MFS Meridian® Funds – Global Opportunistic Bond Fund: Fund Strategy Snapshot

THIS INFORMATION IS FOR MARKETING PURPOSES ONLY

Important Risk Information:

The fund may not achieve its objective and/or you could lose money on your investment in the fund. Bond: Investments in debt instruments may decline in value as the result of, or perception of, declines in the credit quality of the issuer, borrower, counterparty, or other entity responsible for payment, underlying collateral, or changes in economic, political, issuer-specific, or other conditions. Certain types of debt instruments can be more sensitive to these factors and therefore more volatile. In addition, debt instruments entail interest rate risk (as interest rates rise, prices usually fall). Therefore, the portfolio's value may decline during rising rates. Portfolios that consist of debt instruments with longer durations are generally more sensitive to a rise in interest rates than those with shorter durations. At times, and particularly during periods of market turmoil, all or a large portion of segments of the market may not have an active trading market. As a result, it may be difficult to value these investments and it may not be possible to sell a particular investment or type of investment at any particular time or at an acceptable price. The price of an instrument trading at a negative interest rate responds to interest rate changes like other debt instruments; however, an instrument purchased at a negative interest rate is expected to produce a negative return if held to maturity.  Emerging Markets: Emerging markets can have less market structure, depth, and regulatory, custodial or operational oversight and greater political, social, geopolitical and economic instability than developed markets. Derivatives: Investments in derivatives can be used to take both long and short positions, be highly volatile, involve leverage (which can magnify losses), and involve risks in addition to the risks of the underlying indicator(s) on which the derivative is based, such as counterparty and liquidity risk. High Yield: Investments in below investment grade quality debt instruments can be more volatile and have greater risk of default, or already be in default, than higher-quality debt instruments. Geographic: Because the portfolio may invest a substantial amount of its assets in issuers located in a single country or in a limited number of countries, it may be more volatile than a portfolio that is more geographically diversified. Please see the prospectus for further information on these and other risks.  Mortgage-backed: Mortgage-backed securities can be subject to prepayment and/or extension and therefore can offer less potential for gains and greater potential for loss.

Hello, my name is Pilar Gomez-Bravo and I will cover some of the key issues preoccupying global fixed income investors and how the MFS® Global Opportunistic Bond Fund is positioned as we consider macroeconomic trends, credit fundamentals and market valuations. As a reminder, the fund provides diversification across global fixed income markets, a solid investment-grade quality and the best ideas of our investment platform through a collaborative approach.

Let’s start with what the key macro risks are for the period ahead. As major central banks begin to cut rates, the key macro risks relate to inflation, growth, the future path of monetary policy and the sustainability of expanded fiscal policies.

Firstly, let’s cover inflation risks. Even though inflation is gradually coming down to the established target of 2%, most developed markets are still showing services inflation that is uncomfortably too high. Solid demand for the labor-intensive services sector is the driver and disinflation in goods has been an offset but not sufficient. Overall, we would expect the slow path to lower core inflation to continue.

Secondly, let’s address growth risks. Globally, indicators of growth in the manufacturing sector are in some cases already at levels consistent with recession. It is again demand for services that continues to support growth and, in the US in particular, the robustness of the US consumer, who keeps spending. A recession is unlikely as long as there is positive real income growth. Although we are not seeing layoffs, the hiring rates have been coming down, pointing to increased economic uncertainty.

Thirdly, with regards to risks associated with monetary policy, the concern is that central banks are late given the time it takes for changes in interest rates to impact the real economy. In Europe, this is more acute given the need for the European Central Bank to accommodate many different economies. In the US, the Fed is reassessing what the appropriate long-term level of interest rates should be for an economy still growing given recent improvements in productivity. We would expect it to continue with its gradual approach to cutting rates without looking to stimulate growth. Finally, the Bank of Japan moves in opposite direction by increasing rates after many years. This could have significant impact on currency and global fixed income markets as asset allocations adjust to the narrowing interest rate differentials between Japan and the US.

Finally, on the fiscal side, what are the risks associated with higher levels of government debt and its impact on fixed income markets? In general, robust levels of global savings will continue to fund increasing global investment demands driven by the green transition, technology development, defense spending and support for welfare and health care. The focus needs to be on overall levels of indebtedness in an economy — private sector, household sector and public sector — and, of course, on debt sustainability. In the near term, more government debt issuance could lead to higher interest rates in longer maturity bonds if credibility is in doubt. The market turns its focus now on the upcoming US elections and the contours of the fiscal policy that will result.

One final important point to make: We live in a world of heightened geopolitical tensions. The valuations of risky asset classes such as equities and credit markets seem to have dismissed the likely damaging impact of further escalations. In this context, a prudent diversified asset allocation approach could be appropriate given the material potential impact of such developments.

In the context of the macro landscape described, where are we on the credit cycle? If one can define four stages of an economic cycle as crisis, recovery, expansion and slowdown, then given weaker growth indicators, we would position the credit cycle in the slowdown phase, still consistent with a soft-landing scenario in the US, for example. We expect earnings growth to decelerate and profit margins to decrease and thus to remain in the slowdown phase over the coming six to twelve months. Outside of this base case, we see more risks of a move towards hard landing than no landing.

So how could the start of a monetary easing cycle impact credit fundamentals? Lower interest rates help lower the cost of capital for firms and may incentivize them to take on productivity-enhancing projects. Stability and clarity of the easing path of monetary policy would allow households and private firms to plan investments ahead. This would generally lead to stronger balance sheets and improved credit profiles as higher earnings would better cover lower interest costs and could be used to bring down leverage.

As central banks start cutting interest rates, why would fixed income become more attractive than holding cash? Historically, fixed income has outperformed cash once central bank policy rates peak and during rate cutting cycles. Returns on cash follow closely the central bank’s deposit or funding rate and will come down as interest rate policy continues to ease. On the other hand, bonds are issued with different maturities. All else being equal, the longer the maturity of the bond, the higher the expected total return would be from a move lower in yields. Historically, given the high level of starting yields in fixed income markets, we would expect higher total returns than cash if central banks continue easing, as well as providing investors with the traditional benefits of income and diversification.

We finish now our comments with an overview of what recent Fed rate cuts mean for credit positioning and provide an update for the MFS Meridian Global Opp Bond fund.

Fed rate cuts should be supportive of the base case for a soft landing and stabilization in credit fundamentals. This environment of slow growth and lower inflation would favor investment-grade credit as an asset class within fixed income. The MFS Meridian Global Opportunistic Bond Fund remains overweight credit markets, with global, sector and quality diversification. However, it is defensively positioned, with historically low levels of allocation to high yield and emerging market corporate debt and a mover towards higher-quality credit portfolio weights. We expect increased volatility and dispersion and therefore retain significant exposure to liquid bonds to take advantage of market opportunities that arise.

The recent central bank rate cuts have had a positive impact on returns of the Meridian Global Opportunistic Bond Fund as yields in fixed income markets declined and the fund had longer duration. We remain strategically overweight duration as we would expect monetary easing cycles to continue. It is important to note that our duration and government debt exposure is globally diversified and not just in the US.

In conclusion, we remain focused on being nimble to take advantage of asset allocation opportunities across global fixed income markets in a period of potentially higher volatility and dispersion ahead. We remain focused on the compounding value and opportunities that active security selection and idiosyncratic risk provide as identified by our global and deep research platform. We remain focused and vigilant of macroeconomic drivers that can drive shifts in monetary and fiscal policy and impact yields. And the MFS Global Opportunistic Bond Fund will continue to focus on delivering the three Cs of collaboration across the investment platform, consistency of process and seeking consistent, long-term performance, and conviction to drive active positioning on behalf of our clients. Thank you for your time.

Please note that this is an actively managed product. Fund Regulatory Details

See the fund's offering documents for more details, including information on fund risks and expenses. For additional information, call Latin America: 416.506.8418 in Toronto or 352.46.40.10.600 in Luxembourg. U.K.: MFS International (U.K.) Ltd., 1 Carter Lane, London, EC4V 5ER UK. Tel: 44 (0)20 7429 7200. European Union: MFS Investment Management Company (Lux) S.a r.l. 4 Rue Albert Borschette, Luxembourg L-1246. Tel: 352 2826 12800 .

MFS Meridian Funds is an investment company with a variable capital established under Luxembourg law. MFS Investment Management Company (Lux) S.ar.l. is the management company of the Funds, having its registered office at 4, Rue Albert Borschette, L-1246 Luxembourg, Grand Duchy of Luxembourg (Company No. B.76.467).

The Management Company and the Funds have been duly authorised by the CSSF (Commission de Surveillance du Secteur Financier) in Luxembourg.

The Funds are established as a "restricted foreign scheme" in Singapore; therefore, material in connection with the offer or sale of the funds may only be distributed to persons in Singapore that are qualified under Sections 304 and 305(2) under Chapter 289 of the Securities and Futures Act.

This document has not been reviewed or approved by the Hong Kong Securities and Futures Commission.

MFS Meridian Funds may be registered for sale in other jurisdictions or otherwise offered where registration is not required.

MFS Meridian Funds are not available for sale in the United States or to US persons.

Unless otherwise indicated, logos, product and service names are trademarks of MFS and its affiliates and may be registered in certain countries.

Information on investors rights is made available in English and, as the case may be, in local language at meridian.mfs.com. MFS Investment Management Company (Lux) S.à r.l. may decide to terminate the marketing arrangements of this fund in accordance with the appropriate regulation.

The offering documents (sales prospectus and Key Information Documents (KIDs), or in the U.K. Key Investor Information Documents (KIIDs)), articles of incorporation and financial reports are available to investors at no cost in paper form or electronically at meridian.mfs.com, at the offices of the paying agent or representative in each jurisdiction or from your financial intermediary. KIDs are available in the following languages: Danish, Dutch, English, French, German, Italian, Norwegian, Portuguese, Spanish, and Swedish. KIIDs and the sales prospectus and other documents are available in English.

MFS Investment Management Company (Lux) S.à.r.l.

FOR INVESTMENT PROFESSIONAL USE ONLY. Not intended for retail investors.

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