# MFS FUND DISTRIBUTORS, INC. X-17A-5 (2021-03-01) — Broker-dealer annual report - Company: MFS FUND DISTRIBUTORS, INC. - Form: X-17A-5 - Filed: 2021-03-01 - Period: 2020-12-31 - Accession: 0000894136-21-000003 - CIK: 894136 - File #: 8-45321 - Material weakness: No - Auditor: Deloitte and Touche LLP - Auditor location: Boston, MA - Contact: Charuda (Bee) Upatham-Costello - Phone: 6179544810 - Signed by: Charuda Upatham-Costello (Senior Group Controller and Treasurer of MFS Fund Distributors, Inc.) Original filing: https://www.sec.gov/Archives/edgar/data/894136/000089413621000003/2020MFDFinancialCondition1.pdf --- {0}------------------------------------------------ ![](_page_0_Picture_0.jpeg) **MFS Fund Distributors, Inc. (SEC I.D. No, 8-45321)** **Statement of Financial Condition as of December 31, 2020 and Report of Independent Registered Public Accounting Firm** **Filed pursuant to Rule 17a-5(e)(3) under the Securities Exchange Act of 1934 as a Public Document.** {1}------------------------------------------------ UNITED STATES OMB Number: 3235-0123 SECURITIES AND EXCHANGE COMMISSION October 31, 2023 Expires: Washington, D.C. 20549 Estimated average burden hours per response ............ 12.00 ANNUAL AUDITED REPORT FORM X-17A-5 SEC FILE NUMBER PART III 8-45321 FACING PAGE Information Requested of Brokers and Dealers Pursuant to Section 17 of the Securities Exchange Act of 1934 and Rule 17a-5 Thereunder REPORT FOR THE PERIOD BEGINNING January 1, 2020 AND ENDING December 31, 2020 MM/DD/YY MM/DD/YY A. REGISTRANT IDENTIFICATION OFFICIAL USE ONLY NAME OF BROKER-DEALER: MFS Fund Distributors, Inc. ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use P.O Box No ) FIRM I.D. NO. 111 Huntington Avenue (No, and street Boston MP3 02199 (City) (State (Zip Code) NAME AND TELEPHONE NUMBER OF PERSON TO CONTACT IN REGARD TO THIS REPORT Charuda Upatham-Costello (617) 954-4810 (Area Code Telephone Number) B. ACCOUNTANT IDENTIFICATION INDEPENDENT PUBLIC ACCOUNTANT whose opinion is contained in this Report\* Deloitte & Touche LLP CHECK ONE: Cenified Public Accountant Public Accountant Accountant not resident in United States or any of its possessions. FOR OFFICIAL USE ONLY \* Clains for exemption from the reguirement that the annual 'eport be covered by the op nion of an independent public accountant nust be supported by a satement of facts and circumstances elied on as the basis for the exemption. See Section 240.17a-5(e)(2) > Potential persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. SEC 1410 (11-05) OMB APPROVAL | | (Name if mdnieludt, state last first, mild I mie) | | | |---------------------|---------------------------------------------------|---------|------------| | 200 Berkelev Street | Boston | BATA | 02116 | | (Address) | (City) | (State) | (Zip Code) | {2}------------------------------------------------ #### OATH OR AFFIRMATION I, Charada Upatham-Costello, swear or affirm) that, to the best of my knowledge and belief the accompanying financial statement and supporting schedules pertaining to the firm of MFS Fund Distributors, Inc. as of December 31, 2020, are true and correct. 1 further swear (or affirm) that neither the company nor any partner. proprietor, principal officer or director has any proprietary interest in any account classified solely as that of a customer. Signature ![](_page_2_Picture_4.jpeg) Senior Group Controller and Treasurer of MFS Fund Distributors, Inc. Financial and Operations Principal Title Notary Ho This report \*\* contains (check all applicable boxes): - (a) Facing Page. - (b) Statement of Financial Condition. D (c) Statement of Income (Loss) or, Statement of Income (Loss) or, if there is other compehensive income in the period(s) presented, a Statement of Comprehensive Income (as defined in \$210.1-02 of Regulation S-X).. - (d) Statement of Changes in Financial Condition. - Statement of Changes in Stockholders' Equity or Partners' or Sole Proprietors' Capital. - D (1) Statement of Changes in Liabilities Subordinated to Claims of Creditors. - O (g) Computation of Net Capital. - O (h) Computation for Determination of Reserve Requirements Pursuant to Rule 15c7 3. - (i) Information Relating to the Possession or Control Requirements Under Rule 15c2-3. - O (i) A Reconciliation, including appropriate explanation of the Computation of Net Capital under Rule 15c3-1 and the Computation for Determination of the Reserve Requirements Under Exhibit A of Rule 15c3-3. - O (k) A Reconciliation between the audited and unavdied Statements of Financial Condition with respect to methods of consolidation. - 2 (1) An Oath or Affirmation - O (m) A copy of the SIPC Supplemental Report. - [ (n) A report describing any material inadequacies iound to existed since the date of the previous audi. For conditions of confidential treatment of certain portions see section 240 17u-Stell 3) {3}------------------------------------------------ ![](_page_3_Picture_0.jpeg) Deloitte & Touche LLP 200 Berkeley Street Boston, MA 02116-5022 USA +1 617 437 2000 Fax: +1 617 437 2111 www.deloitte.com #### REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholder and the Board of Directors of MFS Fund Distributors, Inc. #### Opinion on the Financial Statement We have audited the accompanying statement of financial condition of MFS Fund Distributors, Inc. (the "Company") (a wholly owned subsidiary of Massachusetts Financial Services Company) as of December 31, 2020, and the related notes (collectively referred to as the "financial statement"). In our opinion, the financial statement presents fairly, in all material respects, the financial position of the Company as of December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. #### Basis for Opinion This financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statement based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statement, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statement. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement. We believe that our audit of the financial statement provides a reasonable basis for our opinion. #### Emphasis of a Matter As discussed in Note B, the statement of financial condition includes significant allocations from, and transactions with, Massachusetts Financial Services Company and its affiliates and is not necessarily indicative of the conditions that would have existed if the Company had been operated as an unaffliated company. March 1, 2021 We have served as the Company's auditor since 1992. {4}------------------------------------------------ # MFS FUND DISTRIBUTORS, INC. STATEMENT OF FINANCIAL CONDITION At December 31, 2020 (\$'s in thousands, except share data) | Assets | | | |--------------------------------------------|----|---------| | Cash and cash equivalents | S | 143.474 | | Receivables | | 2,117 | | Deferred tax assets | | 2,288 | | Prepaid expenses | | 3.583 | | Deferred dealer commissions | | 9,908 | | Due from Parent and its affiliates, net | | 10,604 | | Total assets | \$ | 171,974 | | Liabilities | | | | Accounts payable and accrued expenses | \$ | 109,701 | | Accrued compensation | | 27,826 | | Deferred dealer commission liability | | 12,330 | | Total liabilities | | 149,857 | | Commitments and contingencies (Note G) | | | | Stockholder's equity | | | | Common stock, \$1.00 par value; | | | | 3,000 shares authorized; | | | | 1,000 shares issued and outstanding | | 1 | | Additional paid-in capital | | 18,025 | | Retained earnings | | 4,091 | | Total stockholder's equity | | 22,117 | | Total liabilities and stockholder's equity | ಕಿ | 171,974 | The accompanying notes are an integral part of the statement of financial condition. {5}------------------------------------------------ # MFS FUND DISTRIBUTORS, INC. NOTES TO STATEMENT OF FINANCIAL CONDITION As of December 31, 2020 (\$'s in thousands) # A. GENERAL INFORMATION MFS Fund Distributors, Inc. (the "Company" or "MFD") is a wholly-owned subsidiary of Massachusetts Financial Services Company (the "Parent" or "MFS") headquartered in Boston, Massachusetts, United States of America. The ultimate parent company of MFS and the Company is Sun Life Financial Inc. ("Sun Life"), a company headquartered in Toronto, Canada. MFD is a registered broker-dealer with the Securities and Exchange Commission and the Financial Industry Regulatory Authority. The Company provides distribution and administrative services to registered investment companies for which the investment manager. The Company's business and results of operations are, to a significant extent, dependent on the magnitude and composition of assets under management of its Parent, which include domestic and international equity and debt portfolios. Therefore, fluctuations in global equity and debt markets and the composition of assets under management of its Parent impact the Company's operating results. Certain officers and directors of the Company are also officers and directors of the Parent and its affiliates. ## B. SIGNIFICANT ACCOUNTING POLICIES #### Basis of presentation The financial statement has been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The financial statement was prepared from the separate records maintained by the Company, which include significant allocations from, and transactions with its Parent's affiliates, and are not necessarily indicative of the conditions that would have existed or the results of operations if the Company had been operated as an unaffiliated company. The Company received and continues to receive significant subsidies from its Parent pursuant to a loss indemnification agreement ("LIA") and a transfer pricing agreement ("TPA") described in Note C. It is the intention of the Parent to make funds available to continue operations of the Company and to keep these agreements in place for at least the next fiscal year. ## Use of estimates The preparation of financial statement in accordance with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statement. Actual results may differ from these estimates. ## Cash and cash equivalents Cash and cash equivalents consist of cash held in banks. As of December 31, 2020, MFD held no cash equivalents. ## Financial instruments Interest income is recorded on the accrual basis and is reported in investment income. #### Deferred dealer commissions Agreements with certain MFS mutual funds distributed by the Company stipulate that the Company pay dealer commissions to financial intermediaries in connection with the sales of Class C shares of such funds. The dealer commissions paid at the of sale of Class B and Class C shares compensate these financial intermediaries for distribution and/or servicing. These agreements also stipulate that the Company shall receive annual distribution and/or service fees from these MFS funds equal to a percentage of the average {6}------------------------------------------------ # MFS FUND DISTRIBUTORS, INC. NOTES TO STATEMENT OF FINANCIAL CONDITION As of December 31, 2020 (\$'s in thousands) daily net assets of each share class B and Class C shares, a portion of these annual distribution and services fees are paid to the financial intermediaries. These dealer commissions are deferred and amortized over various not to exceed the period that the related funds' shares are subject to redemption fees, which is one to six years. The Company evaluates the recoverability of deferred dealer commissions at each reporting period by assessing whether the undiscounted future distribution and service fees exceeds the carrying amount of the deferred dealer commission asset. The sale of B shares discontinued in 2019 The Parent assumes the costs incurred by the Company in connection with the distribution of investment company B and C shares in exchange for the Company's right to the net revenues under the related distribution agreements. Accordingly, MFS reimburses the Company cash for all deferred dealer commissions paid for B and C Shares, which represents deferred income that is recorded as a deferred dealer commission liability is amortized into income over the future expected net revenue recognition period, which is 1 to 8 years for Class C and Class B shares, respectively, utilizing the units of revenue methodology. # Dealer and trail commissions The Company pays financial intermediaries for certain distribution, marketing and administrative services. These costs are expensed as incurred and amounts payable at year end for dealer and trail commissions of \$46,319 and \$57,385, respectively, are included as a component of accounts payable and accrued expenses in the Statement of Financial Condition. #### Income taxes The Company is included in the consolidated federal tax return of a Sun Life affiliate. MFD also files state tax returns on a combined or stand-alone basis in jurisdictions in which it operates. Federal and State income tax amounts are allocated among members of the consolidated and combined tax groups based upon the separate return method. The Company is included in the consolidated financial statements of the Parent. In accordance with the cash management policy between the Parent and the Company, the Company shall pay to, or receive from, the Parent an amount equal to the total provision or benefit for income taxes that the Company discloses on its financial statements related to consolidated tax returns. Settlement is made via an intercompany transaction with the Parent. Deferred income taxes reflect the imporary differences between the amount of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes, measured by applying tax rates expected to be in effect when such differences reverse. A valuation allowance is provided when deferred tax assets are likely not to be realized. Accounting for uncertainty in income taxes recognized in the financial statement for a tax position taken or expected to be taken in a tax return requires that amounts recorded are based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized following resolution of any potential contingencies related to the tax benefit. The difference between the tax benefit recognized in the financial statement for a tax position and the tax return is referred to as an unrecognized tax benefit. The Company records interest and penalties associated with uncertain tax positions in income tax expense. Uncertain tax positions are reported in accounts payable and accrued expenses. {7}------------------------------------------------ #### New accounting standards In June 2016, the FASB issued ASU 2016-13, Financial Instruments Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends guidance on imparment of financial instruments. The ASU adds to U.S. GAAP an impairment model (known as the current expected credit loss model) that is based on expected losses rather than incurred losses. Subsequent ASUs have amended certain aspects of the ASU's guidance. This ASU is effective for the Company on January 1, 2023. The Company has assessed the impact of the standard and has determined that it will not have a material impact on its financial statement. ## C. RELATED PARTY TRANSACTIONS ## Transfer pricing agreement Pursuant to the TPA between the Company and its Parent's affiliates, the Company agrees to provide various professional services to MFS at arms-length pricing in accordance with the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder and the Organisation for Economic Co-operation and Development's Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations ("OECD Guidelines"). The terms of the TPA allow the Company to earn intercompany service fees from the Parent and the Parent's affiliates based on a percentage of costs incurred by the Company to provide professional services. The TPA has no set expiration. #### Loss indemnification agreement Pursuant to the LIA between the Company and its Parent has agreed to indemnify the Company for any net operating and non-operating loss it incurs during any year and reimburse the Company for the net operating and non-operating loss it incurs. The LIA has no set expiration. ## Other transactions with the Parent and the Parent's affiliates The Company's financial statement include significant allocations from, and transactions with, its Parent and the Parent's affiliates. The Company shares personnel, office facilities and information systems with its Parent and the Parent's affiliates Due from Parent and its affiliates, net includes amounts payable to the Parent's affiliates of \$90 and amounts receivable from the Parent and its affiliates of \$10,694. The net amount receivable from the Parent and its affiliates includes amounts related to current income taxes (refer to Note H). The Company pays no interest on the amounts due to its Parent or its affiliates and there is no contractual due date for intercompany balances. While they are payable to the Parent on demand, the Company generally settles these balances on a monthly basis. The Company's Parent is committed to long-term operating and capital leases for certain equipment, office and processing facilities that expire on various dates through 2029. The Company paid \$12,265 of dividends to its Parent during 2020. ## D. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS Accounting Standards Codification Topic 820, Fair Value Measurement, provides a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 investments) and the lowest priority to unobservable inputs (Level 3 investments). The three levels of the fair value hierarchy are as follows: {8}------------------------------------------------ - Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; - Level 2 valuations for which all significant inputs are observable, either directly or indirectly; and - Level 3 Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. Financial instruments are categorized in their entirety based on the lowest level of input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair measurement requires judgment and considers factors specific to the investment. The Company monitors the availability of inputs that are significant to the measurement of fair value to assess the appropriate categorization of financial instruments within the fair value hierarchy. Valuation techniques used to measure fair value maximize the use of relevant observable inputs and minimize the use of unobservable inputs. There have been no changes in the methodologies used at December 31, 2020. Due to the short-term nature and liquidity of cash and cash equivalents, receivables, accounts payable and accrued expenses, the carrying value of these assets and liabilities approximate fair value. # E. NET CAPITAL REQUIREMENTS The Company is subject to the Securities and Exchange Commission Uniform Net Capital Rule (Rule 15c3-1) under the Securities Exchange Act of 1934, which requires the maintenance of minimum net capital equal to the greater of \$25 or 6 2/3% of aggregate indebtedness, and requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15-to-1. At December 31, 2020, the Company had net capital of \$15,989 which exceeded its required net capital of \$9,997. The Company's aggregate indebtedness to net capital ratio was 9.38 to 1 at December 31, 2020. ## F. EXEMPTION FROM RULE 15c3-3 The Company has no possession or control obligations under SEA Rule 15c3-3(b) or reserve deposit obligations under SEA Rule 15c3-3(e) because its business is limited primarily to serving as distributor for its affiliated registered investment companies. ## G. COMMITMENTS AND CONTINGENCIES In the normal course of its business, the Company entered into agreements that include indemnities in favor of third parties, such as distribution agreements. It is not possible to estimate the Company's potential liability under these indemnities. The Company has agreed to indemnify its directors and certain of its officers and employees in accordance with the Company's by-laws. In certain cases, the Company has recourse against third parties with respect to the foresaid indemnities and the Parent, on behalf of the Company, also maintains insurance policies that may provide coverage against certain of these claims. {9}------------------------------------------------ # MFS FUND DISTRIBUTORS, INC. NOTES TO STATEMENT OF FINANCIAL CONDITION As of December 31, 2020 (\$'s in thousands) # H. INCOME TAXES The following is a summary of deferred tax assets at December 31, 2020: | | 2020 | | | |---------------------------|------|-------|--| | Deferred tax as sets | | | | | Stock based compensation | C | 2,288 | | | Total deferred tax assets | S | 2,288 | | At December 31, 2020 MFD had no deferred tax liabilities. As of December 31, 2020, the total amounts of accrued interest (net of the federal tax benefit) and penalties reported in accounts payable and accrued expenses were \$1,724, and the total amounts of interest (net of the federal tax benefit) and penalties reported in due to Parent and its affiliates were \$1,556. The Company, through its Parent and affiliates tax filing requirements described in Note B ("tax filing requirements"), is subject to federal income tax as well as state income tax in multiple jurisdictions. Also, through these tax filing requirements, the Company is generally no longer subject to income tax examinations relating to originally filed returns with the U.S. federal, state or local tax authorities for fiscal years prior to 2015. Finally, through its tax filing requirements, the Company is under perpetual federal audit and occasional state andit. The Company has recognized a tax benefit only for those positions that more likely than not recognition threshold, as described in Note B. #### I. IMPACT OF COVID-19 The Company's revenue and results of operations are largely dependent on the composition and magnitude of assets under management of its Parent for its equity and debt portfolios. Therefore, fluctuations in global equity and debt markets and net sales of products may change the composition of assets under management, impacting the Company's revenues and operating results. Although the COVID-19 pandemic did create market volatility in 2020, it did not materially impact the Company's business. The impact it may have on the global markets in the future, if any, cannot be reasonably determined. However, the Company is satisfied that business continuity plans in place will continue to address any potential operational risks. # J. SUBSEQUENT EVENTS The Company has evaluated events and transactions the date the financial statement was issued and determined that there are no material events or transactions which require adjustment to, or disclosure in the financial statement. 安水流水地安 Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.