusetts 02116.

TRUSTEES AND OFFICERS - IDENTIFICATION AND BACKGROUND

--------------------------------------- ---------------------------------------------------------------------------------------
Name, Date of Birth Position(s) Held Trustee/Officer Principal Occupations During the
Past Five Years & Other
with Fund Since(1) Directorships(2)
--------------------------------------- ---------------------------------------------------------------------------------------
--------------------------------------- ---------------------------------------------------------------------------------------
INTERESTED TRUSTEES
--------------------------------------- ---------------------------------------------------------------------------------------
--------------------------------------- ---------------------------------------------------------------------------------------
Robert J. Manning(3) Trustee February 2004 Massachusetts Financial Services
(born 10/20/63) Company, Chief Executive Officer,
President, Chief Investment Officer
and Director
--------------------------------------- ---------------------------------------------------------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------

--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
J. Atwood Ives Trustee and Chair February 1992 Private investor; Eastern
(born 05/01/36) of Trustees Enterprises (diversified services
company), Chairman, Trustee and
Chief Executive Officer (until
November 2000)
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
Robert E. Butler(4) Trustee January 2006 Consultant - regulatory and
(born 11/29/41) compliance matters(4) (since July
2002); PricewaterhouseCoopers LLP
(professional services firm),
Partner (November 2000 until June
2002)
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- ---------------------------------------------------------------------------------------
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital, Senior
(born 03/11/37) Cardiac Surgeon, Chief of Cardiac
Surgery (until 2005); Harvard
Medical School, Professor of
Surgery; Brigham and Women's
Hospital Physician's Organization
Chair (2000 until 2004)
--------------------------------------- ---------------------------------------------------------------------------------------
--------------------------------------- ---------------------------------------------------------------------------------------
--------------------------------------- ---------------------------------------------------------------------------------------
--------------------------------------- ---------------------------------------------------------------------------------------
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining
(born 05/30/42) products and service provider), Vice
Chairman/Director (since April 2001); Encinitos
Ventures (private investment
company), Principal (1997 to April 2001);
Lincoln Electric Holdings, Inc.
(welding equipment manufacturer), Director

--------------------------------------- ---------------------------------------------------------------------------------------

--------------------------------------- ---------------------------------------------------------------------------------------
OFFICERS
--------------------------------------- ---------------------------------------------------------------------------------------
Maria F. Dwyer(3) President November 2005 Massachusetts Financial Services
(born 12/1/58) Company, Executive Vice President
and Chief Regulatory Officer (since
March 2004); Fidelity Management &
Research Company, Vice President
(prior to March 2004); Fidelity
Group of Funds, President and
Treasurer (prior to March 2004)

--------------------------------------- --------------------- --------------------- --------------------------------------
Name, Date of Birth Position(s) Held Trustee/Officer Principal Occupations During the
Past Five Years & Other
with Fund Since(1) Directorships(2)
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
Tracy Atkinson(3) Treasurer September 2005 Massachusetts Financial Services
(born 12/30/64) Company, Senior Vice President
(since September 2004);
PricewaterhouseCoopers LLP, Partner
(prior to September 2004)
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
Christopher R. Bohane(3) Assistant Secretary July 2005 Massachusetts Financial Services
(born 1/18/74) and Assistant Clerk Company, Vice President and Senior
Counsel (since April 2003); Kirkpatrick &
Lockhart LLP (law firm), Associate
(prior to April 2003); Nvest Services Company,
Assistant Vice President and
Associate Counsel (prior to January 2001)
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
Ethan D. Corey(3) Assistant Secretary July 2005 Massachusetts Financial Services
(born 11/21/63) and Assistant Clerk Company, Special Counsel (since
December 2004); Dechert LLP (law
firm), Counsel (prior to December
2004)
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
-------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
David L. DiLorenzo(3) Assistant Treasurer July 2005 Massachusetts Financial Services
(born 8/10/68) Company, Vice President (since June
2005); JP Morgan Investor Services,
Vice President (January 2001 to June
2005); State Street Bank, Vice
President and Corporate Audit
Manager (prior to January 2001)
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
Timothy M. Fagan(3) Assistant Secretary September 2005 Massachusetts Financial Services
(born 7/10/68) and Assistant Clerk Company, Vice President and Senior
Counsel (since September 2005); John Hancock
Advisers, LLC, Vice President and
Chief Compliance Officer (September 2004 to
August 2005), Senior Attorney (prior
to September 2004); John Hancock Group of
Funds, Vice President and Chief
Compliance Officer (September 2004 to December
2004)
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
Mark D. Fischer(3) Assistant Treasurer July 2005 Massachusetts Financial Services
(born 10/27/70) Company, Vice President (since May
2005); JP Morgan Investment
Management Company, Vice President
(prior to May 2005)
--------------------------------------- --------------------- --------------------- --------------------------------------

--------------------------------------- --------------------- --------------------- --------------------------------------
Name, Date of Birth Position(s) Held Trustee/Officer Principal Occupations During the
Past Five Years & Other
with Fund Since(1) Directorships(2)
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
Brian T. Hourihan(3) Assistant Secretary September 2004 Massachusetts Financial Services
(born 11/11/64) and Assistant Clerk Company, Vice President, Senior
Counsel and Assistant Secretary
(since June 2004); Affiliated
Managers Group, Inc., Chief Legal
Officer/Centralized Compliance
Program (January to April 2004);
Fidelity Research & Management
Company, Assistant General Counsel
(prior to January 2004)
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
Ellen Moynihan(3) Assistant Treasurer April 1997 Massachusetts Financial Services
(born 11/13/57) Company, Vice President
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
Susan S. Newton(3) Assistant Secretary May 2005 Massachusetts Financial Services
(born 3/7/50) and Assistant Clerk Company, Senior Vice President and
Associate General Counsel (since April 2005);
John Hancock Advisers, LLC, Senior
Vice President, Secretary and Chief Legal
Officer (prior to April 2005); John
Hancock Group of Funds, Senior Vice President,
Secretary and Chief Legal Officer
(prior to April 2005)
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
Susan A. Pereira(3) Assistant Secretary July 2005 Massachusetts Financial Services
(born 11/5/70) and Assistant Clerk Company, Vice President and Senior
Counsel (since June 2004); Bingham McCutchen LLP
(law firm), Associate (January
2001 to June 2004); Preti, Flaherty, Beliveau,
Pachios & Haley, LLC, Associate
(prior to January 2001)
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
Mark N. Polebaum(3) Secretary and Clerk January 2006 Massachusetts Financial Services
(born 05/01/52) Company, Executive Vice President,
General Counsel and Secretary (since
January 2006); Wilmer Cutler Pickering Hale
and Dorr LLP (law firm), Partner
(prior to January 2006)
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------
--------------------------------------- --------------------- --------------------- --------------------------------------

--------------------------
(1) Date first appointed to serve as Trustee/officer of an MFS fund. Each
Trustee has served continuously since appointment unless indicated
otherwise.
(2) Directorships or trusteeships of companies required to report to the
Securities and Exchange Commission (i.e., "public companies").
(3) "Interested person" of the Trust within the meaning of the Investment
Company Act of 1940 (referred to as the 1940 Act), which is the principal
federal law governing investment companies like the fund, as a result of
position with MFS. The address of MFS is 500 Boylston Street, Boston,
Massachusetts 02116.
(4) In 2004 and 2005, Mr. Butler provided consulting services to the
independent compliance consultant retained by MFS pursuant to its
settlement with the SEC concerning market timing and related matters. The
terms of that settlement required that compensation and expenses related to
the independent compliance consultant be borne exclusively by MFS and,
therefore, MFS paid Mr. Butler for the services he rendered to the
independent compliance consultant. In 2004 and 2005, MFS paid Mr. Butler a
total of $351,119.29.

The Board of Trustees is divided into three classes, each class having a term of
three years ending with the annual meeting of shareholders (or any adjournment
thereof) held in the year of expiration, or until the election of a successor.
Each year the term of office of one class expires: Messrs. Gunning, Pozen and
Sherratt will continue in office until the 2006 annual meeting, Messrs. Cohn,
Manning and Perera, and Ms. Thomsen will continue in office until the 2007
annual meeting and Messrs. Gutow, Hegarty and Ives will continue in office until
the 2008 annual meeting.

Each of the Trust's Trustees and officers holds comparable positions with
certain other funds of which MFS or a subsidiary is the investment adviser or
distributor, and, in the case of the officers, with certain affiliates of MFS.
Each Trustee serves as a board member of 98 funds within the MFS Family of
Funds.

18.3. Inapplicable.

18.4. Inapplicable.

18.5. Committees.

Name of Committee Number of Meetings Functions Members(1)
in Last Fiscal Year

AUDIT COMMITTEE 16 Oversees the accounting and auditing Butler*, Ives*, Sherratt*,
procedures of the Trust and, among other Thomsen* and Uek*
things, considers the selection of the
independent accountants for the Trust and the
scope of the audit, and considers the effect
on the independence of those accountants of
any non-audit services such accountants
provide to the Trust and any audit or
non-audit services such accountants provide
to other MFS Trusts, MFS and/or certain
affiliates. The Committee is also responsible
for establishing procedures for the receipt,
retention and treatment of complaints
received by the Trust regarding accounting,
internal accounting controls, or auditing
matters and the confidential, anonymous
submission of concerns regarding questionable
Trust accounting matters by officers of the
Trust and employees of the Trust's investment
adviser, administrator, principal underwriter
or any other provider of accounting related
services to the Trust.

COMPLIANCE AND GOVERNANCE 8 Oversees the development and implementation Butler*, Cohn*, Gunning*,
COMMITTEE of the Trust's regulatory and fiduciary Gutow*, Hegarty*, Ives*
compliance policies, procedures and practices (ex-officio member) and
under the 1940 Act and other applicable laws Sherratt*
as well as oversight of compliance policies
of the Trust's investment adviser and certain
other service providers as they relate to
Trust activities. The Trust's Independent
Chief Compliance Officer reports directly to
the Committee and assists the Committee in
carrying out its responsibilities. In
addition, the Committee advises and makes
recommendations to the Board on matters
concerning Trustee practices and
recommendations concerning the functions and
duties of the committees of the Board.

CONTRACTS REVIEW COMMITTEE 5 Requests, reviews and considers the All non-interested
information deemed reasonably necessary to Trustees of the Board
evaluate the terms of the investment advisory (Butler, Cohn, Gunning,
and principal underwriting agreements and the Gutow, Hegarty, Ives,
Plan of Distribution under Rule 12b-1 that Perera, Sherratt, Thomsen
the Trust proposes to renew or continue, and and Uek)
to make its recommendations to the full Board
of Trustees on these matters.

SERVICES CONTRACTS COMMITTEE 2^ Reviews and evaluates the contractual Gunning*, Ives*
arrangements of the Trust relating to (ex-officio member),
transfer agency, administrative services, Sherratt* and Thomsen*
custody, pricing and bookkeeping services and
lending of portfolio securities and makes
recommendations to the full Board of Trustees
on these matters.

NOMINATION AND COMPENSATION 1 Recommends qualified candidates to the Board All non-interested
COMMITTEE in the event that a position is vacated or Trustees of the Board
created. The Committee will consider (Butler, Cohn, Gunning,
recommendations by shareholders when a Gutow, Hegarty, Ives,
vacancy exists. Shareholders wishing to Perera, Sherratt, Thomsen
recommend candidates for Trustee for and Uek)
consideration by the Committee may do so by
writing to the Trust's Secretary at the
principal executive office of the Trust. Such
recommendations must be accompanied by
biographical and occupational data on the
candidate (including whether the candidate
would be an "interested person" of the
Trust), a written consent of the candidate to
be named as a nominee and to serve as Trustee
if elected, record and ownership information
for the recommending shareholder with respect
to the Trust, and a description of any
arrangements or understandings regarding
recommendation of the candidate for
consideration. The Committee is also
responsible for making recommendations to the
Board regarding any necessary standards or
qualifications for service on the Board. The
Committee also reviews and makes
recommendations to the Board regarding
compensation for the non-interested Trustees.

PORTFOLIO TRADING AND 7 Oversees the policies, procedures, and Cohn*, Gunning*, Gutow*,
MARKETING REVIEW COMMITTEE practices of the Trusts with respect to Hegarty*, Ives*
brokerage transactions involving portfolio (ex-officio member) and
securities as those policies, procedures, and Perera*
practices are carried out by MFS and its
affiliates. The Committee also oversees the
administration of the Trusts' proxy voting
policies and procedures by MFS. In addition,
the Committee receives reports from MFS
regarding the policies, procedures, and
practices of MFS and its affiliates in
connection with their marketing and
distribution of shares of the Trust.

PRICING COMMITTEE 7 Oversees the determination of the value of Ives* (ex-officio member),
the portfolio securities and other assets Perera*, Thomsen* and Uek*
held by the Trust and determines or causes to
be determined the fair value of securities
and assets for which market quotations are
not "readily available" in accordance with
the 1940 Act. The Committee delegates primary
responsibility for carrying out these
functions to MFS and MFS' internal valuation
committee pursuant to pricing policies and
procedures approved by the Committee and
adopted by the full Board, which include
methodologies to be followed by MFS to
determine the fair values of portfolio
securities and other assets held by the Trust
for which market quotations are not readily
available. The Committee meets periodically
with the members of MFS' internal valuation
committee to review and assess the quality of
fair valuation and other pricing
determinations made pursuant to the Trust's
pricing policies and procedures, and to
review and assess the policies and procedures
themselves. The Committee also exercises the
responsibilities of the Board under the
Amortized Cost Valuation Procedures approved
by the Board on behalf of each Trust which
holds itself out as a "money market fund" in
accordance with Rule 2a-7 under the 1940 Act.

(1) The Trustees' Identification and Background are set forth in Item 18.1 and
18.2.
* Non-interested or independent Trustees.
^ The Board of Trustees established the Services Contracts Committee on
September 27, 2005. For periods prior to September 27, 2005, the functions
of the Services Contracts Committee were performed by the Fund's Audit
Committee.

18.6. See Item 18.1.

18.7. The following table shows the dollar range of equity securities
beneficially owned by each Trustee in the Trust and, on an aggregate basis, in
all funds overseen by the Trustee in the MFS Family of Funds, as of December 31,
2005. The following dollar ranges apply:

N. None
A. $1 - $10,000
B. $10,001 - $50,000
C. $50,001 - $100,000
D. Over $100,000

Aggregate Dollar Range of Equity Securities in All
Funds Overseen
Dollar Range of Equity by Trustee in MFS
Name of Trustee Securities in Trust Family of Funds

Interested Trustees
Robert J. Manning N D
Robert C. Pozen N D

Non-Interested Trustees
Robert E. Butler(1) N N
Lawrence H. Cohn, M.D. N D
David H. Gunning N D
William R. Gutow N D
Michael Hegarty N D
J. Atwood Ives C D
Lawrence T. Perera C D
J. Dale Sherratt N D
Laurie J. Thomsen(1) N D
Robert W. Uek(1) N N

------------------
(1) Ms. Thomsen became a Trustee of the Fund on March 23, 2005. Messrs. Butler
and Uek became Trustees of the Fund on January 1, 2006.

18.8. Inapplicable.

18.9. Inapplicable.

18.10. Inapplicable.

18.11. Inapplicable.

18.12: Inapplicable.

18.13. A discussion regarding the basis for the Board of Trustees' approval of
the Investment Advisory Agreement between the Trust and MFS is available in the
Trust's Annual Report to shareholders for the fiscal year ended October 31,
2005.

18.14. The following table lists all Trustees of the Trust and each of the three
highest paid executive officers or any affiliated person of the Trust with
aggregate compensation from the Trust for the most recently completed fiscal
year in excess of $60,000 ("Compensated Persons").

Trustee Fees Retirement Trustee Fees
From Benefits Accrued As From Trust and
Trustee Trust(1) Part of Fund Expense Fund Complex(2)
Interested Trustees
Robert J. Manning* N/A N/A N/A
Robert C. Pozen* N/A N/A N/A

Non-Interested Trustees
Robert E. Butler(3) N/A N/A N/A
Lawrence H. Cohn, M.D. $7,012 $192,518
David H. Gunning(4) $7,065 N/A $204,768
William R. Gutow $7,012 N/A $192,518
Michael Hegarty(4) $6,235 N/A $188,304
J. Atwood Ives(7) $7,533 941 $275,518
Amy B. Lane(4), (5) $7,144 N/A $215,518
Lawrence T. Perera $6,953 1,030 $203,304
William J. Poorvu(5) $1,591 N/A N/A
J. Dale Sherratt $7,156 $221,143
Elaine R. Smith(5), (7) $3,141 362 $47,334
Laurie J. Thomsen((6)) $5,818 N/A $187,787
Robert W. Uek(3) N/A N/A N/A

-------------
* Messrs. Manning and Pozen became Trustees of the Trust on March 23, 2005.
Prior to March 23, 2005, Messrs. Manning and Pozen served as Trustees from
February 2004 to December 2004 and Advisory Trustees December 2004 to March
23, 2005 and did not receive any compensation from the Trust in either
capacity.
(1) For the fiscal year ended October 31, 2005.
(2) Information provided is provided for calendar year 2005. Each Trustee
receiving compensation from the Trust served as Trustees of 98 Funds within
the MFS Fund complex (having aggregate net assets at December 31, 2005 of
approximately $94 billion).
(3) Messrs. Butler and Uek became Trustees of the Trust on January 1, 2006.
(4) Mr. Gunning and Ms. Lane became Trustees of the Trust on January 27, 2004,
and Mr. Hegarty became a Trustee of the Trust on December 16, 2004.
(5) Mr. Poorvu retired as a Trustee of the Trust on December 31, 2004, and Ms.
Smith retired as a Trustee of the Trust on March 23, 2005. Ms. Lane retired
as a Trustee of the Trust on February 22, 2006.
(6) Ms. Thomsen became a Trustee of the Trust on March 23, 2005. From December
16, 2004 to March 22, 2005, Ms. Thomsen was an Advisory Trustee of the
Trust and as such received compensation from the Trust for that period.
This compensation is included in the amount stated in the table for the
period covered by the table, if applicable.
(7) The total amount of deferred compensation accrued by the Fund for Mr. Ives
and Ms. Smith is $33,452 and $35,135, respectively.

Retirement Benefit Deferral Plan. Under a Retirement Benefit Deferral Plan,
certain Trustees have deferred benefits from a prior retirement plan. The value
of the benefits is periodically readjusted as though an equivalent amount had
been invested in Class A shares of the applicable Fund. The value of the
deferred benefits will be paid to the Trustees upon retirement or thereafter.
The plan does not obligate a Fund to retain the services of any Trustee or pay
any particular level of compensation to any Trustee. The plan is not funded and
a Fund's obligation to pay the Trustee's deferred compensation is a general
unsecured obligation.

18.15. Code of Ethics: The Trust and its Adviser have adopted a code of ethics
as required under the 1940 Act. Subject to certain conditions and restrictions,
this code permits personnel subject to the code to invest in securities for
their own accounts, including securities that may be purchased, held or sold by
the Trust. Securities transactions by some of these persons may be subject to
prior approval of the Adviser's Compliance Department. Securities transactions
of certain personnel are subject to quarterly reporting and review requirements.
The code is on public file with, and is available from the SEC. Information
about the Trust (including its prospectus and shareholder reports) can be
reviewed and copied at: Public Reference Room, Securities and Exchange
Commission, Washington, DC 20549-0102. Information on the operation of the
Public Reference Room may be obtained by calling the Commission at
1-202-942-8090. Reports and other information about the Trust are available on
the EDGAR Database on the Commission's Internet website at http://www.sec.gov,
and copies of this information may be obtained, upon payment of a duplicating
fee, by electronic request at the following e-mail address: publicinfo@sec.gov,
or by writing the Public Reference Section at the above address.

18.16. Proxy Voting Policies:

MASSACHUSETTS FINANCIAL SERVICES COMPANY

PROXY VOTING POLICIES AND PROCEDURES

September 17, 2003, as revised on September 20, 2004,
March 15, 2005 and February 22, 2006

Massachusetts Financial Services Company, MFS Institutional Advisors, Inc. and
MFS' other investment adviser subsidiaries (collectively, "MFS") have adopted
proxy voting policies and procedures, as set forth below ("MFS Proxy Voting
Policies and Procedures"), with respect to securities owned by the clients for
which MFS serves as investment adviser and has the power to vote proxies,
including the registered investment companies sponsored by MFS, other than the
MFS Union Standard Equity Fund (the "MFS Funds"). References to "clients" in
these policies and procedures include the MFS Funds and other clients of MFS,
such as funds organized offshore, sub-advised funds and separate account
clients, to the extent these clients have delegated to MFS the responsibility to
vote proxies on their behalf under the MFS Proxy

Voting Policies and Procedures.

The MFS Proxy Voting Policies and Procedures include:

A. Voting Guidelines;

B. Administrative Procedures;

C. Monitoring System;

D. Records Retention; and

E. Reports.

A. VOTING GUIDELINES

1. General Policy; Potential Conflicts of Interest

MFS' policy is that proxy voting decisions are made in what MFS believes to be
the best long-term economic interests of MFS' clients, and not in the interests
of any other party or in MFS' corporate interests, including interests such as
the distribution of MFS Fund shares, administration of 401(k) plans, and
institutional relationships.

MFS has carefully reviewed matters that in recent years have been presented for
shareholder vote by either management or shareholders of public companies. Based
on the overall principle that all votes cast by MFS on behalf of its clients
must be in what MFS believes to be the best long-term economic interests of such
clients, MFS has adopted proxy voting guidelines, set forth below, that govern
how MFS generally will vote on specific matters presented for shareholder vote.
In all cases, MFS will exercise its discretion in voting on these matters in
accordance with this overall principle. In other words, the underlying
guidelines are simply that - guidelines. Proxy items of significance are often
considered on a case-by-case basis, in light of all relevant facts and
circumstances, and in certain cases MFS may vote proxies in a manner different
from these guidelines.

As a general matter, MFS maintains a consistent voting position on similar proxy
proposals with respect to various issuers. In addition, MFS generally votes
consistently on the same matter when securities of an issuer are held by
multiple client accounts. However, MFS recognizes that there are gradations in
certain types of proposals that might result in different voting positions being
taken with respect to different proxy statements. There also may be situations
involving matters presented for shareholder vote that are not clearly governed
by the guidelines, such as proposed mergers and acquisitions. Some items that
otherwise would be acceptable will be voted against the proponent when it is
seeking extremely broad flexibility without offering a valid explanation. MFS
reserves the right to override the guidelines with respect to a particular
shareholder vote when such an override is, in MFS' best judgment, consistent

with the overall principle of voting proxies in the best long-term economic
interests of MFS' clients.

From time to time, MFS receives comments on these guidelines as well as
regarding particular voting issues from its clients and corporate issuers. These
comments are carefully considered by MFS, when it reviews these guidelines each
year and revises them as appropriate.

These policies and procedures are intended to address any potential material
conflicts of interest on the part of MFS or its affiliates that are likely to
arise in connection with the voting of proxies on behalf of MFS' clients. If
such potential material conflicts of interest do arise, MFS will analyze,
document and report on such potential material conflicts of interest (see
Sections B.2 and E below), and shall ultimately vote the relevant proxies in
what MFS believes to be the best long-term economic interests of its clients.
The MFS Proxy Review Group is responsible for monitoring and reporting with
respect to such potential material conflicts of interest.

2. MFS' Policy on Specific Issues

Election of Directors

MFS believes that good governance should be based on a board with a majority of
directors who are "independent" of management, and whose key committees (e.g.,
compensation, nominating, and audit committees) are comprised entirely of
"independent" directors. While MFS generally supports the board's nominees in
uncontested elections, we will withhold our vote for a nominee for a board of a
U.S. issuer if, as a result of such nominee being elected to the board, the
board would be comprised of a majority of members who are not "independent" or,
alternatively, the compensation, nominating or audit committees would include
members who are not "independent." MFS will also withhold its vote for a nominee
to the board if we can determine that he or she failed to attend at least 75% of
the board and/or relevant committee meetings in the previous year without a
valid reason. In addition, MFS will withhold its vote for all nominees standing
for election to a board of a U.S. issuer if we can determine: (1) if, since the
last annual meeting of shareholders and without shareholder approval, the board
or its compensation committee has repriced underwater options; or (2) if, within
the last year, shareholders approved by majority vote a resolution recommending
that the board rescind a "poison pill" and the board has failed to take
responsive action to that resolution. Responsive action would include the
rescission of the "poison pill"(without a broad reservation to reinstate the
"poison pill" in the event of a hostile tender offer), or public assurances that
the terms of the "poison pill" would be put to a binding shareholder vote within
the next five to seven years.

MFS evaluates a contested election of directors on a case-by-case basis
considering the long-term financial performance of the company relative to its
industry, management's track record, the qualifications of the nominees for both
slates and an evaluation of what each side is offering shareholders.

MFS generally votes for reasonably crafted proposals calling for directors to be
elected with an affirmative majority of votes cast and/or the elimination of the
plurality standard for electing directors (including binding resolutions
requesting that the board amend the company's bylaws), provided the proposal
includes a carve-out for a plurality voting standard when there are more
director nominees than board seats (e.g., contested elections) ("Majority Vote
Proposals").

MFS considers voting against Majority Vote Proposals if the company has adopted,
or has proposed to adopt in the proxy statement, formal corporate governance
principles that present a meaningful alternative to the majority voting standard
and provide an adequate response to both new nominees as well as incumbent
nominees who fail to receive a majority of votes cast.

MFS believes that a company's election policy should address the specific
circumstances at that company. MFS considers whether a company's election policy
articulates the following elements to address each director nominee who fails to
receive an affirmative majority of votes cast in an election:

o Establish guidelines for the process by which the company determines
the status of nominees who fail to receive an affirmative majority of
votes cast and disclose the guidelines in the annual proxy statement;
o Guidelines should include a reasonable timetable for resolution of the
nominee's status and a requirement that the resolution be disclosed
together with the reasons for the resolution;
o Vest management of the process in the company's independent directors,
other than the nominee in question; and
o Outline the range of remedies that the independent directors may
consider concerning the nominee.

Classified Boards

MFS opposes proposals to classify a board (e.g., a board in which only one-third
of board members are elected each year). MFS supports proposals to declassify a
board.

Non-Salary Compensation Programs

Restricted stock plans should reward results rather than tenure. In some cases,
restricted stock is granted to the recipient at deep discounts to fair market
value, sometimes at par value. The holder cannot sell for a period of years, but
in the meantime the holder is able to vote and receive dividends. Eventually the
restrictions lapse and the stock can be sold by the holder.

MFS votes against stock option programs for officers, employees or non-employee
directors that do not require an investment by the optionee, that give "free
rides" on the stock price, or that permit grants of stock options with an
exercise price below fair

market value on the date the options are granted.

MFS opposes stock option programs that allow the board or the compensation
committee, without shareholder approval, to reprice underwater options or to
automatically replenish shares (i.e., evergreen plans). MFS will consider on a
case-by-case basis proposals to exchange existing options for newly issued
options (taking into account such factors as whether there is a reasonable
value-for-value exchange).

MFS opposes stock option and restricted stock plans that provide unduly generous
compensation for officers, directors or employees, or could result in excessive
dilution to other shareholders. As a general guideline, MFS votes against stock
option and restricted stock plans if all such plans for a particular company
involve potential dilution, in the aggregate, of more than 15%. However, MFS may
accept a higher percentage (up to 20%) in the case of startup or small companies
which cannot afford to pay large salaries to executives, or in the case where
MFS, based upon the issuer's public disclosures, believes that the issuer has
been responsible with respect to its recent compensation practices, including
the mix of the issuance of restricted stock and options.

MFS votes in favor of stock option or restricted stock plans for non-employee
directors as long as they satisfy the requirements set forth above with respect
to stock option and restricted stock plans for company executives.

Expensing of Stock Options

While we acknowledge that there is no agreement on a uniform methodology for
expensing stock options, MFS supports shareholder proposals to expense stock
options because we believe that the expensing of options presents a more
accurate picture of the company's financial results to investors. We also
believe that companies are likely to be more disciplined when granting options
if the value of stock options were treated as an expense item on the company's
income statements.

Executive Compensation

MFS believes that competitive compensation packages are necessary to attract,
motivate and retain executives. Therefore, MFS opposes shareholder proposals
that seek to set limits on executive compensation. Shareholder proposals seeking
to set limits on executive compensation tend to specify arbitrary compensation
criteria. MFS also opposes shareholder requests for disclosure on executive
compensation beyond regulatory requirements because we believe that current
regulatory requirements for disclosure of executive compensation are appropriate
and that additional disclosure is often unwarranted and costly. Although we
support linking executive stock option grants to a company's stock performance,
MFS opposes shareholder proposals that mandate a link of performance-based
options to a specific industry or peer group index. MFS believes that
compensation committees should retain the flexibility to propose the

appropriate index or other criteria by which performance-based options should be
measured. MFS evaluates other executive compensation restrictions (e.g.,
terminating the company's stock option or restricted stock programs, freezing
executive pay during periods of large layoffs, and establishing a maximum ratio
between the highest paid executive and lowest paid employee) based on whether
such proposals are in the best long-term economic interests of our clients.

Employee Stock Purchase Plans

MFS supports the use of a broad-based employee stock purchase plans to increase
company stock ownership by employees, provided that shares purchased under the
plan are acquired for no less than 85% of their market value and do not result
in excessive dilution.

"Golden Parachutes"

From time to time, shareholders of companies have submitted proxy proposals that
would require shareholder approval of severance packages for executive officers
that exceed certain predetermined thresholds. MFS votes in favor of such
shareholder proposals when they would require shareholder approval of any
severance package for an executive officer that exceeds a certain multiple of
such officer's annual compensation that is not determined in MFS' judgment to be
excessive.

Anti-Takeover Measures

In general, MFS votes against any measure that inhibits capital appreciation in
a stock, including proposals that protect management from action by
shareholders. These types of proposals take many forms, ranging from "poison
pills" and "shark repellents" to super-majority requirements.

MFS will vote for proposals to rescind existing "poison pills" and proposals
that would require shareholder approval to adopt prospective "poison pills."
Nevertheless, MFS will consider supporting the adoption of a prospective "poison
pill" or the continuation of an existing "poison pill" if the following two
conditions are met: (1) the "poison pill" allows MFS clients to hold an
aggregate position of up to 15% of a company's total voting securities (and of
any class of voting securities); and (2) either (a) the "poison pill" has a term
of not longer than five years, provided that MFS will consider voting in favor
of the "poison pill" if the term does not exceed seven years and the "poison
pill" is linked to a business strategy or purpose that MFS believes is likely to
result in greater value for shareholders; or (b) the terms of the "poison pill"
allow MFS clients the opportunity to accept a fairly structured and attractively
priced tender offer (e.g., a "chewable poison pill" that automatically dissolves
in the event of an all cash, all shares tender offer at a premium price).

MFS will consider on a case-by-case basis proposals designed to prevent tenders
which are disadvantageous to shareholders such as tenders at below market prices
and tenders

for substantially less than all shares of an issuer.

Reincorporation and Reorganization Proposals

When presented with a proposal to reincorporate a company under the laws of a
different state, or to effect some other type of corporate reorganization, MFS
considers the underlying purpose and ultimate effect of such a proposal in
determining whether or not to support such a measure. While MFS generally votes
in favor of management proposals that it believes are in the best long-term
economic interests of its clients, MFS may oppose such a measure if, for
example, the intent or effect would be to create additional inappropriate
impediments to possible acquisitions or takeovers.

Issuance of Stock

There are many legitimate reasons for issuance of stock. Nevertheless, as noted
above under "Non-Salary Compensation Programs", when a stock option plan (either
individually or when aggregated with other plans of the same company) would
substantially dilute the existing equity (e.g., by approximately 15% or more),
MFS generally votes against the plan. In addition, MFS votes against proposals
where management is asking for authorization to issue common or preferred stock
with no reason stated (a "blank check") because the unexplained authorization
could work as a potential anti-takeover device.

Repurchase Programs

MFS supports proposals to institute share repurchase plans in which all
shareholders have the opportunity to participate on an equal basis. Such plans
may include a company acquiring its own shares on the open market, or a company
making a tender offer to its own shareholders.

Confidential Voting

MFS votes in favor of proposals to ensure that shareholder voting results are
kept confidential. For example, MFS supports proposals that would prevent
management from having access to shareholder voting information that is compiled
by an independent proxy tabulation firm.

Cumulative Voting

MFS opposes proposals that seek to introduce cumulative voting and for proposals
that seek to eliminate cumulative voting. In either case, MFS will consider
whether cumulative voting is likely to enhance the interests of MFS' clients as
minority shareholders. In our view, shareholders should provide names of
qualified candidates to a company's nominating committee, which now for the
first time (for U.S. listed companies) must be comprised solely of "independent"
directors.

Written Consent and Special Meetings

Because the shareholder right to act by written consent (without calling a
formal meeting of shareholders) can be a powerful tool for shareholders, MFS
generally opposes proposals that would prevent shareholders from taking action
without a formal meeting or would take away a shareholder's right to call a
special meeting of company shareholders.

Independent Auditors

MFS believes that the appointment of auditors is best left to the board of
directors of the company and therefore supports the ratification of the board's
selection of an auditor for the company. Recently, some shareholder groups have
submitted proposals to limit the non-audit activities of a company's audit firm.
Some proposals would prohibit the provision of any non-audit services by a
company's auditors to that company. MFS opposes proposals recommending the
prohibition or limitation of the performance of non-audit services by an
auditor, and proposals recommending the removal of a company's auditor due to
the performance of non-audit work for the company by its auditor. MFS believes
that the board, or its audit committee, should have the discretion to hire the
company's auditor for specific pieces of non-audit work in the limited
situations permitted under current law.

Best Practices Standards

Best practices standards are rapidly developing in the corporate governance
areas as a result of recent corporate scandals, the Sarbanes-Oxley Act of 2002
and revised listing standards on major stock exchanges. MFS generally support
these developments. However, many issuers are not publicly registered, are not
subject to these enhanced listing standards, or are not operating in an
environment that is comparable to that in the United States. In reviewing proxy
proposals under these circumstances, MFS votes for proposals that enhance
standards of corporate governance so long as we believe that - given the
circumstances or the environment within which the issuers operate - the proposal
is consistent with the best long-term economic interests of our clients.

Social Issues

There are many groups advocating social change, and many have chosen the
publicly-held corporation as a vehicle for advancing their agenda. Common among
these are resolutions requiring the corporation to refrain from investing or
conducting business in certain countries, to adhere to some list of goals or
principles (e.g., environmental standards) or to promulgate special reports on
various activities. MFS votes against such proposals unless their
shareholder-oriented benefits will outweigh any costs or disruptions to the
business, including those that use corporate resources to further a particular
social objective outside the business of the company or when no discernible
shareholder economic advantage is evident.

The laws of various states may regulate how the interests of certain clients
subject to those laws (e.g., state pension plans) are voted with respect to
social issues. Thus, it may be necessary to cast ballots differently for certain
clients than MFS might normally do for other clients.

Foreign Issuers

MFS will evaluate items on proxies for foreign companies in the context of the
guidelines described above, as well as local market standards and best
practices. Proxies for foreign companies often contain significantly more voting
items than those of U.S. companies. Many of these items on foreign proxies
involve repetitive, non-controversial matters that are mandated by local law.
Accordingly, the items that are generally deemed routine and which do not
require the exercise of judgment under these guidelines (and therefore generally
voted in favor) for foreign issuers include the following: (i) receiving
financial statements or other reports from the board; (ii) approval of
declarations of dividends; (iii) appointment of shareholders to sign board
meeting minutes; (iv) discharge of management and supervisory boards; (v)
approval of share repurchase programs; (vi) election of directors in uncontested
elections and (vii) appointment of auditors.

In accordance with local law or business practices, many foreign companies
prevent the sales of shares that have been voted for a certain period beginning
prior to the shareholder meeting and ending on the day following the meeting
("share blocking"). Depending on the country in which a company is domiciled,
the blocking period may begin a stated number of days prior to the meeting
(e.g., one, three or five days) or on a date established by the company. While
practices vary, in many countries the block period can be continued for a longer
period if the shareholder meeting is adjourned and postponed to a later date.
Similarly, practices vary widely as to the ability of a shareholder to have the
"block" restriction lifted early (e.g., in some countries shares generally can
be "unblocked" up to two days prior to the meeting whereas in other countries
the removal of the block appears to be discretionary with the issuer's transfer
agent). Due to these restrictions, MFS must balance the benefits to its clients
of voting proxies against the potentially serious portfolio management
consequences of a reduced flexibility to sell the underlying shares at the most
advantageous time. For companies in countries with share blocking periods, the
disadvantage of being unable to sell the stock regardless of changing conditions
generally outweighs the advantages of voting at the shareholder meeting for
routine items. Accordingly, MFS generally will not vote those proxies in the
absence of an unusual, significant vote.

B. ADMINISTRATIVE PROCEDURES

1. MFS Proxy Review Group

The administration of these MFS Proxy Voting Policies and Procedures is overseen
by the MFS Proxy Voting Committee, which includes senior personnel from the MFS
Legal and Global Investment Support Departments. The MFS Proxy Voting Committee:

a. Reviews these MFS Proxy Voting Policies and Procedures at least annually and
recommends any amendments considered to be necessary or advisable;

b. Determines whether any potential material conflicts of interest exist with
respect to instances in which (i) MFS seeks to override these MFS Proxy Voting
Policies and Procedures and (ii) votes on ballot items not clearly governed by
these MFS Proxy Voting Policies and Procedures; and

c. Considers special proxy issues as they may arise from time to time.

2. Potential Conflicts of Interest

The MFS Proxy Voting Committee is responsible for monitoring potential material
conflicts of interest on the part of MFS or its affiliates that could arise in
connection with the voting of proxies on behalf of MFS' clients. Any significant
attempt to influence MFS' voting on a particular proxy matter should be reported
to the MFS Proxy Voting Committee.

In cases where proxies are voted in accordance with these MFS Proxy Voting
Policies and Procedures, no material conflict of interest will be deemed to
exist. In cases where (i) MFS is considering overriding these MFS Proxy Voting
Policies and Procedures, or (ii) matters presented for vote are not clearly
governed by these MFS Proxy Voting Policies and Procedures, the MFS Proxy Voting
Committee, or delegees, will follow these procedures:

a. Compare the name of the issuer of such proxy against a list of significant
current and potential (i) distributors of MFS Fund shares, (ii) retirement plans
administered by MFS, and (iii) MFS institutional clients (the "MFS Significant
Client List");

b. If the name of the issuer does not appear on the MFS Significant Client List,
then no material conflict of interest will be deemed to exist, and the proxy
will be voted as otherwise determined by the MFS Proxy Voting Committee;

c. If the name of the issuer appears on the MFS Significant Client List, then at
least one member of the MFS Proxy Voting Committee will carefully evaluate the
proposed vote in order to ensure that the proxy ultimately is voted in what MFS
believes to be the best long-term economic interests of MFS' clients, and not in
MFS' corporate interests; and

d. For all potential material conflicts of interest identified under clause (c)
above, the MFS Proxy Voting Committee will document: the name of the issuer, the
issuer's relationship to MFS, the analysis of the matters submitted for proxy
vote, and the basis for the determination that the votes ultimately were cast in
what MFS believes to be the best long-term economic interests of MFS' clients,
and not in MFS' corporate interests. A copy of the foregoing documentation will
be provided to the MFS' Conflicts Officer.

The members of the MFS Proxy Voting Committee are responsible for creating and
maintaining the MFS Significant Client List, in consultation with MFS'
distribution, retirement plan administration and institutional business units.
The MFS Significant Client List will be reviewed and updated periodically, as
appropriate.

3. Gathering Proxies

Most proxies received by MFS and its clients originate at Automatic Data
Processing Corp. ("ADP") although a few proxies are transmitted to investors by
corporate issuers through their custodians or depositories. ADP and issuers send
proxies and related material directly to the record holders of the shares
beneficially owned by MFS' clients, usually to the client's custodian or, less
commonly, to the client itself. This material will include proxy cards,
reflecting the proper shareholdings of Funds and of clients on the record dates
for such shareholder meetings, as well as proxy statements with the issuer's
explanation of the items to be voted upon.

MFS, on behalf of itself and the Funds, has entered into an agreement with an
independent proxy administration firm, Institutional Shareholder Services, Inc.
(the "Proxy Administrator"), pursuant to which the Proxy Administrator performs
various proxy vote related services, such as vote processing and recordkeeping
functions for MFS' Funds and institutional client accounts. The Proxy
Administrator receives proxy statements and proxy cards directly or indirectly
from various custodians, logs these materials into its database and matches
upcoming meetings with MFS Fund and client portfolio holdings, which are input
into the Proxy Administrator's system by an MFS holdings datafeed. Through the
use of the Proxy Administrator system, ballots and proxy material summaries for
the upcoming shareholders' meetings of over 10,000 corporations are available
on-line to certain MFS employees and the MFS Proxy Voting Committee.

4. Analyzing Proxies

Proxies are voted in accordance with these MFS Proxy Voting Policies and
Procedures. The Proxy Administrator at the prior direction of MFS automatically
votes all proxy matters that do not require the particular exercise of
discretion or judgment with respect to these MFS Proxy Voting Policies and
Procedures as determined by the MFS Proxy Voting Committee. With respect to
proxy matters that require the particular exercise of discretion or judgment,
MFS considers and votes on those proxy matters. Representatives of the MFS Proxy
Voting Committee review, as appropriate, votes cast to ensure conformity with
these MFS Proxy Voting Policies and Procedures.

As a general matter, portfolio managers and investment analysts have little or
no involvement in specific votes taken by MFS. This is designed to promote
consistency in the application of MFS' voting guidelines, to promote consistency
in voting on the same or similar issues (for the same or for multiple issuers)
across all client accounts, and to minimize the potential that proxy solicitors,
issuers, or third parties might attempt to

exert inappropriate influence on the vote. In limited types of votes (e.g.,
corporate actions, such as mergers and acquisitions), a representative of MFS
Proxy Voting Committee may consult with or seek recommendations from portfolio
managers or analysts.(1) However, the MFS Proxy Voting Committee would
ultimately determine the manner in which all proxies are voted.

As noted above, MFS reserves the right to override the guidelines when such an
override is, in MFS' best judgment, consistent with the overall principle of
voting proxies in the best long-term economic interests of MFS' clients. Any
such override of the guidelines shall be analyzed, documented and reported in
accordance with the procedures set forth in these policies.

5. Voting Proxies

In accordance with its contract with MFS, the Proxy Administrator also generates
a variety of reports for the MFS Proxy Voting Committee, and makes available
on-line various other types of information so that the MFS Proxy Voting
Committee may review and monitor the votes cast by the Proxy Administrator on
behalf of MFS' clients.

C. MONITORING SYSTEM

It is the responsibility of the Proxy Administrator and MFS' Proxy Voting
Committee to monitor the proxy voting process. When proxy materials for clients
are received, they are forwarded to the Proxy Administrator and are input into
the Proxy Administrator's system. Through an interface with the portfolio
holdings database of MFS, the Proxy Administrator matches a list of all MFS
Funds and clients who hold shares of a company's stock and the number of shares
held on the record date with the Proxy Administrator's listing of any upcoming
shareholder's meeting of that company.

When the Proxy Administrator's system "tickler" shows that the voting cut-off
date of a shareholders' meeting is approaching, a Proxy Administrator
representative checks that the vote for MFS Funds and clients holding that
security has been recorded in the computer system. If a proxy card has not been
received from the client's custodian, the Proxy Administrator calls the
custodian requesting that the materials be forwarded immediately. If it is not
possible to receive the proxy card from the custodian in time to be voted at the
meeting, MFS may instruct the custodian to cast the vote in the manner specified
and to mail the proxy directly to the issuer.

----------------------
(1) From time to time, due to travel schedules and other commitments, an
appropriate portfolio manager or research analyst is not available to
provide a recommendation on a merger or acquisition proposal. If such a
recommendation cannot be obtained within a few business days prior to the
shareholder meeting, the MFS Proxy Review Group may determine to vote the
proxy in what it believes to be the best long-term economic interests of
MFS' clients.

D. RECORDS RETENTION

MFS will retain copies of these MFS Proxy Voting Policies and Procedures in
effect from time to time and will retain all proxy voting reports submitted to
the Board of Trustees, Board of Directors and Board of Managers of the MFS Funds
for the period required by applicable law. Proxy solicitation materials,
including electronic versions of the proxy cards completed by representatives of
the MFS Proxy Voting Committee, together with their respective notes and
comments, are maintained in an electronic format by the Proxy Administrator and
are accessible on-line by the MFS Proxy Voting Committee. All proxy voting
materials and supporting documentation, including records generated by the Proxy
Administrator's system as to proxies processed, including the dates when proxy
ballots were received and submitted, and the votes on each company's proxy
issues, are retained as required by applicable law.

E. REPORTS

MFS Funds

MFS will report the results of its voting to the Board of Trustees, Board of
Directors and Board of Managers of the MFS Funds. These reports will include:
(i) a summary of how votes were cast; (ii) a review of situations where MFS did
not vote in accordance with the guidelines and the rationale therefor; (iii) a
review of the procedures used by MFS to identify material conflicts of interest;
and (iv) a review of these policies and the guidelines and, as necessary or
appropriate, any proposed modifications thereto to reflect new developments in
corporate governance and other issues. Based on these reviews, the Trustees,
Directors and Managers of the MFS Funds will consider possible modifications to
these policies to the extent necessary or advisable.

All MFS Advisory Clients

At any time, a report can be printed by MFS for each client who has requested
that MFS furnish a record of votes cast. The report specifies the proxy issues
which have been voted for the client during the year and the position taken with
respect to each issue.

Generally, MFS will not divulge actual voting practices to any party other than
the client or its representatives (unless required by applicable law) because we
consider that information to be confidential and proprietary to the client.

Item 19. Control Persons and Principal Holders of Securities:

As of January 31, 2006, Cede & Co., c/o The Depository Trust Company, P.O. Box
20, Bowling Green Station, New York, New York 10004, (as nominee for the
Depository Trust Company, 7 Hanover Square, New York, New York, 10004), was the
record owner of approximately 78% of the outstanding shares of the Trust

As of January 31, 2006, all Trustees and officers of the Trust as a group own of
record less than 1% of the outstanding shares of the Trust.

Item 20. Investment Advisory and Other Services:

Items 20.1 through 20.5. See Item 9.1.b. For the fiscal year ended October 31,
2005, MFS received fees under the Trust's Investment Advisory Agreement of
$3,838,121. For the fiscal year ended October 31, 2004, MFS received fees under
the Investment Advisory Agreement of $4,038,474. For the fiscal year ended
October 31, 2003, MFS received fees under the Trust's Investment Advisory
Agreement of $3,956,816.

20.6. See Item 9.1.e.

20.7. The principal business address of the Trust's independent registered
public accounting firm, Ernst & Young LLP, is 200 Clarendon Street, Boston, MA
02116. Ernst & Young LLP certifies financial statements of the Trust as required
by any law or regulation to be certified and provides other tax related services
for the Trust (such as tax return preparation and assistance and consultation
with respect to the preparation of filings with the SEC).

20.8. Pursuant to the Registrar, Transfer Agency and Service Agreement between
the Trust and MFS Service Center, Inc., MFS Service Center, Inc. ("MFSC") acts
as the Trust's registrar and transfer agent for the Trust's authorized and
issued shares of beneficial interest, as well as dividend disbursing agent for
the Trust, and agent in connection with the Dividend Reinvestment and Cash
Purchase Plan of the Trust. For account maintenance, the Trust currently pays
MFSC a fee based on the total number of accounts for all closed-end funds
advised by MFS for which MFSC acts as registrar and transfer agent. If the total
number of accounts is less than 75,000, the annual account fee is $9.00. If the
total number of accounts is 75,000 or more, the annual account fee is $8.00. For
dividend services, MFSC charges $0.75 per dividend reinvestment and $0.75 per
cash infusion. If the total amount of fees related to dividend services is less
than $1,000 per month for all closed-end funds advised by MFS for which MFSC
acts as registrar and transfer agent, the minimum fee for the Trust for these
services will be $167 per month. The Trust will reimburse MFSC for reasonable
out- of-pocket expenses and advances incurred by MFSC and for any other expenses
incurred by MFSC at the request, or with the consent, of the Trust.

Item 21. PORTFOLIO MANAGERS

21.1 Other Accounts. In addition to the Fund, the Fund's portfolio managers are
responsible (either individually or jointly) for the day-to-day management of
certain other accounts, the number and total assets of which as of October 31,
2005 were as follows:

------------------------ --------------------------------- -------------------------------- ----------------------------------
Other Pooled Investment
Registered Investment Companies Vehicles Other Accounts
------------------------ --------------------------------- -------------------------------- ----------------------------------
------------------------ --------------- ----------------- ------------- ------------------ ------------- --------------------
Name Number of Total Assets* Number of Total Assets Number of Total Assets
Accounts* Accounts Accounts
------------------------ --------------- ----------------- ------------- ------------------ ------------- --------------------
------------------------ --------------- ----------------- ------------- ------------------ ------------- --------------------
John Addeo 10 $4.4 billion 1 $213 million 2 $519 million
------------------------ --------------- ----------------- ------------- ------------------ ------------- --------------------
------------------------ --------------- ----------------- ------------- ------------------ ------------- --------------------
James J. Calmas 8 $3.3 billion 4 $768 million 2 $596 million
------------------------ --------------- ----------------- ------------- ------------------ ------------- --------------------
------------------------ --------------- ----------------- ------------- ------------------ ------------- --------------------
Scott Richards 13 $4.8 billion 2 $549 million 2 $519 million
------------------------ --------------- ----------------- ------------- ------------------ ------------- --------------------
------------------------ --------------- ----------------- ------------- ------------------ ------------- --------------------
Matthew W. Ryan 10 $2.5 billion 3 $1.7 billion 6 $734 million
------------------------ --------------- ----------------- ------------- ------------------ ------------- --------------------
------------------------ --------------- ----------------- ------------- ------------------ ------------- --------------------
Peter C. Vaream 5 $3.1 billion 1 $249 million 4 $255 million
------------------------ --------------- ----------------- ------------- ------------------ ------------- --------------------

----------------
* Includes the Fund.

Advisory fees are not based upon performance of any of the accounts identified
in the table above.

Potential Conflicts of Interest. MFS seeks to identify potential conflicts of
interest resulting from a portfolio manager's management of both the Fund and
other accounts and has adopted policies and procedures designed to address such
potential conflicts.

In certain instances there may be securities which are suitable for the
Fund's portfolio as well as for accounts with similar investment objectives of
the Adviser or subsidiary of the Adviser. Securities transactions for the Fund
and other accounts with similar investment objectives are generally executed on
the same day, or the next day. Nevertheless, 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.

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 MFS to be fair and 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 most cases, however, MFS believes
that the Fund's ability to participate in volume transactions will produce
better executions for the Fund.

MFS does not receive a performance fee for its management of the Fund. MFS
and/or a portfolio manager may have an incentive to allocate favorable or
limited

opportunity investments or structure the timing of investments to favor
accounts other than the Fund--for instance, those that pay a higher advisory fee
and/or have a performance fee.

Item 21.2 Compensation

Portfolio manager total cash compensation is a combination of base salary and
performance bonus:

o Base Salary - Base salary represents a relatively smaller percentage
of portfolio manager total cash compensation (generally below 33%)
than incentive compensation.

o Performance Bonus - Generally, incentive compensation represents a
majority of portfolio manager total cash compensation. The performance
bonus is based on a combination of quantitative and qualitative
factors, with more weight given to the former (generally over 60%) and
less weight given to the latter.

The quantitative portion is based on pre-tax performance of all
of the accounts managed by the portfolio manager (which includes
the Fund and any other accounts managed by the portfolio manager)
over a one-, three- and five-year period relative to the
appropriate Lipper peer group universe and/or one or more
benchmark indices with respect to each account. The primary
weight is given to portfolio performance over a three-year time
period with lesser consideration given to portfolio performance
over one- and five-year periods (adjusted as appropriate if the
portfolio manager has served for shorter periods).

The qualitative portion is based on the results of an annual
internal peer review process (conducted by other portfolio
managers, analysts and traders) and management's assessment of
overall portfolio manager contributions to investor relations and
the investment process (distinct from Fund and other account
performance).

Portfolio managers also typically benefit from the opportunity to
participate in the MFS Equity Plan. Equity interests in MFS or its parent
company are awarded by management, on a discretionary basis, taking into account
tenure at MFS, contribution to the investment process and other factors.

Finally, portfolio managers are provided with a benefits package including
a defined contribution plan, health coverage and other insurance, which are
available to other employees of MFS on substantially similar terms. The
percentage of compensation provided by these benefits depends upon the length of
the individual's tenure at MFS and salary level as well as other factors.

21.3 Ownership of Fund Shares. The following table shows the dollar range of
equity securities of the Trust beneficially owned by the Trust's portfolio
managers as of October 31, 2005. The following dollar ranges apply:

N. None
A. $1 - $10,000
B. $10,001 - $50,000
C. $50,001 - $100,000
D. $100,001 - $500,000
E. $500,001 - $1,000,000
F. Over $1,000,000

Name of Portfolio Manager Dollar Range of Equity Securities in Fund
------------------------- -----------------------------------------
John Addeo N
James J. Calmas N
Scott Richards N
Matthew W. Ryan N
Peter C. Vaream N

Item 22. Brokerage Allocation and Other Practices: Specific decisions to
purchase or sell securities for the Trust are made by persons affiliated with
the Adviser. Any such person may serve other clients of the Adviser or any
subsidiary of the Adviser in a similar capacity.

In connection with the selection of broker dealers and the placing of Trust
portfolio transactions, the Adviser seeks for the Trust the best overall price
and execution available from responsible brokerage firms, taking account of all
factors it deems relevant, including by way of illustration: price; the size of
the transaction; the nature of the market for the security; the amount of the
commission; the timing and impact of the transaction taking into account market
prices and trends; the reputation, experience and financial stability of the
broker or dealer involved; and the quality of services rendered by the broker or
dealer in other transactions.

In the case of securities traded in the over-the-counter market, portfolio
transactions may be effected either on an agency basis, which involves the
payment of negotiated brokerage commissions to the broker-dealer, including
electronic communication, networks, or on a principal basis at net prices
without commissions, but which include compensation to the broker-dealer in the
form of a mark-up or mark-down, depending on where the Adviser believes best
execution is available. In the case of securities purchased from underwriters,
the cost of such securities generally includes a fixed underwriting commission
or concession. From time to time, soliciting dealer fees are available to the
Adviser on tender or exchange offers. Such soliciting or dealer fees are, in
effect, recaptured by the Funds.

Under the Advisory Agreement and as permitted by Section 28(e) of the Securities
Exchange Act of 1934, the Adviser may cause the Trust to pay a broker-dealer
which provides brokerage and research services to the Adviser, an amount of
commission for effecting a securities transaction for the Trust in excess of the
amount other broker-dealers would have charged for the transaction, if the
Adviser determines in good faith that the greater commission is reasonable in
relation to the value of the brokerage and research services provided by the
executing broker-dealer viewed in terms of either a particular transaction or
its overall responsibilities to the Trust or to its other clients.
"Commissions," as interpreted by the SEC, include fees paid to brokers for
trades conducted on an agency basis, and certain mark-ups, mark-downs,
commission equivalents and other fees received by dealers in riskless principal
transactions placed in the over-the-counter market.

The term "brokerage and research services" includes advice as to the value of
securities, the advisability of investing in, purchasing or selling securities,
and the availability of securities or of purchasers or sellers of securities;
furnishing analyses and reports concerning issues, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts;
and effecting securities transactions and performing functions incidental
thereto, such as clearance and settlement.

Although commissions paid on every transaction will, in the judgment of the
Adviser, be reasonable in relation to the value of the brokerage services
provided, commissions exceeding those which another broker might charge may be
paid to broker-dealers who were selected to execute transactions on behalf of
the Trust and the Adviser's other clients in part for providing advice as to the
availability of securities or of purchasers or sellers of securities and
services in effecting securities transactions and performing functions
incidental thereto, such as clearance and settlement.

Broker-dealers may be willing to furnish statistical, research and other factual
information or services ("Research") for example, investment research reports;
access to analysts; execution systems and trading analytics; reports or
databases containing corporate, fundamental, and technical analyses; portfolio
modeling strategies; and economic research services, such as publications, chart
services and advice from economists concerning macroeconomics information, and
analytical investment information about particular corporations to the Adviser
for no consideration other than brokerage or underwriting commissions.
Securities may be bought or sold from time to time through such
brokerage-dealers, on behalf of the Trust. The Adviser may use brokerage
commissions from the Fund's portfolio transactions to acquire Research, subject
to the procedures and limitations described in this discussion.

The advisory fee paid by the Trust to the Adviser is not reduced as a
consequence of the Adviser's receipt of Research. To the extent the Trust's
portfolio transactions are used to obtain Research, the brokerage commissions
paid by the Trust might exceed those that might otherwise be paid. The Research
received may be useful and of value to the Adviser in serving both the Fund and
other clients of the Adviser; accordingly, not all of the Research provided by
brokers through which the Fund effects securities transactions

may be used by the Adviser in connection with the Fund. While the Research is
not expected to reduce the expenses of the Adviser, the Adviser would, through
the use of the Research, avoid the additional expenses which would be incurred
if it should attempt to develop comparable information through its own staff.

From time to time, the Adviser prepares a list of broker-dealer firms that have
been deemed by the Adviser to provide valuable Research as determined
periodically by the investment staff ("Research Firms"), together with a
suggested non-binding amount of brokerage commissions ("non-binding target") to
be allocated to each of these research firms, subject to certain requirements.
All trades with Research Firms will be executed in accordance with the Adviser's
obligation to seek best execution for its client accounts. Neither the Adviser
nor the Fund has an obligation to any Research Firm if the amount of brokerage
commissions paid to the research firm is less than the applicable non-binding
target. The Adviser reserves the right to pay cash to the Research Firm from its
own resources in an amount the Adviser determines in its discretion.

If the Adviser determines that any service or product has a mixed use, (i.e., it
also serves functions that do not assist the investment decision-making or
trading process), the Adviser will allocate the costs of such service or product
accordingly in its reasonable discretion. The Adviser will allocate brokerage
commissions to Research Firms only for the portion of the service or product
that the Adviser determines assists it in the investment decision-making or
trading process and will pay for the remaining value of the product or service
in cash.

Certain Funds entered into an arrangement under which, with respect to certain
brokerage transactions directed to certain broker-dealers, the Funds received a
credit for part of the brokerage commission paid, which was applied against
expenses of the Funds. In addition, the Funds have an expense offset arrangement
that reduces the Funds' custodian fees based upon the amount of cash maintained
by the Funds with their custodian and dividend disbursing agent, State Street
Bank and Trust Company.

In effecting portfolio transactions on behalf of the Fund and the Adviser's
other clients, the Adviser from time to time may instruct the broker-dealer that
executes a transaction to allocate, or "step out," a portion of such transaction
to another broker-dealer. The broker-dealer to which the Adviser has "stepped
out" would then settle and complete the designated portion of the transaction,
and the executing broker-dealer would settle and complete the remaining portion
of the transaction that has not been "stepped out." Each broker-dealer may
receive a commission or brokerage fee with respect to that portion of the
transaction that it settles and completes.

In certain instances there may be securities which are suitable for the Trust'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 Trust 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. The Adviser has adopted policies that are reasonably designed to
ensure that 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 fair and equitable to each. Among other
things, these policies prohibit allocations of equity initial public offerings,
equity limited offerings or fixed income new issues to, among others: (1)
private funds or accounts principally owned by the Adviser's officers and/or
employees or the Trust's employees or Trustees; and (2) any accounts owned
beneficially solely by the Adviser or any direct or indirect subsidiary of the
Adviser. However, these policies do not prohibit allocations to funds or
accounts owned beneficially by Sun Life of Canada (U.S.) Financial Services
Holdings, Inc. or Sun Life Financial, Inc. or their affiliates other than the
Adviser and its direct and indirect subsidiaries.

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 Trust is concerned. In
other cases, however, the Trust believes that its ability to participate in
volume transactions will produce better executions for the Trust.

For the fiscal year ended October 31, 2005, the Trust paid brokerage commissions
of $0. For the fiscal year ended October 31, 2004, the Trust paid
brokerage commissions of $0 and for the fiscal year ended October
31, 2003, the Trust paid brokerage commissions of $0.

During the fiscal year ended October 31, 2005, the Trust purchased securities
issued by the following regular broker-dealers of the Trust, which had the
following values as of October 31, 2005:

-------------------------------------------------------------------------------
Broker Dealer Value of Securities as of October 31, 2005
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Credit Suisse Group $ 3,891,644
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Merrill Lynch & Co. $19,568,000
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Goldman Sachs Group $ 2,722,095
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
J.P. Morgan Chase & Co. $ 5,290,788
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Lehman Brothers $ 5,911,072
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Morgan Stanley $ 6,015,072
-------------------------------------------------------------------------------

Item 23. Tax Status: None.

Item 24. Financial Statements: The following are incorporated herein by
reference from the Trust's Annual Report to its shareholders, for its fiscal
year ended October 31, 2005, copies of which have been filed with the SEC:

Portfolio of Investments at October 31, 2005 Statement of Assets and Liabilities
at October 31, 2005 Statement of Operations for the year ended October 31, 2005
Statement of Changes in Net Assets for the years ended October 31, 2005 and
2004. Financial Highlights for the years ended October 31, 2005, 2004, 2003,
2002 and 2001. Notes to Financial Statements and Report of Independent
Registered Public Accounting Firm

PART C
OTHER INFORMATION

Item 25. Financial Statements and Exhibits:

1. Financial Statements:

The following have been incorporated by reference in Item 24:

Portfolio of Investments at October 31, 2005 Statement of
Assets and Liabilities at October 31, 2005 Statement of
Operations for year ended October 31, 2005
Statement of Changes in Net Assets for the years ended October 31, 2005 and
2004
Financial Highlights for the years ended October 31, 2005, 2004, 2003,
2002 and 2001
Notes to Financial Statements
Report of Independent Auditors

2. Exhibits:

(a) Amended and Restated Declaration of Trust, dated December 16, 2004;
filed herein.

(b)(1) Master Amended and Restated By-Laws dated January 1, 2002, as
revised June 23, 2004; filed herein.

(b)(2) Appendix A, as revised February 21, 2006, to the Master Amended and
Restated By-Laws, dated January 1, 2002, as revised June 23, 2004;
filed herein.

(d) Specimen certificate for Shares of Beneficial Interest, without par
value (previously filed as Exhibit 2(d) to Amendment No. 11);
incorporated herein by reference.

(e) The section "Dividend Reinvestment and Cash Purchase Plan" on page 3
of the Registrant's Annual Report to its Shareholders, for its
fiscal year ended October 31, 1997; incorporated herein by
reference.

(f) Inapplicable.

(g)(1) Investment Advisory Agreement, dated January 1, 2002; filed herein.

(g)(2) Master Administrative Services Agreement, dated March 1, 1997, as
amended April 1, 1999,between Massachusetts Financial Services
Company and the Registrant; filed herein.

(g)(3) Exhibit A, as revised July 26, 2005, to the Master Administrative
Services Agreement; filed herein.

(h) Omitted pursuant to General Instruction G.3. to Form N-2.

(i)(1) Retirement Plan for Non-Interested Person Trustees, dated February
17, 1999 (previously filed as Exhibit (8) to Amendment No. 39 to
the Registration Statement for MFS Growth Opportunities Fund on
Form N-1A, File Nos. 2-36431 and 811-2032, filed with the SEC on
February 26, 1999 ("MFS Growth Opportunities Fund Amendment No.
29")) incorporated herein by reference.

(i)(2) Amendment, dated December 11, 2001, to the Retirement Plan for
Non-Interested Person Trustees (previously filed as Exhibit 6(b)
to MFS Series Trust V Amendment No. 51) incorporated herein by
reference.

(j)(1) Custodian Agreement between Registrant and State Street Bank and
Trust Company, dated July 2, 2001 (previously filed as Exhibit
(7)(a) to Amendment No. 34 to the Registration Statement for MFS
Series Trust X, on Form N-1A, File Nos. 33-1657 and 811-4492
filed with the Securities and Exchange Commission on July 30,
2001 ("MFS Series Trust X Amendment No. 34")) incorporated herein
by reference.

(j)(2) Global Custody Contract between Registrant and Chase Manhattan Bank,
dated July 2, 2001 (previously filed as Exhibit 7(b) to MFS
Series Trust X Amendment No. 34) incorporated herein by
reference.

(j)(3) Exhibit A, as revised April 26, 2005, to the Master Custodian
Agreement between Registrant and State

Street Bank and Trust Company, and the Master Global Custody
Contract between Registrant and Chase Manhattan Bank, each dated
July 2, 2001; filed herein.

(j)(4) Form of Amended Amendment No. 3, dated September 30, 2004, to the
Master Custodian Agreement with State Street Bank and Trust
Company (previously filed in Amendment No. 37 to the Registration
Statement for MFS Series Trust III, on Form N-1A, File Nos.
2-60491 and 811-2794 filed with the SEC on March 31, 2005)
incorporated herein by reference.

(j)(5) Amendment No. 2, dated May 2, 2003, to the Master Custodian
Agreement with State Street Bank and Trust Company (previously
filed in Amendment No. 42 to the Registration Statement for MFS
Series Trust I, on Form N-1A, File Nos. 33-7638 and 811-4777
filed with the SEC on October 30, 2003) incorporated herein by
reference.

(j)(6) Amendment, dated December 28, 2004, to the Master Custodian
Agreement with State Street Bank and Trust Company (previously
filed in Amendment No. 22 to the Registration Statement for MFS
Series Trust XI, on Form N-1A, File Nos. 33-68310 and 811-7992
filed with the SEC on January 28, 2005) incorporated herein by
reference.

(j)(7) Amendment, dated December 31, 2004, to the JP Morgan Chase Global
Custody Contract (previously filed in Amendment No. 59 to the
Registration Statement for MFS Series Trust IX, on Form N-1A,
File Nos. 2-50409 and 811-2464 filed with the SEC on June 29,
2005) incorporated herein by reference.

(k)(1) Registrar, Transfer Agency and Service Agreement, dated August 15,
1994 (previously filed as Exhibit (2)(k)(2) to Amendment No. 9
("Amendment No. 9")); incorporated herein by reference.

(k)(2) Amendment, dated February 22, 2005, to the Shareholder Servicing
Agreements; filed herein.

(k)(3) Credit Agreement dated as of November 10, 1992 between Registrant
and Chase Manhattan Bank, N.A. (previously filed as Exhibit
2(k)(2) to Amendment No. 11); incorporated herein by reference.

(l) Omitted pursuant to General Instruction G.3 to Form N-2.

(m) Inapplicable.

(n) Omitted pursuant to General Instruction G.3 to Form N-2.

(o) Omitted pursuant to General Instructions G.3 to Form N-2.

(p) Form of Purchase Agreement (previously filed as Exhibit 2(p) to
Amendment No. 11); incorporated herein by reference.

(q) Inapplicable.

(r)(1) Code of Ethics as amended and restated effective January 1, 2005,
pursuant to Rule 17j-1 under the Investment Company Act of 1940
(previously filed as Exhibit 16(a) to Amendment No. 45 of the
Registration Statement on Form N-1A for MFS Series Trust I, File
Nos. 33-7638 and 811-4777, filed with the SEC on December 29,
2004 ("MFS Series Trust I Amendment No. 45").

(r)(2) Code of Ethics for Personal Trading and Conduct for Non-Management
Directors of MFS, effective October 6, 2004 (previously filed as
Exhibit 16(b) to Amendment No. 44 of the Registration Statement
on Form N-1A for MFS Series Trust I, File Nos. 33-7638 and
811-4777, filed with the SEC on December 29, 2004 ("MFS Series
Trust I Amendment No. 44").

(r)(3) Code of Ethics for Non-MFS Management Trustees effective January 1,
2005 (previously filed as Exhibit 16(c) to Amendment No. 45 of
the Registration Statement on Form N-1A for MFS Series Trust I,
File Nos. 33-7638 and 811-4777, filed with the SEC on December
29, 2004 ("MFS Series Trust I Amendment No. 45").

Item 26. Marketing Arrangements: Inapplicable.

Item 27. Other Expenses of Issuance and Distribution: Inapplicable.

Item 28. Persons Controlled by or Under Common Control with Registrant:
Inapplicable.

Item 29. Number of Holders of Securities:

-------------------------------------------------------------------------------
(1) (2)
Title of Class Number of Record Holders
-------------------------------------------------------------------------------

Shares of Beneficial Interest 7,684
(without par value) (as of January 31, 2006)

-------------------------------------------------------------------------------

Item 30. Indemnification: Article V of the Registrant's Declaration of Trust
provides that the Registrant 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 Registrant, unless as to
liabilities to the Registrant 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
Registrant. In the case of a settlement, such indemnification will not be
provided unless it has been determined in accordance with the Declaration of
Trust that such officers or Trustees have not engaged in misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in their offices.

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.

Item 31. Business and Other Connections of Investment Adviser:

Trust V (which has three series: MFS International New Discovery Fund, MFS
Research Fund and MFS Total Return Fund); MFS Series Trust VI (which has three
series: MFS Global Equity Fund, MFS Global Total Return Fund and MFS Utilities
Fund); MFS Series Trust VII (which has one series: MFS Capital Opportunities
Fund); MFS Series Trust VIII (which has two series: MFS Global Growth Fund and
MFS Strategic Income Fund); MFS Series Trust IX (which has seven series: MFS
Bond Fund, MFS Inflation-Adjusted Bond Fund, MFS Intermediate Investment Grade
Bond Fund, MFS Limited Maturity Fund, MFS Municipal Limited Maturity Fund, MFS
Research Bond Fund and MFS Research Bond Fund J); MFS Series Trust X (which has
13 series: MFS Aggressive Growth Allocation Fund, MFS Conservative Allocation
Fund, MFS Emerging Markets Debt Fund, MFS Emerging Markets Equity Fund, MFS
Floating Rate High Income Fund, MFS Growth Allocation Fund, MFS International
Diversification Fund, MFS International Growth Fund, MFS International Value
Fund, MFS Moderate Allocation Fund, MFS New Endeavor Fund and MFS Strategic
Value Fund); MFS Series Trust XI (which has two series: MFS Mid Cap Value Fund
and MFS Union Standard Equity Fund); MFS Series Trust XII (which has 5 series:
MFS Lifetime Retirement Income Fund, MFS Lifetime 2010 Fund, MFS Lifetime 2020
Fund, MFS Lifetime 2030 Fund and MFS Lifetime 2040 Fund; and MFS Municipal
Series Trust (which has 16 series: MFS Alabama Municipal Bond Fund, MFS Arkansas
Municipal Bond Fund, MFS California Municipal Bond Fund, MFS Florida Municipal
Bond Fund, MFS Georgia Municipal Bond Fund, MFS Maryland Municipal Bond Fund,
MFS Massachusetts Municipal Bond Fund, MFS Mississippi Municipal Bond Fund, MFS
Municipal Income Fund, MFS New York Municipal Bond Fund, MFS North Carolina
Municipal Bond Fund, MFS Pennsylvania Municipal Bond Fund, MFS South Carolina
Municipal Bond Fund, MFS Tennessee Municipal Bond Fund, MFS Virginia Municipal
Bond Fund and MFS West Virginia Municipal Bond Fund (the "MFS Funds"). The
principal business address of each of the MFS Funds is 500 Boylston Street,
Boston, Massachusetts, 02116.

The Directors of MFS are Robert J. Manning, Martin E. Beaulieu, Robin A.
Stelmach, Donald A. Stewart, C. James Prieur, William W. Stinson, James C.
Baillie, Ronald W. Osborne and William K. O'Brien. Robert C. Pozen is the
Chairman, Mr. Manning is Chief Executive Officer, Chief Investment Officer and
President, Mr. Beaulieu is Executive Vice President and the Director of Global
Distribution, Robin A. Stelmach is Executive Vice President and Chief Operating
Officer; Maria D. Dwyer is Executive Vice President and Chief Regulatory
Officer, [TBA] is an Executive Vice President, General Counsel and Secretary,
Mitchell C. Freestone and Brian T. Hourihan are Assistant Secretaries, Michael
W. Roberge is an Executive Vice President, Chief Fixed Income Officer and
Director of Fixed Income Research, David A. Antonelli is an Executive Vice
President and Chief Equity Officer, Deborah H. Miller is an Executive Vice
President and Director of Equity Quantitative Research, Paul T. Kirwan is an
Executive Vice President and Chief Financial Officer, Thomas B. Hastings is a
Senior Vice President and Treasurer, Michael H. Whitaker is a Senior Vice
President and Chief Compliance Officer and Joseph E. Lynch is the Assistant
Treasurer.

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
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 Series Trust XI
MFS Series Trust XII
MFS Municipal Series Trust
MFS Variable Insurance Trust
MFS Institutional Trust
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

J. Atwood Ives is the Chair, Maria F. Dwyer is President, Tracy A. Atkinson,
a Senior Vice President of MFS, is Treasurer, James O. Yost, Ellen M. Moynihan,
David L. DiLorenzo and Mark Fischer, Vice Presidents of MFS, are the Assistant
Treasurers, Mark

N. Polebaum, Senior Vice President, General Counsel and Secretary of MFS, is the
Secretary, Brian T. Hourihan, Vice President and Senior Counsel, Christopher R.
Bohane, Susan A. Pereira and Timothy M. Fagan, Vice Presidents and Senior
Counsels of MFS and Ethan D. Corey, Special Counsel of MFS are Assistant
Secretaries and Assistant Clerks.

MFS/Sun Life Series Trust

J. Kermit Birchfield is Chairman, Maria F. Dwyer is President, Tracy A. Atkinson
is the Treasurer, James O. Yost, Ellen M. Moynihan, David L. DiLorenzo and Mark
Fischer are the Assistant Treasurers, Mark N. Polebaum is the Secretary, Brian
T. Hourihan is the Assistant Secretary and Assistant Clerk.

Money Market Variable Account
High Yield Variable Account
Capital Appreciation Variable Account
Government Securities Variable Account
Total Return Variable Account
Global Governments Variable Account

J. Kermit Birchfield is Chairman, Maria F. Dwyer is President and a Director,
Tracy A. Atkinson is Treasurer, Jim Yost, Ellen M. Moynihan, David L. DiLorenzo
and Mark Fischer are the Assistant Treasurers, Mark N. Polebaum is the Secretary
and Brian T. Hourihan, Christopher R. Bohane, Ethan D. Corey, Susan A. Pereira
and Timothy M. Fagan are the Assistant Secretaries.

MFS Floating Rate Income Fund - (Cayman Islands Registered Fund)
MFS Meridian Funds, SICAV

Martin E. Beaulieu, Maria F. Dwyer and Robin A. Stelmach are Directors, Tracy A.
Atkinson is Treasurer, James O. Yost and Ellen M. Moynihan are the Assistant
Treasurers, and Christopher R. Bohane is the Assistant Secretary.

MFS International Ltd. ("MIL Bermuda"), a limited liability company organized
under the laws of Bermuda and a subsidiary of MFS, whose principal business
address is Canon's Court, 22 Victoria Street, Hamilton HM 12 Bermuda, serves as
investment adviser to and distributor for MFS Floating Rate Income Fund and the
MFS Meridian Funds, SICAV ("SICAV Funds"). The SICAV Funds are organized in
Luxembourg and qualify as an undertaking for collective investments in
transferable securities (UCITS). The principal business address of the Funds is
47, Boulevard Royal, L-2449 Luxembourg. The SICAV Funds include Asia Pacific
Ex-Japan Fund, Continental European Equity Fund, Emerging Markets Debt Fund,
Emerging Markets Equity Fund, Euro Reserve Fund, European Bond Fund, European
Equity Fund, European Growth Fund, European High Yield Bond Fund, European
Smaller Companies Fund, European Value Fund, Global Balanced Fund, Global Equity
Fund, Global Growth Fund, Global Value Fund, Inflation-Adjusted Bond Fund, Japan
Equity Fund, Limited Maturity Fund, Research Bond Fund, Research International
Fund, Strategic Income Fund, Technology Fund, UK Equity Fund, US Dollar Money
Market Fund, US Emerging Growth Fund, US Equity Fund,

US Government Bond Fund, US High Yield Bond Fund, US Research Fund, US Strategic
Growth Fund and US Value Fund. The MFS Floating Rate Income Fund is organized as
an exempt company under the laws of the Cayman Islands. The principal business
address for the MFS Floating Rate Income Fund is P.O. Box 309, Grand Cayman,
Cayman Islands, British West Indies.

Mark C. Rogers is Director and President, Paul T. Kirwan is the Treasurer, Mark
N. Polebaum is the Secretary, Mitchell C. Freestone, Ethan D. Corey, Jeremy
Kream, Mark D. Kaplan, Suzanne Michaud, Susan Newton and Brian T. Hourihan are
Assistant Secretaries and Thomas B. Hastings is the Assistant Treasurer. Timothy
F. Tierney is the Tax Officer.

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
Eversheds, Senator House, 85 Queen Victoria Street, London, England EC4V 4JL, is
involved primarily in marketing and investment research activities with respect
to private clients and the Cayman Islands Registered Fund and the MFS Meridian
Funds, SICAV.

Olivier Lebleu is Managing Director, Mitchell C. Freestone is a Director and
Assistant Secretary and Barnaby Wiener is a Director. Paul T. Kirwan is the
Treasurer, Thomas B. Hastings is the Assistant Treasurer, Mark N. Polebaum is
the Secretary, Ethan D. Corey, Jeremy Kream, Mark D. Kaplan, Suzanne Michaud,
Susan Newton and Brian T. Hourihan are Assistant Secretaries. Timothy F. Tierney
is the SICAV Tax Officer.

MFS International S.C. LTDA ("MIL Brazil"), a private commercial limited
liability quota company organized under the laws of Brazil whose current address
is Al Campinas, 1070, 7 andar, Sala 15, Sao Paulo, Sao Paulo, Brazil, is
primarily involved in providing market development services to increment the use
of MFS products and services in Brazil as well as being a distributor of the MFS
Floating Rate Income Fund and MFS Meridian Funds, SICAV.

Robert J. Manning is the President and Advisory Board Member, Paul T. Kirwan is
Treasurer and Thomas B. Hastings is Assistant Treasurer, Mitchell C. Freestone,
Ethan D. Corey, Jeremy Kream, Suzanne Michaud, Susan Newton and Brian T.
Hourihan are Assistant Secretaries. Timothy F. Tierney is the Tax Officer.

MFS Institutional Advisors (Australia) Ltd. ("MFSI-Australia"), a private
limited company organized under the Corporations Law of New South Wales,
Australia whose current address is Level 27, Australia Square, 264 George
Street, Sydney, NSW2000, Australia, is involved primarily in investment
management and distribution of Australian superannuation unit trusts and acts as
an investment adviser to institutional accounts.

Graham E. Lenzner is the Director and Chairman of the Board, Loretta Lenzner,
Robert J. Manning and Sheldon Rivers are Directors, Paul T. Kirwan is the
Treasurer, Thomas B. Hastings is the Assistant Treasurer, Mark N. Polebaum is
the Secretary and Mitchell C.

100

Freestone, Ethan D. Corey, Jeremy Kream, Suzanne Michaud, Susan Newton and Brian
T. Hourihan are Assistant Secretaries. Timothy F. Tierney is the Tax Officer.

MFS Fund Distributors, Inc. ("MFD"), a wholly owned subsidiary of MFS, serves as
distributor for the MFS Funds, MVI and MFSIT.

Robert J. Manning is the Director, Martin E. Beaulieu is a Director and Chairman
of the Board, James A. Jessee is President, Randolph J. Verzillo is the
Treasurer, Mark N. Polebaum is the Secretary, Mitchell C. Freestone and Brian T.
Hourihan are Assistant Secretaries, Thomas B. Hastings is the Assistant
Treasurer, Sharon A. Brovelli is Senior Vice President and Director of
Administration/Operations, Paul F. Fichera is Senior Vice President and Director
of Product Development, William H. Finnegan is Senior Vice President and
Director of Market Development, Michael D. Fitzgerald is Senior Vice President -
Bank Marketing Group, Joseph A. Kosciuszek is Senior Vice President - Support
Services MFSI/International, Larry I. Milder is Senior Vice President - FIAD
Sales, Thomas A. Jessee is Senior Vice President - Broker/Dealer Sales, Bill C.
Taylor is Senior Vice President and Director of PPS, Susan G. Fowler is Senior
Vice President - Fulfillment/PPS and Brendan K. Nolan is Senior Vice President.

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
and MVI.

Robert J. Manning is Director and Chairman of the Board. Maureen Leary-Jago is a
Director. Ms. Leary-Jago is also the President, Mark N. Polebaum is the
Secretary, Mitchell C. Freestone and Brian T. Hourihan are Assistant
Secretaries, Paul T. Kirwan is the Treasurer, Thomas B. Hastings is the
Assistant Treasurer, and Robert W. Green is Senior Vice President - Dealer
Services, Gloria E. Schmid is Senior Vice President - Operations David G.
Rainville is Senior Vice President.

MFS Institutional Advisors, Inc. ("MFSI"), a wholly owned subsidiary of MFS,
provides investment advice to substantial private clients.

Robert J. Manning is Chairman and Chief Investment Officer, Martin E. Beaulieu
is a Director, Carol Geremiah is the President, [TBA] is the Secretary, Mitchell
C. Freestone and Brian T. Hourihan are Assistant Secretaries, Paul T. Kirwan is
the Treasurer, Thomas B. Hastings is the Assistant Treasurer.

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.

Robert J. Manning is the Director and Chairman of the Board, Martin E. Beaulieu
is the Director, Carol W. Geremia is the President, Paul T. Kirwan is the
Treasurer, Thomas B. Hastings is the Assistant Treasurer, Mark N. Polebaum is
the Secretary, Mitchell C. Freestone and Brian T. Hourihan are Assistant
Secretaries Matthew D. Gannon is Senior

101

Vice President - Retail Marketing, Director of RSI Marketing, William F. Shaw is
Senior Vice President - Marketing and George C. Sutherland is Senior Vice
President - Sales.

MFS Investment Management K.K. ("MIMKK"), a wholly owned subsidiary of MFS, is a
corporation incorporated in Japan. MIMKK, whose address is 16F Daido Seimei
Kasumigaseki Bldg., 1-4-2- Kasumigaseki, Chiyoda-ku, Tokyo Japan 100 0013, is
involved in investment management activities.

Joseph A. Kosciuszek and Carol W. Geremia are Directors, Takafumi Ishii is a
Director and Representative Director, Yasuyuki Hirata is Director -Corporate
Planning and Paul T. Kirwan is Statutory Auditor. Ethan D. Corey, Jeremy Kream,
Suzanne Michaud, Susan Newton and Brian T. Hourihan are Assistant Secretaries.
Timothy F. Tierney is the Tax Officer.

MFS Heritage Trust Company ("MFS Trust"), a New Hampshire-chartered
limited-purpose trust company whose current address is 650 Elm Street, Suite
404, Manchester, NH 03101, provides directed trustee services to retirement
plans.

Eric G. Burns is Director and President, Paul F. Fichera, Carol W. Geremia and
Joseph A. Kosciuszek are Directors. Paul T. Kirwan is the Treasurer, Thomas B.
Hastings is Assistant Treasurer, Brian T. Hourihan is Assistant Clerk and Mark
D. Kaplan is Clerk and Trust Officer.

MFS Japan Holdings, LLC, a private limited liability company organized under the
laws of Delaware whose address is 500 Boylston Street, Boston, MA 02116, is
primarily a holding company and is 50% owned by Massachusetts Financial Services
Company and 50% owned by Sun Life Financial (Japan), Inc.

Robert J. Manning and Donald A. Stewart are Managers, Mark N. Polebaum is the
Secretary, Paul T. Kirwan is Treasurer and Thomas B. Hastings is Assistant
Treasurer, Mitchell C. Freestone, Ethan D. Corey, Jeremy Kream, Suzanne Michaud,
Susan Newton and Brian T. Hourihan are Assistant Secretaries. Timothy F. Tierney
is the Tax Officer.

Sun Life of Canada (U.S.) Financial Services Holdings, Inc., a company
incorporated under the laws of Delaware whose address is 500 Boylston Street,
Boston, Massachusetts 02116, is the direct parent company of Massachusetts
Financial Services Company.

Robert J. Manning is the Director and Chairman of the Board, Eric G. Burns,
Donald A. Stewart and C. James Prieur are Directors, Mark N. Polebaum is the
Secretary, Mitchell C. Freestone and Brian T. Hourihan are Assistant
Secretaries, Paul T. Kirwan is the Treasurer and Joseph Lynch is the Assistant
Treasurer.

MFS Investment Management (LUX) S.A., a joint stock company organized under the
laws of Luxembourg whose registered office is 49, Avenue J.F. Kennedy, L-1855,
Kirchberg, Luxembourg, is the management company of the MFS Investment Funds,
which has 3 portfolios: MFS

102

Investment Funds-Global Equity Ex-Japan Fund, MFS Investment Funds-Global Equity
Fund and MFS Investment Funds-Global Equity Eurozone Bias Fund.

Maria F. Dwyer, Martin E. Beaulieu and Robin A. Stelmach are Directors, Paul T.
Kirwan is Treasurer, Thomas B. Hastings is Assistant Treasurer, Mark N. Polebaum
is the Secretary and Mitchell C. Freestone, Ethan D. Corey, Jeremy Kream,
Suzanne Michaud, Susan Newton and Brian T. Hourihan are Assistant Secretaries.
Timothy F. Tierney is the Tax Officer.

MFS/Sun Life Financial Distributors, Inc., a Delaware broker dealer jointly
owned by MFS and Sun Life of Canada (U.S.) Financial Services Holdings, Inc.,
whose address is 131 Oliver Street, Boston, Massachusetts 02110, is a
distributor of variable annuity products.

Martin E. Beaulieu and Robert C. Salipante are the Directors, Kevin J. Hart is
the President, Trevor V. Graham is Director & Divisional Controller; Jane F.
Jette is Financial/Operations Principal and Treasurer, George E. Maden is Vice
President and Chief Compliance Officer, Ellen B. King is Secretary and Amy E.
Mihaich is Assistant Secretary.

In addition, the following persons, Directors or officers of MFS, have the
affiliations indicated:

Donald A. Stewart Chief Executive Officer, Sun Life Assurance Company of
Canada, Sun Life Centre, 150 King Street West, Toronto,
Ontario, Canada (Mr. Stewart is also an officer and/or
Director of various subsidiaries and affiliates of Sun Life)

C. James Prieur President and a Director, Sun Life Assurance Company of
Canada, Sun Life Centre, 150 King Street West, Toronto,
Ontario, Canada (Mr. Prieur is also an officer and/or
Director of various subsidiaries and affiliates of Sun Life)

William W. Stinson Non-Executive Chairman, Sun Life Financial and Sun Life
Assurance Company of Canada, Sun Life Centre, 150 King
Street West, Toronto, Ontario, Canada; Chairman, Westshore
Terminals Income Fund, Vancouver, British Columbia;
Director, Grant Forest Products Inc., Ontario, Canada and
Trustee, Fording Canadian Coal Trust, Calgary, Alberta

103

James C. Baillie Counsel, Torys, Ontario, Canada; Chair, Independent
Electricity Market Operator, Ontario, Canada; Chair, Corel
Corporation, Ontario, Canada; Director, Sun Life Financial,
Ontario Canada; Director, FPI Ltd., Newfoundland, Canada

Item 32. Location of Accounts and Records:

The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:

NAME ADDRESS

Massachusetts Financial 500 Boylston Street
Services Company Boston, Massachusetts 02116

State Street Bank and State Street South, 5-West
Trust Company North Quincy, Massachusetts 02171

JP Morgan Chase Bank 270 Park Avenue
New York, NY 10017

MFS Service Center, Inc. 500 Boylston Street
(transfer agent) Boston, MA 02116

Ropes & Gray One International Place
(counsel) Boston, MA 02110

Item 33. Management Services: Inapplicable.

Item 34. Undertakings: Inapplicable.

104

SIGNATURES

Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant has duly caused this Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Boston and Commonwealth of Massachusetts on the 28th day of February, 2006.

MFS MULTIMARKET INCOME TRUST

By: SUSAN S. NEWTON
Susan S. Newton
Assistant Secretary

105

INDEX TO EXHIBITS

Exhibit No. Description of Exhibits

2(a) Amended and Restated Declaration of Trust, dated December 16, 2004.

2(b)(1) Master Amended and Restated By-Laws dated January 1, 2002, as
revised June 23, 2004.

2(b)(2) Appendix A, as revised February 21, 2006, to the Master Amended
and Restated By-Laws, dated January 1, 2002, as revised June 23, 2004.

2(g)(1) Investment Advisory Agreement, dated January 1, 2002.

2(g)(2) Master Administrative Services Agreement, dated March 1, 1997,
as amended April 1, 1999,between Massachusetts Financial Services
Company and the Registrant.

2(g)(3) Exhibit A, as revised July 26, 2005, to the Master
Administrative Services Agreement.

2(j)(3) Exhibit A, as revised April 26, 2005, to the Master Custodian
Agreement between Registrant and State Street Bank and Trust Company,
and the Master Global Custody Contract between Registrant and Chase
Manhattan Bank, each dated July 2, 2001.

2(k)(2) Amendment, dated February 22, 2005, to the Shareholder Servicing
Agreements.