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MFS Taking Care of Business

MFS, home of the oldest fund in America, Massachusetts Investors Trust, and one of a number of fund families caught in the recent fund scandal, has had $350 million in fines imposed, settled civil fraud charges and now is taking a number of positive steps to show shareholders---and the fund world--that it cares.

One of the many changes this fund family is making is the banning of "soft dollar" payments. (Soft dollars are a way of paying for things--- like investment research--- through commission revenue rather than using direct billing.)

What follows is the press release I received from MFS explaining the actions this fund family is taking: MFS Investment Management, a subsidiary of Sun Life Financial Inc. (NYSE, TSX: SLF), today announced a series of pro-investor actions it is taking to strengthen fund governance and tighten business practices. The actions include realignment of the MFS executive management team, elimination of the use of brokerage commissions to acquire third-party research and market data services, elimination of the use of brokerage commissions to recognize fund sales, and unprecedented measures to improve the transparency of its mutual funds operations including individualized expense reporting to shareholders. The actions by MFS are the result of a rigorous review of the firm's policies and practices, which has led to the most far-reaching reforms in the funds industry to date.

"MFS has served generations of investors for 80 years and has a long history of leadership in the industry," said Robert C. Pozen, non-executive Chairman of MFS Investment Management. "We are committed to doing what is right for the millions of shareholders who trust us to invest on their behalf. Today, we reaffirm that commitment by taking a series of specific steps to assure that the interests of our shareholders come first at MFS."

MFS has taken or will take the following actions to enhance its trading and business practices as well as to increase disclosure to its shareholders:

Maximizing Shareholder Benefits from Brokerage

  • Ban the use of brokerage commissions to acquire third-party research and market data services.
  • Make permanent its current ban on the use of brokerage commissions to recognize fund sales.
  • Increase commission recapture programs to further cut operating expenses paid by shareholders. MFS will build on its current use of commissions to defray custody costs, thereby lowering shareholder costs.

Deterring Market Timing and Late Trading

  • Expand the use of 2 percent redemption fees on exchanges and redemptions made within 30 days of purchase, currently applied to its international/global and high yield funds and now to include MFS small and mid-cap funds. Expand the use of redemption fees to all other MFS equity and bond funds, except money market funds, by imposing a redemption fee on all exchanges and redemptions made within five days of purchase.
  • Continue to support the proposed 4:00 p.m. hard closing rule to eliminate any possibility of late trading; however, MFS recognizes that the industry must address a variety of complex issues before the solution can be implemented and pledges to work with clients, service providers and others in the industry to develop viable solutions.
  • Expand oversight of shareholder trading practices to recognize potential excessive trading by significantly increasing monitoring staff, enhancing systems capabilities and enforcing restrictions.
  • Continue to make active use of fair value pricing techniques to produce more current prices on portfolio securities to help prevent trading abuses.

Enhanced Transparency and Individualized Expense Reporting

  • Provide full expense disclosure of estimated expenses for each shareholder based on quarter-end holdings.
  • Provide a Web-based individualized expense calculator enabling investors to calculate their actual dollar expenses by inputting their MFS fund holdings.
  • Provide increased disclosure of portfolio turnover and brokerage costs.
  • Expand sales disclosure by providing more prominent disclosure of breakpoints (volume sales discounts) and cash payments by MFS to brokers.

Increased Independence of Fund Boards

  • Recognizing the ultimate fiduciary responsibility of board members to protect the interests of shareholders, MFS has taken steps to further ensure board independence. MFS Funds already have independent board chairs and at least 75 percent of all trustees are independent. The independent trustees and the MFS funds now have their own independent counsel. Moreover, the independent trustees will appoint an independent compliance officer who will be responsible for assisting the board and all of its committees in monitoring compliance by MFS Funds.

Bolstering MFS Management

  • MFS took the additional step of creating two new positions - a non-executive Chairman and an Executive Vice President -- Regulatory Affairs to improve its governance structure. As previously announced, MFS has named Robert Pozen, a former Securities and Exchange Commission attorney and former President of Fidelity Management Research Company, as its non-executive Chairman reporting to the independent directors of the MFS funds. Maria Dwyer, former President and Treasurer of the Fidelity Group of Funds at Fidelity Management Research Company, has been named Executive Vice President - Regulatory Affairs; she will report both to Chief Executive Officer Rob Manning and to the MFS Board of Directors. This organizational change recognizes the significance of regulatory oversight, internal compliance and risk management of the funds. In addition, the firm has named Jeffrey N. Carp, formerly a senior partner at the law firm of Hale and Dorr LLP, as General Counsel. Carp is a distinguished practitioner of corporate, mutual fund, and securities law.

The actions taken by MFS go beyond the current rules for the mutual fund industry imposed by the SEC. "It is time for the industry to move beyond what is required by law, not to just meet regulatory requirements but to exceed them. At MFS our objective is to set new standards that clearly demonstrate that our first commitment is to our shareholders," said Pozen. "These reforms build on the core values of the MFS organization - integrity, disciplined management and customer focus - and they go beyond any regulatory requirements. MFS is again asserting its historic role as a leader in setting ethical norms for the fund industry."

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