[LOGO] ANNUAL REPORT FOR
THE FIRST NAME IN MUTUAL FUNDS YEAR ENDED
FEBRUARY 28, 1995
MFS(R) GOVERNMENT SECURITIES FUND
A 6 1/4" by 8 1/4" photo of a house.
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<TABLE>
<CAPTION>
MFS(R) GOVERNMENT SECURITIES FUND
<S> <C>
TRUSTEES CUSTODIAN
A. Keith Brodkin* - Chairman and President State Street Bank and Trust Company
Richard B. Bailey* - Private Investor; AUDITORS
Former Chairman and Director (until 1991), Deloitte & Touche LLP
Massachusetts Financial Services Company
INVESTOR INFORMATION
Peter G. Harwood - Former Financial Vice For MFS stock and bond market outlooks,
President, Treasurer and Director (until 1988), call toll-free: 1-800-637-4458 anytime from
Loomis, Sayles & Co., Inc. a touch-tone telephone.
J. Atwood Ives - Chairman and Chief Executive For information on MFS mutual funds,
Officer, Eastern Enterprises call your financial adviser or, for an
information kit, call toll-free:
Lawrence T. Perera - Partner, Hemenway & Barnes 1-800-637-2929 any business day from
9 a.m. to 5 p.m. Eastern time (or leave
William J. Poorvu - Adjunct Professor, Harvard a message anytime).
University Graduate School of Business
Administration INVESTOR SERVICE
MFS Service Center, Inc.
Charles W. Schmidt - Private Investor; P.O. Box 2281
Former Senior Vice President and Group Executive Boston, MA 02107-9906
(until 1990), Raytheon Company
For current account service, call toll free:
Arnold D. Scott* - Senior Executive Vice President 1-800-225-2606 any business day from
and Secretary, Massachusetts Financial Services Company 8 a.m. to 8 p.m. Eastern time.
Jeffrey L. Shames* - President and Chief Equity For service to speech- or hearing-impaired,
Officer, Massachusetts Financial Services Company call toll free: 1-800-637-6576 any business
day from 9 a.m. to 5 p.m. Eastern time. (To use
Elaine R. Smith - Independent Consultant this service, your phone must be equipped
with a Telecommunications Device for the Deaf.)
David B. Stone - Chairman, North American
Management Corp. (Investment Advisers) For share prices, account balances and
exchanges, call toll free: 1-800-MFS-TALK
INVESTMENT ADVISER (1-800-637-8255) anytime from a touch-tone
Massachusetts Financial Services Company telephone.
500 Boylston Street
Boston, Massachusetts 02116-3741
PORTFOLIO MANAGER
Steven E. Nothern*
TREASURER TOP-RATED SERVICE
W. Thomas London* MFS was rated first when securities firms
evaluated the quality of service they receive
ASSISTANT TREASURER from 40 mutual fund companies. MFS got high
James O. Yost* marks for answering calls quickly, processing
transactions accurately and sending
SECRETARY statements out on time.
Stephen E. Cavan* (Source: 1994 DALBAR Survey)
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
Cover photo: Through their wide range of
investments, MFS mutual funds help you
*Affiliated with the Investment Adviser share in America's growth.
</TABLE>
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
The past year exposed the underlying risks involved in many of the more
aggressive investment strategies that had provided such impressive investment
returns during the recent period of declining interest rates. Conservative
investors in U.S. government and mortgage-backed securities were, however, able
to achieve positive, although modest, returns for the year. As the Federal
Reserve Board doubled the federal funds rate, from 3% to 6%, interest rates
across all maturities rose significantly. Two-year U.S. Treasury yields, which
were 4.67% at the end of March 1994, increased to 6.90% by the end of February
1995. Yields on 10-year Treasuries increased from 6.30% to 7.35% over the same
period. In terms of investment results, an investment in two-year Treasuries
would have provided a total return of +3.23% for the 12 months ended February
28, 1995, while an investment in 10-year Treasuries would have produced a total
return of -1.04%. During this same period, Class A shares of the Fund provided a
total return of +1.21% (including the reinvestment of distributions but
excluding the effects of any sales charges), exceeding the -0.10% average return
of the general U.S. government funds tracked by Lipper Analytical Services, Inc.
(an independent firm which reports mutual fund performance), and in line with
the +1.84% return of the Lehman Brothers Government/Mortgage Index, an index
comprised of Treasuries, agencies, and all agency mortgages (FNMA, Freddie Mac
and GNMA). The government portion of the Lehman Index returned +1.33%, while the
mortgage portion returned +2.76%. The Fund's Class B shares had a total return
of +0.57% (including the reinvestment of distributions but excluding the effects
of any sales charges) over the same 12-month period.
Economic Outlook
The economic expansion, entering its fifth year, gained firmer underpinnings in
1994 as employers significantly stepped up hiring levels. Increased employment,
stronger capital spending by businesses, and strengthening overseas economies
resulted in 4% real (adjusted for inflation) gross domestic product growth last
year. Interest rates rose substantially over the past year, which should help
restrain, but not curtail, the economic expansion. Based on sound economic
fundamentals both here and abroad, we expect the business expansion to continue
well into 1995.
Interest Rates
Despite a stronger economy, inflation at the consumer level has remained
relatively benign at 2.7% in 1994, the fourth straight year of 3.0% or less. Due
to a prolonged period of below-trend-line growth and continued pressure on
corporations to emphasize effective cost controls, wage growth and unit labor
costs have remained subdued. However, as the economy has exhibited continuing
strength, various industrial commodity prices have been rising substantially
faster than consumer prices. Nevertheless, businesses have had difficulty
passing these price increases on to the consumer. With the economy continuing to
expand, we expect some upward movement in inflation from below 3% to the 3 1/2%
range. The Federal Reserve has shown a willingness to raise short-term rates to
slow the economy in order to dampen inflationary pressures. Most recently, it
raised the federal funds rate 50 basis points (0.50%) after a 75 basis-point
(0.75%) increase in November. We do not expect the central bank to raise
short-term rates in the near term for domestic policy reasons unless it
concludes that current efforts have failed to dampen inflationary expectations.
Recent significant weakness in the dollar versus the deutsche mark and yen could
prompt the Federal Reserve to raise short-term rates in an effort to prevent
further declines in the value of the U.S. currency. However, we believe the
potential recessionary implications of further short-term rate increases will
constrain Federal Reserve action.
We believe fundamentals are favorable for lower long-term rates in 1995, but
that further declines in rates may not occur until after the dollar stabilizes
in world currency markets.
<PAGE>
LETTER TO SHAREHOLDERS - continued
Portfolio Performance and Strategy
Since our last report, dated August 31, 1994, we have modestly increased the
interest rate sensitivity of the portfolio, reduced holdings of cash and
securities with maturities of one year or less, and modestly increased the
portfolio's exposure to mortgage-backed and U.S. government agency securities.
Final consumption demand is moderating as we enter 1995. In typical late-
cycle fashion, interest-sensitive sectors of the economy are slowing in response
to the sustained Federal Reserve tightening of monetary policy. In contrast,
investment-related and export-oriented activities are expanding. These
crosscurrents are typical of late-cycle expansion, and we do not believe they
foreshadow a sharp slowdown in economic activity or recession. For this reason,
we believe it continues to be appropriate to maintain a somewhat cautious
outlook for the U.S. fixed-income market. There remains a significant risk that,
following a brief lull in economic activity in early 1995, households will
rebuild sufficient liquidity to fuel a further rebound in the economy. Such a
rebound would likely trigger further interest rate increases by the Federal
Reserve.
Mortgage and agency holdings remain a significant portion of the Fund and
both made positive contributions to performance during the past year. Mortgage
holdings were increased and now are approximately 48% of the Fund's total net
assets; government agency holdings are about 21%. These sectors continue to
benefit from favorable supply technicals as mortgage refinancings, which can
have an adverse impact on returns, have remained subdued. Our strategy has been
to limit our exposure to mortgages with significant extension risk, but we will
continue to modestly increase our holdings in this sector in order to benefit
from the attractive incremental yields these securities offer relative to the
yields available from U.S. Treasury securities (although principal value and
interest on Treasury securities are guaranteed by the U.S.
government if held to maturity).
Currently, the Fund has approximately 5% more interest rate sensitivity than
the Lehman Index and is slightly overweighted in the mortgage and agency
sectors. Given the uncertainties regarding the future course of Federal Reserve
action, we anticipate maintaining this posture over the near term.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
- --------------------------- ---------------------------
A 1 1/2 inch by 1 5/8 inch A 1 1/2 inch by 1 5/8 inch
photo of A. Keith Brodkin, photo of Steven E. Nothern,
Chairman and President. Portfolio Manager.
- --------------------------- ---------------------------
A. Keith Brodkin Steven E. Nothern
Chairman and President Portfolio Manager
March 9, 1995
<PAGE>
PORTFOLIO MANAGER PROFILE
Steven Nothern began his career at MFS in 1986 in the Fixed Income Department. A
graduate of Middlebury College and Boston University's Graduate School of
Management, he was named Assistant Vice President in 1987, Vice President in
1989 and Senior Vice President in 1993. Mr. Nothern has served as Portfolio
Manager of MFS Government Securities Fund since 1992.
OBJECTIVE AND POLICIES
The Fund seeks to provide current income and preservation of capital.
The Fund seeks to achieve its objective by investing in debt obligations that
are issued or guaranteed as to principal and interest by the U.S. government,
its agencies, authorities or instrumentalities.* Such debt obligations include
U.S. Treasury bills, notes and bonds and direct pass-through certificates of the
Government National Mortgage Association (GNMA), as well as other U.S.
government securities that are not backed by the full faith and credit of the
U.S. government.
*The U.S. government guarantee does not apply to shares of the Fund, which will
fluctuate with changes in market conditions.
TAX FORM SUMMARY
In January 1995, shareholders were mailed a Tax Form Summary reporting the
federal tax status of all distributions paid during the calendar year 1994.
PERFORMANCE
The information below and on the following page illustrates the historical
performance of MFS Government Securities Fund Class A shares in comparison to
various market indicators. Fund results reflect the deduction of the 4.75%
maximum sales charge; benchmark comparisons are unmanaged and do not reflect any
fees or expenses. You cannot invest in an index. All results reflect the
reinvestment of all dividends and capital gains.
Please note that effective August 30, 1993, Class B shares were offered.
Information on Class B share performance appears on the next page.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT (For the 5-Year Period Ended
February 28, 1995)
Line graph representing the growth of a $10,000 investment for the 5-year period
ended February 28, 1995. The graph is scaled from $8,000 to $18,000 in $2,000
segments. The years are marked from 1990 to 1995. There are three lines drawn to
scale. One is a solid line representing MFS Government Securities Fund (Class
A), a second line of short dashes represents the Lehman Brothers
Government/Mortgage Index, and a third line of long dashes represents the
Consumer Price Index.
MFS Government Securities Fund (Class A) $14,021
Lehman Brothers Government/Mortgage Index $15,129
Consumer Price Index $11,789
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT (For the 10-Year Period Ended
February 28, 1995)
-------------------------
Line graph representing the growth of a $10,000 investment for the 10-year
period ended February 28, 1995. The graph is scaled from $5,000 to $30,000 in
$5,000 segments. The years are marked from 1985 to 1995. There are three lines
drawn to scale. One is a solid line representing MFS Government Securities Fund
(Class A), a second line of short dashes represents the Lehman Brothers
Government/Mortgage Index, and a third line of long dashes represents the
Consumer Price Index.
MFS Government Securities Fund (Class A) $21,302
Lehman Brothers Government/Mortgage Index $26,524
Consumer Price Index $14,242
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------
MFS Government Securities Fund (Class A)
including 4.75% sales charge -3.62% +4.41% +6.99% + 7.86%
- ------------------------------------------------------------------------------
MFS Government Securities Fund (Class A)
at net asset value +1.21% +6.13% +8.05% + 8.38%
- ------------------------------------------------------------------------------
MFS Government Securities Fund (Class B)
with CDSC+ -3.20% -- -- - 2.93%*
- ------------------------------------------------------------------------------
MFS Government Securities Fund (Class B)
without CDSC +0.57% -- -- - 0.49%*
- ------------------------------------------------------------------------------
Average general U.S. government fund -0.10% +5.34% +7.64% + 8.83%
- ------------------------------------------------------------------------------
Lehman Brothers Government/Mortgage
Index +1.84% +6.19% +8.63% +10.25%
- ------------------------------------------------------------------------------
Consumer Price Index(S) +2.86% +2.87% +3.35% + 3.60%
- ------------------------------------------------------------------------------
* For the period from the commencement of offering of Class B shares, August
30, 1993 to February 28, 1995.
+ These returns reflect the current maximum Class B contingent deferred sales
charge (CDSC) of 4%.
(S) The Consumer Price Index is a popular measure of change in prices.
In the above table, we have included the average annual total returns of all
general U.S. government funds (including the Fund) tracked by Lipper Analytical
Services, Inc. for the applicable time periods (147, 94, 80 and 18 funds for the
1-, 3-, 5- and 10-year periods ended February 28, 1995, respectively). Because
these returns do not reflect any applicable sales charges, we have also included
the Fund's results at net asset value (no sales charge) for comparison.
All results are historical and, therefore, are not an indication of future
results. The principal value and income return of an investment in a mutual fund
will vary with changes in market conditions, and shares, when redeemed, may be
worth more or less than their original cost.
All Fund results reflect the applicable expense subsidy which is explained in
the Notes to Financial Statements. Had the subsidy not been in effect, the
results would have been less favorable. The subsidy may be rescinded at any
time.
<PAGE>
PORTFOLIO OF INVESTMENTS - February 28, 1995
Bonds - 98.3%
- -----------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation - 7.0%
FHLMC, 7s, 1999 $18,632 $ 18,428,781
FHLMC, 9s, 2001 - 2006 3,437 3,566,276
FHLMC, 8.5s, 2024 7,465 7,567,268
------------
$ 29,562,325
- -----------------------------------------------------------------------------
Federal National Mortgage Association, 15 Year - 11.9%
FNMA, 7.5s, 2007 $ 121 $ 120,289
FNMA, 8.46s, 2002 5,776 5,891,628
FNMA, 8.5s, 2000 - 2010 34,395 35,233,223
FNMA, 9s, 2001 - 2006 9,155 9,497,893
------------
$ 50,743,033
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Financing Corporation - 12.4%
FICO, 10.7s, 2017 $20,790 $ 26,708,705
FICO, 9.8s, 2018 16,500 19,701,990
FICO, 10.35s, 2018 5,000 6,251,550
------------
$ 52,662,245
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Government National Mortgage Association - 32.9%
GNMA, 7s, 2007 - 2024 $34,749 $ 33,192,206
GNMA, 8s, 2006 - 2009 14,880 15,019,644
GNMA, 8.5s, 2001 - 2024 13,109 13,452,621
GNMA, 9s, 2010 - 2017 15,701 16,294,624
GNMA, 10s, 2025 29,546 31,817,417
GNMA, 10.5s, 2025 9,900 10,778,625
GNMA, 11s, 2009 - 2011 11,672 12,850,778
GNMA, 11.5s, 2010 - 2019 2,155 2,382,122
GNMA, 12s, 2019 1,151 1,283,142
GNMA, 12.5s, 2011 1,377 1,548,989
GNMA, GPM I, 10.75s, 2016 37 41,605
GNMA, GPM II, 10.75s, 2015 - 2016 419 450,417
GNMA, GPM II, 12s, 2013 - 2014 23 25,424
------------
$139,137,614
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Small Business Administration - 8.2%
SBA, 10.35s, 1997 $ 3,925 $ 4,107,527
SBA, 9.9s, 2008 1,359 1,477,207
SBA, 9.05s, 2009 2,746 2,884,308
SBA, 9.1s, 2009 3,663 3,858,066
SBA, 10.05s, 2009 1,678 1,838,157
SBA, 9.25s, 2010 3,664 3,892,845
SBA, 9.3s, 2010 5,287 5,627,300
SBA, 9.5s, 2010 358 386,301
SBA, 9.65s, 2010 1,893 2,044,328
SBA, 9.7s, 2010 1,715 1,854,863
SBA, 8.625s, 2011 4,351 4,502,358
SBA, 8.8s, 2011 2,203 2,303,029
------------
$ 34,776,289
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<PAGE>
PORTFOLIO OF INVESTMENTS - continued
Bonds - continued
- -----------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------
U.S. Treasury Obligations - 25.9%
U.S. Treasury Notes, 11.25s, 1995 $ 9,500 $ 9,599,465
U.S. Treasury Notes, 7.375s, 1996 2,500 2,521,100
U.S. Treasury Notes, 8.875s, 1996 27,000 27,590,490
U.S. Treasury Notes, 7.5s, 2005 15,000 15,300,000
U.S. Treasury Bonds, 10.375s, 2012 7,600 9,358,716
U.S. Treasury Bonds, 9.875s, 2015 31,500 38,996,055
U.S. Treasury Bonds, 8.875s, 2017 5,500 6,249,375
------------
$109,615,201
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Total Bonds (Identified Cost, $420,307,577) $416,496,707
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Repurchase Agreement - 0.4%
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Prudential Bache Securities, Inc., dated
2/28/95, due 3/01/95, total to be received
$1,500,239 (secured by U.S. Treasury Bond,
6.25s, due 8/15/23, market value $1,530,102),
at Cost and Value $ 1,500 $ 1,500,000
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Total Investments (Identified Cost, $421,807,577) $417,996,707
Other Assets, Less Liabilities - 1.3% 5,297,651
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Net Assets - 100.0% $423,294,358
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See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
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February 28, 1995
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $421,807,577) $417,996,707
Cash 301,686
Receivable for investments sold 10,129,779
Receivable for Fund shares sold 405,634
Interest receivable 5,860,353
Other assets 12,634
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Total assets $434,706,793
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Liabilities:
Payable for investments purchased $ 10,640,625
Payable for Fund shares reacquired 366,285
Payable to affiliates -
Management fee 4,810
Shareholder servicing agent fee 5,751
Distribution and service fee 181,299
Accrued expenses and other liabilities 213,665
------------
Total liabilities $ 11,412,435
------------
Net assets $423,294,358
------------
Net assets consist of:
Paid-in capital $470,072,306
Unrealized depreciation on investments (3,810,870)
Accumulated net realized loss on investments (44,071,390)
Accumulated undistributed net investment income 1,104,312
------------
Total $423,294,358
------------
Shares of beneficial interest outstanding 45,894,669
------------
Class A shares:
Net asset value and redemption price per share
(net assets of $318,116,482 / 34,487,112 shares of
beneficial interest outstanding) $9.22
----
Offering price per share (100/95.25) $9.68
----
Class B shares:
Net asset value, redemption price, and offering price per share
(net assets of $105,177,876 / 11,407,557 shares of
beneficial interest outstanding) $9.22
----
On sales of $100,000 or more, the offering price of Class A shares is reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A and
Class B shares.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
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Year Ended February 28, 1995
- --------------------------------------------------------------------------------
Net investment income:
Interest income $ 34,800,084
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Expenses -
Management fee $ 1,735,790
Trustees' compensation 45,344
Shareholder servicing agent fee (Class A) 498,225
Shareholder servicing agent fee (Class B) 222,761
Distribution and service fee (Class A) 1,162,526
Distribution and service fee (Class B) 1,012,551
Custodian fee 147,445
Postage 63,757
Auditing fees 57,065
Printing 37,534
Legal fees 4,198
Miscellaneous 292,509
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Total expenses $ 5,279,705
Reduction of expenses by investment adviser (1,126,931)
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Net expenses $ 4,152,774
-------------
Net investment income $ 30,647,310
-------------
Realized and unrealized gain (loss) on investments:
Realized loss (identified cost basis) on
investment transactions $ (30,049,219)
Change in unrealized depreciation on investments 2,074,012
-------------
Net realized and unrealized loss on investments $ (27,975,207)
-------------
Increase in net assets from operations $ 2,672,103
-------------
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ---------------------------------------------------------------------------------------------------------------------
Year Ended Eleven Months Ended Year Ended
February 28, 1995 February 28, 1994 March 31, 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 30,647,310 $ 27,409,296 $ 25,212,150
Net realized gain (loss) on investments (30,049,219) 7,218,507 8,125,249
Net unrealized gain (loss) on investments 2,074,012 (20,312,273) 12,508,378
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Increase in net assets from operations $ 2,672,103 $ 14,315,530 $ 45,845,777
------------- ------------ -------------
Distributions declared to shareholders -
From net investment income (Class A) $ (23,920,995) $(22,125,805) $(25,196,648)
From net investment income (Class B) (6,552,834) (2,872,702) --
In excess of net investment income (Class A) -- (21,806) --
In excess of net investment income (Class B) -- (3,794) --
In excess of net realized gains -- (2,068,246) --
------------- ------------ -------------
Total distributions declared to shareholders $ (30,473,829) $(27,092,353) $(25,196,648)
------------- ------------ -------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 76,797,389 $112,899,565 $ 78,762,175
Net asset value of shares issued in connection with the
acquisition of MFS Lifetime Government Securities Fund -- 108,896,399 --
Net asset value of shares issued to shareholders in
reinvestment of distributions 18,466,757 16,329,990 14,890,413
Cost of shares reacquired (129,977,096) (96,274,862) (113,932,664)
------------- ------------ -------------
Increase (decrease) in net assets from
Fund share transactions $ (34,712,950) $141,851,092 $ (20,280,076)
------------- ------------ -------------
Total increase (decrease) in net assets $ (62,514,676) $129,074,269 $ 369,053
Net assets:
At beginning of period 485,809,034 356,734,765 356,365,712
------------- ------------ -------------
At end of period (including accumulated undistributed
(distributions in excess of) net investment income of
$1,104,312, $(25,600) and $1,746,130, respectively) $ 423,294,358 $485,809,034 $ 356,734,765
------------- ------------ -------------
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- ---------------------------------------------------------------------------------------------------
Eleven Months
Year Ended Ended Year Ended March 31,
February 28, February 28, --------------------------------------------
1995<F2> 1994<F2> 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------
Class A
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value -
beginning of period $ 9.79 $10.00 $ 9.43 $ 9.29 $ 9.10 $ 9.05 $ 9.56
------ ------ ------ ------ ------ ------ ------
Income from investment
operations -
Net investment
income# $ 0.67 $ 0.63 $ 0.67 $ 0.75 $ 0.78 $ 0.82 $ 0.86
Net realized and
unrealized gain
(loss) on
investments (0.58) (0.20) 0.60 0.14 0.19 0.04 (0.51)
------ ------ ------ ------ ------ ------ ------
Total from
investment
operations $ 0.09 $ 0.43 $ 1.27 $ 0.89 $ 0.97 $ 0.86 $ 0.35
------ ------ ------ ------ ------ ------ ------
Less distributions
declared to
shareholders -
From net investment
income $(0.66) $(0.58)<F3> $(0.70) $(0.75) $(0.78) $(0.81) $(0.86)
In excess of net
realized gains -- (0.06) -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Total
distributions
declared to
shareholders $(0.66) $(0.64) $(0.70) $(0.75) $(0.78) $(0.81) $(0.86)
------ ------ ------ ------ ------ ------ ------
Net asset value -
end of period $ 9.22 $ 9.79 $10.00 $ 9.43 $ 9.29 $ 9.10 $ 9.05
------ ------ ------ ------ ------ ------ ------
Total return<F4> 1.21% 6.57% 13.94% 9.96% 11.13% 9.72% 3.84%
Ratios (to average net assets)/Supplemental data<F5>:
Expenses 0.79% 0.68%<F1> 1.20% 1.25% 1.28% 1.29% 1.40%
Net investment
income 7.24% 6.83%<F1> 7.18% 7.95% 8.56% 8.81% 9.25%
Portfolio turnover 385% 167% 264% 270% 95% 260% 346%
Net assets at end of
period (000 omitted) $318,116 $372,702 $356,735 $356,366 $323,612 $327,877 $348,617
<FN>
<F1> Annualized.
<F2> Per share data subsequent to and including February 28, 1994 is based on average shares outstanding.
<F3> Amount includes distribution in excess of net investment income of less than $0.001 per share for the period indicated.
<F4> Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
<F5> The investment adviser did not impose a portion of its fee for the periods indicated. If this fee had been incurred by the
Fund, the net investment income per share and the ratios would have been:
Net investment
income $ 0.65 $ 0.59 -- -- -- -- --
Ratios (to
average net
assets):
Expenses 1.05% 1.17%<F1> -- -- -- -- --
Net investment
income 6.98% 6.34%<F1> -- -- -- -- --
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Year Ended March 31, Year Ended Period Ended
-------------------------------------- February 28, February 28,
1988 1987 1986 1985<F1> 1995<F4> 1994<F2><F4>
- --------------------------------------------------------------------------------------------------------------------------
Class A Class B
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value -
beginning of period $10.22 $10.53 $ 9.95 $ 9.53 $ 9.78 $10.16
------ ------ ------ ------ ------ ------
Income from investment operations -
Net investment income<F7> $ 0.87 $ 0.94 $ 1.07 $ 0.66 $ 0.59 $ 0.30
Net realized and unrealized gain
(loss) on investments (0.59) (0.20) 0.68 0.33 (0.56) (0.43)
------ ------ ------ ------ ------ ------
Total from investment operations $ 0.28 $ 0.74 $ 1.75 $ 0.99 $ 0.03 $ (0.13)
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.88) $(0.94) $(1.08) $(0.57) $(0.59) $(0.25)<F5>
In excess of net realized gains (0.06) (0.11) (0.09) -- -- --
------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $(0.94) $(1.05) $(1.17) $(0.57) $(0.59) $(0.25)
------ ------ ------ ------ ------ ------
Net asset value - end of period $ 9.56 $10.22 $10.53 $ 9.95 $ 9.22 $ 9.78
------ ------ ------ ------ ------ ------
Total return<F6> 3.11% 7.48% 18.70% 15.52%<F3> 0.57% (1.29)%
Ratios (to average net assets)/Supplemental data<F7>:
Expenses 1.18% 1.18% 1.09% 1.29%<F3> 1.51% 1.39%<F3>
Net investment income 9.10% 9.14% 10.43% 11.26%<F3> 6.52% 5.92%<F3>
Portfolio turnover 417% 191% 128% 158% 385% 167%
Net assets at end of period
(000 omitted) $397,239 $487,975 $343,270 $130,699 $105,178 $113,107
<FN>
<F1> For the period from the commencement of investment operations, July 25, 1984 to March 31, 1985.
<F2> For the period from the commencement of offering of Class B shares, August 30, 1993 to February 28, 1994.
<F3> Annualized.
<F4> Per share data subsequent to and including February 28, 1994 is based on average shares outstanding.
<F5> Amount includes distribution in excess of net investment income of less than $0.001 per share for the period indicated.
<F6> Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the
results would have been lower.
<F7> The investment adviser did not impose a portion of its fee for the periods indicated. If this fee had been incurred by
the Fund, the net investment income per share and the ratios would have been:
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Net investment
income -- -- -- -- $ 0.57 $ 0.28
Ratios (to
average net
assets):
Expenses -- -- -- -- 1.77% 1.87%<F1>
Net investment
income -- -- -- -- 6.26% 5.44%<F1>
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Government Securities Fund (the Fund) is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company.
(2) Significant Accounting Policies
Investment Valuations - Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues, are valued on the basis of
valuations furnished by dealers or by a pricing service with consideration to
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other market data, without exclusive reliance upon exchange or
over-the-counter prices. Short-term obligations, which mature in 60 days or
less, are valued at amortized cost, which approximates value. Securities for
which there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Trustees.
Repurchase Agreements - The Fund may enter into repurchase agreements with
institutions that the Fund's investment adviser has determined are creditworthy.
Each repurchase agreement is recorded at cost. The Fund requires that the
securities purchased in a repurchase transaction be transferred to the custodian
in a manner sufficient to enable the Fund to obtain those securities in the
event of a default under the repurchase agreement. The Fund monitors, on a daily
basis, the value of the securities transferred to ensure that the value,
including accrued interest, of the securities under each repurchase agreement is
greater than amounts owed to the Fund under each such repurchase agreement.
Security Loans - The Fund may lend its securities to member banks of the Federal
Reserve System and to member firms of the New York Stock Exchange or
subsidiaries thereof. The loans are collateralized at all times by cash or
securities with a market value at least equal to the market value of securities
loaned. As with other extensions of credit, the Fund may bear the risk of delay
in recovery or even loss of rights in the collateral should the borrower of the
securities fail financially. The Fund receives compensation for lending its
securities in the form of fees or from all or a portion of the income from
investment of the collateral. The Fund would also continue to earn income on the
securities loaned. At February 28, 1995, the Fund had no securities on loan.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
original issue discount are amortized or accreted for both financial statement
and tax reporting purposes as required by federal income tax regulations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code which may differ from generally accepted accounting principles, the basis
on which these financial statements are prepared. Accordingly, the amount of net
investment income and net realized gain reported on these financial statements
may differ from that reported on the Fund's tax return and, consequently, the
character of distributions to shareholders reported in the financial highlights
may differ from that reported to shareholders on Form 1099-DIV. Distributions to
shareholders are recorded on the ex-dividend date.
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
The Fund distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a return of
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains. During the year ended February 28, 1995, $1,659,258 was reclassified from
accumulated undistributed net investment income to accumulated net realized loss
on investments due to differences between book and tax accounting for
mortgage-backed securities and $2,615,689 was reclassified from paid-in capital
to accumulated undistributed net investment income because of distributions in
excess of tax requirements. These changes had no effect on the net assets or net
asset value per share. Significant temporary differences between cumulative book
and tax distributions at February 28, 1995 include capital losses deferred for
tax purposes which were recognized for book purposes.
Multiple Classes of Shares of Beneficial Interest - The Fund offers both Class A
and Class B shares. The two classes of shares differ in their respective
shareholder servicing agent, distribution and service fees. Shareholders of each
class also bear certain expenses that pertain only to that particular class. All
shareholders bear the common expenses of the Fund pro rata, based on the average
daily net assets of each class, without distinction between share classes.
Dividends are declared separately for each class. No class has preferential
dividend rights; differences in per share dividend rates are generally due to
differences in separate class expenses, including distribution and shareholder
service fees.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee, computed daily and paid monthly at an amount equal to the lower
of a) 0.40% of average net assets on an annualized basis, or b) 0.25% of average
daily net assets on an annualized basis and 3.40% of investment income, amounted
to $1,735,790 for the year ended February 28, 1995. The investment adviser did
not impose a portion of its fee ($1,126,931) which is reflected as a reduction
of expenses in the Statement of Operations, for the year ended February 28,
1995. The Fund pays no compensation directly to its Trustees who are officers of
the investment adviser, or to officers of the Fund, all of whom receive
remuneration for their services to the Fund from MFS. Certain of the officers
and Trustees of the Fund are officers or directors of MFS, MFS Fund
Distributors, Inc. (MFD) and MFS Service Center, Inc. (MFSC). The Fund has an
unfunded defined benefit plan for all of its independent Trustees. Included in
Trustees' compensation is a net periodic pension expense of $15,347 for the year
ended February 28, 1995.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$75,367 as its portion of the sales charge on sales of Class A shares of the
Fund. The Trustees have adopted separate distribution plans for Class A and
Class B shares, pursuant to Rule 12b-1 of the Investment Company Act of 1940, as
follows:
The Class A Distribution Plan provides that the Fund will pay MFD up to 0.35% of
its average daily net assets attributable to Class A shares annually in order
that MFD may pay expenses on behalf of the Fund related to the distribution and
servicing of its shares. These expenses include a service fee to each securities
dealer that enters into a sales agreement with MFD of up to 0.25% per annum of
the Fund's average daily net assets attributable to Class A shares which are
attributable to that securities dealer, a distribution fee to MFD of up to 0.10%
per annum of the Fund's average daily net assets attributable to Class A shares,
commissions to dealers and payments to MFD wholesalers for sales at or above a
certain dollar level, and other such distribution-related expenses that are
approved by the Fund. Fees incurred under the distribution plan during the year
ended February 28, 1995 were 0.35% of average daily net assets attributable to
Class A shares on an annualized basis and amounted to $1,162,526 (of which MFD
retained $382,567).
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
The Class B Distribution Plan provides that the Fund will pay MFD a monthly
distribution fee, equal to 0.75% per annum, and a quarterly service fee of up to
0.25% per annum, of the Fund's average daily net assets attributable to Class B
shares. MFD will pay to each securities dealer that enters into a sales
agreement with MFD all or a portion of the service fee attributable to Class B
shares. The service fee is intended to be additional consideration for services
rendered by the dealer with respect to Class B shares. Fees incurred under the
distribution plan during the year ended February 28, 1995 were 1.00% of average
daily net assets attributable to Class B shares on an annualized basis and
amounted to $1,012,551.
A contingent deferred sales charge is imposed on shareholder redemptions of
Class A shares, on purchases of $1 million or more, in the event of a
shareholder redemption within twelve months following the share purchase. A
contingent deferred sales charge may be imposed on shareholder redemptions of
Class B shares in the event of a shareholder redemption within six years of
purchase. MFD receives all contingent deferred sales charges. Contingent
deferred sales charges imposed during the year ended February 28, 1995 were
$371,474 for Class B shares. No contingent deferred sales charges were imposed
on Class A shares during the year ended February 28, 1995.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earned
$498,225 and $222,761 for Class A and Class B shares, respectively, for its
services as shareholder servicing agent. The fee is calculated as a percentage
of the average daily net assets of each class of shares at an effective annual
rate of up to 0.15% and up to 0.22% attributable to Class A and Class B shares,
respectively.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions and
short-term obligations, aggregated $1,482,153,976 and $1,502,197,467,
respectively.
The cost and unrealized appreciation or depreciation in value of the investments
owned by the Fund, as computed on a federal income tax basis, are as follows:
Aggregate cost $425,305,703
------------
Gross unrealized depreciation $(11,715,608)
Gross unrealized appreciation 4,406,612
------------
Net unrealized depreciation $ (7,308,996)
------------
At February 28, 1995, the Fund, for federal income tax purposes, had a capital
loss carry- forward of $35,035,838, which may be applied against any net taxable
realized gains of each succeeding year until the earlier of its utilization or
expiration on February 28, 1997 ($10,822,527), February 28, 1998 ($2,369,461),
February 28, 1999 ($1,124,097) and February 28, 2003 ($20,719,753).
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
<TABLE>
Class A Shares
<CAPTION>
Year Ended Eleven Months Ended Year Ended
February 28, 1995 February 28, 1994 March 31, 1993
--------------------------------- -------------------------------- ---------------------------------
Shares Amount Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 3,766,026 $ 34,652,633 8,142,874 $ 81,720,272 8,133,487 $ 78,762,175
Shares issued to
shareholders in
reinvestment of
distributions 1,546,361 14,188,551 1,433,391 14,349,158 1,543,674 14,890,413
Shares reacquired (8,908,608) (82,026,936) (7,156,406) (71,727,861) (11,819,292) (113,932,664)
------------- --------------- ------------ --------------- ------------- ---------------
Net increase (decrease) (3,596,221) $ (33,185,752) 2,419,859 $ 24,341,569 (2,142,131) $ (20,280,076)
------------- --------------- ------------ --------------- ------------- ---------------
Class B Shares
<CAPTION>
Year Ended Period Ended
February 28, 1995 February 28, 1994<F1>
--------------------------------- --------------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 4,578,868 $ 42,144,756 3,103,206 $ 31,179,293
Shares issued in
connection with the
acquisition of MFS
Lifetime Government
Securities Fund -- -- 10,714,377 108,896,399
Shares issued to
shareholders in
reinvestment of
distributions 466,207 4,278,206 198,192 1,980,832
Shares reacquired (5,201,800) (47,950,160) (2,451,493) (24,547,001)
------------- --------------- ------------ ---------------
Net increase (decrease) (156,725) $ (1,527,198) 11,564,282 $ 117,509,523
------------- --------------- ------------ ---------------
<FN>
<F1> For the period from the commencement of offering of Class B shares, August
30, 1993 to February 28, 1994.
</TABLE>
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS, or an affiliate of MFS, in an unsecured line of credit
with a bank which permits borrowings up to $350 million, collectively.
Borrowings may be made to temporarily finance the repurchase of Fund shares.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the bank's base rate. In addition, a commitment fee, based on the average daily
unused portion of the line of credit, is allocated among the participating funds
at the end of each quarter. The commitment fee allocated to the Fund for the
year ended February 28, 1995 was $6,727.
(7) Acquisitions
At close of business on August 27, 1993, the Fund acquired all of the assets and
liabilities of MFS Lifetime Government Securities Fund. The acquisition was
accomplished by a tax-free exchange of 10,714,377 Class B shares of the Fund
(valued at $108,896,399) for the 10,801,830 shares of MFS Lifetime Government
Securities Fund outstanding at the close of business on August 27, 1993. MFS
Lifetime Government Securities Fund's net assets on that date ($108,896,399
including $2,291,466 of unrealized appreciation), were combined with those of
the Fund. The aggregate net assets of the Fund and MFS Lifetime Government
Securities Fund immediately before the acquisition were $392,873,654 and
$108,896,399, respectively. The combined net assets immediately after the
acquisition were $501,770,053.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders of MFS Government Securities Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Government Securities Fund as of February
28, 1995, the related statement of operations for the year then ended, the
statement of changes in net assets for the year ended February 28, 1995, the
eleven months ended February 28, 1994 and the year ended March 31, 1993, and the
financial highlights for the year ended February 28, 1995, the eleven months
ended February 28, 1994 and each of the years in the nine-year period ended
March 31, 1993. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
February 28, 1995 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Government
Securities Fund at February 28, 1995, the results of its operations, the changes
in its net assets, and its financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 31, 1995
---------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
<PAGE>
THE MFS FAMILY OF FUNDS(R)
America's Oldest Mutual Fund Group
The members of the MFS Family of Funds are grouped below according to the types
of securities in their portfolios. For free prospectuses containing more
complete information, including the exchange privilege and all charges and
expenses, please contact your financial adviser or call the MFS Service Center
at 1-800-225-2606 any business day from 8 a.m. to 8 p.m. Eastern time. This
material should be read carefully before investing or sending money.
<TABLE>
<CAPTION>
STOCK LIMITED MATURITY BOND
<S> <C>
Massachusetts Investors Trust MFS(R) Government Limited Maturity Fund
Massachusetts Investors Growth Stock Fund MFS(R) Limited Maturity Fund
MFS(R) Capital Growth Fund MFS(R) Municipal Limited Maturity Fund
MFS(R) Emerging Growth Fund WORLD
MFS(R) Gold & Natural Resources Fund MFS(R) World Asset Allocation Fund
MFS(R) Growth Opportunities Fund MFS(R) World Equity Fund
MFS(R) Managed Sectors Fund MFS(R) World Governments Fund
MFS(R) OTC Fund MFS(R) World Growth Fund
MFS(R) Research Fund MFS(R) World Total Return Fund
MFS(R) Value Fund NATIONAL TAX-FREE BOND
STOCK AND BOND MFS(R) Municipal Bond Fund
MFS(R) Total Return Fund MFS(R) Municipal High Income Fund
MFS(R) Utilities Fund (closed to new investors)
BOND MFS(R) Municipal Income Fund
MFS(R) Bond Fund STATE TAX-FREE BOND
MFS(R) Government Mortgage Fund Alabama, Arkansas, California, Florida,
MFS(R) Government Securities Fund Georgia, Louisiana, Maryland, Massachusetts,
MFS(R) High Income Fund Mississippi, New York, North Carolina,
MFS(R) Intermediate Income Fund Pennsylvania, South Carolina Tennessee, Texas,
MFS(R) Strategic Income Fund Virginia, Washington, West Virginia
(formerly MFS(R) Income & Opportunity Fund) MONEY MARKET
MFS(R) Cash Reserve Fund
MFS(R) Government Money Market Fund
MFS(R) Money Market Fund
</TABLE>
<PAGE>
MFS(R) GOVERNMENT [LOGO] BULK RATE
SECURITIES FUND U.S. POSTAGE
P A I D
500 Boylston Street PERMIT # 55638
Boston, MA 02116 BOSTON, MA
[LOGO]
THE FIRST NAME IN MUTUAL FUNDS
MGS-2 4/95 37M 26/226
