<PAGE>
MFS GOVERNMENT SECURITIES FUND
SUPPLEMENT TO THE JULY 1, 1995 STATEMENT OF ADDITIONAL INFORMATION
MANAGEMENT OF THE TRUST
As of February 29, 1996, all Trustees and officers as a group owned less than
1% of the outstanding shares of the Fund. Also as of February 29, 1996,
Merrill Lynch, Pierce, Fenner & Smith, Inc., P.O. Box 45286, Jacksonville,
Florida, was the record owner of 6.93% of the outstanding Class B shares of
the Fund.
INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
The Portfolio of Investments at August 31, 1995, the Statement of Assets and
Liabilities at August 31, 1995, the Statement of Operations for the six months
ended August 31, 1995, the Statement of Changes in Net Assets for the six
months ended August 31, 1995 and for the year ended February 28, 1995, the
Notes to the Financial Statements and the Independent Auditors' Report, each
of which is included in the Semiannual Report to shareholders, are
incorporated by reference into this Supplement in reliance upon the report of
Deloitte & Touche LLP, independent auditors, given upon their authority as
experts in accounting and auditing. A copy of the Semiannual Report is
attached to this Supplement.
THE DATE OF THIS SUPPLEMENT IS APRIL 1, 1996.
<PAGE>
<PAGE>
[logo] MFS(SM) Semiannual Report
THE FIRST NAME IN MUTUAL FUNDS August 31, 1995
MFS(R) GOVERNMENT SECURITIES FUND
(A picture of two men sitting at a window.)
<PAGE>
MFS(R) GOVERNMENT SECURITIES FUND
<TABLE>
<S> <C>
TRUSTEES CUSTODIAN
A. Keith Brodkin<F1> - Chairman and President State Street Bank and Trust Company
Richard B. Bailey<F1> - Private Investor; AUDITORS
Former Chairman and Director (until 1991), Deloitte & Touche LLP
Massachusetts Financial Services Company
INVESTOR INFORMATION
Peter G. Harwood - Private Investor For MFS stock and bond market outlooks,
call toll free: 1-800-637-4458 anytime from
J. Atwood Ives - Chairman and Chief Executive a touch-tone telephone.
Officer, Eastern Enterprises
For information on MFS mutual funds,
Lawrence T. Perera - Partner, call your financial adviser or, for an
Hemenway & Barnes information kit, call toll free:
1-800-637-2929 any business day from
William J. Poorvu - Adjunct Professor, Harvard 9 a.m. to 5 p.m. Eastern time (or leave
University Graduate School of Business a message anytime).
Administration
INVESTOR SERVICE
Charles W. Schmidt - Private Investor MFS Service Center, Inc.
P.O. Box 2281
Arnold D. Scott<F1> - Senior Executive Vice Boston, MA 02107-9906
President and Secretary, Massachusetts
Financial Services Company For general information, call toll free:
1-800-225-2606 any business day from
Jeffrey L. Shames<F1> - President, Massachusetts 8 a.m. to 8 p.m. Eastern time.
Financial Services Company For service to speech- or hearing-impaired,
call toll free: 1-800-637-6576 any business
Elaine R. Smith - Independent Consultant day from 9 a.m. to 5 p.m. Eastern time.
(To use this service, your phone must be equipped with a
David B. Stone - Chairman, North American Telecommunications Device for the Deaf.)
Management Corp. (Investment Adviser)
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 telephone.
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116-3741
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116-3741
PORTFOLIO MANAGER
Steven E. Nothern<F1>
TREASURER
W. Thomas London<F1>
ASSISTANT TREASURER
James O. Yost<F1>
SECRETARY
Stephen E. Cavan<F1>
ASSISTANT SECRETARY
James R. Bordewick, Jr.<F1>
<FN>
<F1>Affiliated with the Investment Adviser
</TABLE>
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
The fixed-income market staged a strong rebound during the six-month period
ended August 31, 1995. The Federal Reserve Board ended its year-long string of
tightening steps last February and held policy steady through the spring. The
Federal Reserve subsequently lowered the federal funds rate 25 basis points
(0.25%) to 5.75% on July 6, citing the reduced threat of inflation. The fixed-
income market responded positively to this, as well as to signs of economic
slowdown and evidence that inflation pressures remain moderate. Two-year U.S.
Treasury yields, which were at 6.90% at the end of February 1995, declined to
5.85% by the end of August, while yields on 10-year Treasuries declined from
7.20% to 6.29%. In terms of investment results, an investment in two-year
Treasuries would have provided a total return of +4.81%, while an investment
in 10-year Treasuries would have produced a total return of +9.67%. Treasury
securities, if held to maturity, offer a fixed rate of return. The Fund, which
seeks to provide investors with current income and preservation of capital,
was an active participant in the rally. During this period, Class A shares of
the Fund provided a total return of +8.22%, while the total return on Class B
shares was +7.80%. Both of these returns assume the reinvestment of
distributions but exclude the effects of any sales charges. Complete
performance information for the Fund is provided on page four of this report.
Economic Outlook
Moderate, but sustainable growth appears to be the hallmark of the economic
expansion's fifth year. After slowing earlier in the summer, consumer spending
and homebuying were showing renewed strength by August 31, while businesses
continued to work off excess inventories and reduce factory output. Meanwhile,
overseas economies, particularly those of Germany and Japan, have not
recovered as expected, limiting U.S. export growth. However, we believe the
Federal Reserve's consistent and, so far, successful efforts to fight
inflation seem to be giving consumers and businesses enough confidence to help
maintain 2 1/2% to 3% real (adjusted for inflation) growth in gross domestic
product, at least through 1995.
Interest Rates
Although the Federal Reserve implemented a one-quarter percentage point
decrease in short-term interest rates in July, the effects of its seven rate
increases, which began in early 1994 and ended in February of this year, are
still being felt throughout the economy. While there have been some increases
in commodity prices, companies have not been able to pass along most of those
higher costs, partly because of the need to keep fighting for market share,
but also because wages and benefits of U.S. workers are still growing at a
pace that is near or perhaps below the inflation rate, limiting consumer
buying power. At the end of July, the nation's employment cost index had risen
at a rate of just 2.80% over the previous year, helping to contain cost
pressures. At the same time, however, the bond markets have apparently become
convinced that economic growth will be contained for the near future and have
allowed long-term interest rates to decline slightly. Although previous
monetary easing by the Federal Reserve has been followed by additional rate
reductions, prospects for further decreases in the current environment are
uncertain. Still, with long-term government bonds yielding 6.60%, in an
environment of 2 1/2% to 3% inflation, real rates of return in the fixed-
income markets remain relatively attractive.
Portfolio Performance and Strategy
During the past six months, we have increased the overall interest rate
sensitivity of the portfolio seeking to benefit from opportunities for capital
appreciation. The portfolio duration is currently 6.1 years, approximately
equivalent to an eight-year Treasury in overall interest rate sensitivity and
approximately 35% greater in duration than an unmanaged government-sector
index. Keep in mind, principal value and interest on Treasury securities are
guaranteed by the U.S. government if held to maturity. We anticipate
maintaining this exposure because a continued positive outlook for the bond
market is suggested by several investment themes. Inflation remains well
contained at a relatively low 2 1/2% to 3% level. Real interest rates are high
by historical standards, with inflation-adjusted federal funds 1% greater than
the long-term average of 1.80%; such high rates will limit how much growth in
domestic product can rebound. Also, the Federal Reserve has begun what should
be a sustained easing process, bringing the federal funds rate to the 4 1/2%
to 5% range. Meanwhile, unit labor costs are increasing very slowly, and
capacity utilization rates are declining. And finally, the dollar rebound will
limit import price inflation. Many of these positive themes, however, will
take a long time to play out.
With regard to the Fund's investments, our ability to invest in agencies,
Treasuries and mortgage-backed securities within a range of maturities has
proven helpful in this rapidly changing environment. The Fund remains
substantially invested in government-sponsored or agency securities, as we are
able to add attractive incremental yield to the portfolio in this sector.
Government guarantees apply only to the underlying securities held in the
portfolio and not to prices of shares held in a managed portfolio. The Fund's
mortgage-sector exposure, however, was reduced to approximately 35%, or about
neutral to an unmanaged government-securities index, as assets were
reallocated to intermediate-maturity Treasuries.
The mortgage-backed pass-through securities holdings consist of mostly 30-
year issues. These securities have a price sensitivity comparable to five-year
Treasuries, with yield spreads of 1.00% to 1.30% greater than comparable
Treasury issues. The mortgage market has been an attractive segment recently
given the wide yield spreads, low levels of issuance, and good call
protection, and we will likely increase exposure to this sector in the next
few months. The Fund will, however, continue to adhere to its policy of
avoiding any exposure to the more volatile mortgage-derivative securities.
As always, we will maintain our commitment to providing competitive and
consistent returns over the long term. We appreciate your support and welcome
any questions or comments you may have.
Respectfully,
- ---------------------- --------------------------
A photo of A. Keith Brodkin, A photo of Steven E. Nothern,
Chairman and President. Portfolio Manager
- ---------------------- --------------------------
/s/ A. Keith Brodkin /s/ Steven E. Nothern
A. Keith Brodkin Steven E. Nothern
Chairman and President Portfolio Manager
September 12, 1995
<PAGE>
PERFORMANCE SUMMARY
Because mutual funds like MFS Government Securities Fund are designed for
investors with long-term goals, we have provided cumulative results as well as
the average annual total returns for Class A and Class B shares for the
applicable time periods.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
Class A Investment Results
(net asset value change including reinvested distributions)
6 Months 1 Year 5 Years 10 Years
- -----------------------------------------------------------------------
Cumulative
Total Return* +8.22% +11.49% +54.37% +119.57%
- -----------------------------------------------------------------------
Average Annual
Total Return* -- +11.49% + 9.07% + 8.18%
- -----------------------------------------------------------------------
The average annual total returns, calculated for the period ended as of the
most recent calendar quarter as required by the Securities and Exchange
Commission (the SEC), with all distributions reinvested and reflecting the
maximum sales charge of 4.75% on the initial investment for the 1-, 5- and 10-
year periods ended June 30, 1995, were +7.03%, +7.79% and +7.82%,
respectively.
Class B Investment Results
(net asset value change including reinvested distributions)
8/30/93(+)-
6 Months 1 Year 8/31/95
- ------------------------------------------------------------------------
Cumulative Total Return(+)(+) + 7.80% +10.64% + 7.00%
- ------------------------------------------------------------------------
Average Annual Total Return(+)(+) -- +10.64% + 3.44%
- ------------------------------------------------------------------------
The average annual total returns, calculated for the period ended as of the
most recent calendar quarter as required by the SEC, with all distributions
reinvested and reflecting the current maximum contingent deferred sales charge
(CDSC) of 4% for the 1-year period ended June 30, 1995 and for the period from
August 30, 1993(+) to June 30, 1995, were +7.50% and +1.27%, respectively.
All results represent past performance and are not necessarily an indication
of future results. Investment return and principal value will fluctuate, 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 by MFS at any
time.
* These results do not include the sales charge. If the charge had been
included, the results would have been lower.
(+) Commencement of offering of this class of shares.
(+)(+) These results do not include any CDSC. If the charge had been included,
the results would have been lower.
<PAGE>
PORTFOLIO OF INVESTMENTS - August 31, 1995
Bonds - 97.9%
- -----------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation - 0.7%
FHLMC, 9s, 2001 - 2006 $ 2,953 $ 3,078,843
- -----------------------------------------------------------------------------
Federal National Mortgage Association - 12.0%
FNMA, 8.46s, 2002 $ 5,758 $ 6,069,565
FNMA, 8.5s, 2001 - 2010 32,952 22,598,438
FNMA, 9s, 2001 - 2007 8,336 8,701,063
FNMA, 9.5s, 2024 - 2025 13,938 14,661,284
--------------
$ 52,030,350
- -----------------------------------------------------------------------------
Financing Corporation - 13.1%
FICO, 10.7s, 2017 $20,790 $ 28,950,075
FICO, 9.8s, 2018 16,500 21,336,480
FICO, 10.35s, 2018 5,000 6,782,050
--------------
$ 57,068,605
- -----------------------------------------------------------------------------
Government National Mortgage Association - 26.4%
GNMA, 7s, 2023 - 2025 $39,259 $ 38,584,411
GNMA, 7.5s, 2022 - 2024 7,478 7,520,487
GNMA, 8.5s, 2001 - 2009 11,533 12,012,144
GNMA, 9s, 2004 - 2010 28,103 29,499,135
GNMA, 10.5s, 2020 8,958 9,878,996
GNMA, 10.75s, 2015 - 2016 396 431,980
GNMA, 11s, 2009 - 2020 10,574 11,797,064
GNMA, 11.5s, 2010 - 2013 1,938 2,186,717
GNMA, 12s, 2013 - 2015 1,041 1,172,653
GNMA, 12.5s, 2011 1,240 1,401,071
--------------
$ 114,484,658
- -----------------------------------------------------------------------------
Small Business Administration - 7.7%
SBA, 10.35s, 1997 $ 2,440 $ 2,578,323
SBA, 9.9s, 2008 1,301 1,470,091
SBA, 9.05s, 2009 2,649 2,907,951
SBA, 9.1s, 2009 3,578 3,941,513
SBA, 10.05s, 2009 1,526 1,740,152
SBA, 9.25s, 2010 3,572 3,971,428
SBA, 9.3s, 2010 5,096 5,690,036
SBA, 9.5s, 2010 343 386,241
SBA, 9.65s, 2010 1,682 1,899,657
SBA, 9.7s, 2010 1,604 1,814,089
SBA, 8.625s, 2011 4,275 4,647,691
SBA, 8.8s, 2011 2,129 2,339,310
--------------
$ 33,386,482
- -----------------------------------------------------------------------------
U.S. Treasury Obligations - 38.0%
U.S. Treasury Notes, 7.5s, 1999 $20,500 $ 21,553,905
U.S. Treasury Notes, 9.125s, 1999 12,000 13,209,360
U.S. Treasury Notes, 6.125s, 2000 10,000 10,017,189
U.S. Treasury Notes, 6.25s, 2000 13,500 13,601,250
U.S. Treasury Notes, 6.25s, 2003 6,000 5,993,460
U.S. Treasury Bonds, 10.75s, 2005 15,000 19,741,350
U.S. Treasury Bonds, 9.875s, 2015 35,500 47,692,120
U.S. Treasury Bonds, 7.125s, 2023 27,500 28,716,050
U.S. Treasury Bonds, 7.625s, 2025 4,000 4,456,880
--------------
$ 164,981,564
- -----------------------------------------------------------------------------
Total Bonds (Identified Cost, $419,709,401) $ 425,030,502
- -----------------------------------------------------------------------------
Repurchase Agreement - 0.7%
- -----------------------------------------------------------------------------
Prudential Bache Securities, Inc., dated
8/31/95, due 9/01/95, total to be
received $2,769,441 (secured by U.S.
Treasury Note, 6.875s, due 3/31/97,
market value $2,831,950),
at Cost and Value $ 2,769 $ 2,769,000
- -----------------------------------------------------------------------------
Total Investments (Identified Cost, $422,478,401) $ 427,799,502
Other Assets, Less Liabilities - 1.4% 6,164,934
- -----------------------------------------------------------------------------
Net Assets - 100.0% $ 433,964,436
- -----------------------------------------------------------------------------
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
August 31, 1995
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $422,478,401) $ 427,799,502
Receivable for investments sold 10,770,684
Receivable for Fund shares sold 501,350
Interest receivable 5,856,206
Other assets 11,592
--------------
Total assets $ 444,939,334
--------------
Liabilities:
Cash overdraft $ 34,489
Payable for investments purchased 10,070,448
Payable for Fund shares reacquired 448,221
Payable to affiliates -
Management fee 2,235
Shareholder servicing agent fee 1,984
Distribution fee 187,639
Accrued expenses and other liabilities 229,882
--------------
Total liabilities $ 10,974,898
--------------
Net assets $ 433,964,436
==============
Net assets consist of:
Paid-in capital $ 462,347,050
Unrealized appreciation on investments 5,321,101
Accumulated net realized loss on investments (34,858,767)
Accumulated undistributed net investment income 1,155,052
--------------
Total $ 433,964,436
==============
Shares of beneficial interest outstanding 45,088,952
==============
Class A shares:
Net asset value and redemption price per share
(net assets of $318,316,255 / 33,062,465 shares of
beneficial interest outstanding) $ 9.63
======
Offering price per share (100/95.25) $10.11
======
Class B shares:
Net asset value and offering price per share
(net assets of $115,648,181 / 12,026,487 shares of
beneficial interest outstanding) $ 9.62
======
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
- ------------------------------------------------------------------------------
Six Months Ended August 31, 1995
- ------------------------------------------------------------------------------
Net investment income:
Interest income $17,105,261
-----------
Expenses -
Management fee $ 864,594
Trustees' compensation 16,376
Shareholder servicing agent fee (Class A) 240,164
Shareholder servicing agent fee (Class B) 120,435
Distribution and service fee (Class A) 560,382
Distribution and service fee (Class B) 547,433
Custodian fee 53,004
Postage 50,123
Printing 32,343
Auditing fees 29,900
Legal fees 2,828
Miscellaneous 124,369
-----------
Total expenses $ 2,641,951
Preliminary reduction of expenses by investment adviser (454,656)
-----------
Net expenses $ 2,187,295
-----------
Net investment income $14,917,966
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (identified cost basis) on investment
transactions $ 9,212,623
Change in unrealized appreciation on investments 9,131,971
-----------
Net realized and unrealized gain on investments $18,344,594
-----------
Increase in net assets from operations $33,262,560
===========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------
Six Months
Ended Year Ended
August 31, 1995 February 28, 1995
- ------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment income $ 14,917,966 $ 30,647,310
Net realized gain (loss) on
investments 9,212,623 (30,049,219)
Net unrealized gain on investments 9,131,971 2,074,012
------------ ------------
Increase in net assets from
operations $ 33,262,560 $ 2,672,103
------------ ------------
Distributions declared to shareholders -
From net investment income (Class A) $(11,325,946) $(23,920,995)
From net investment income (Class B) (3,541,280) (6,552,834)
------------ ------------
Total distributions declared to
shareholders $(14,867,226) $(30,473,829)
------------ ------------
Fund share (principal) transactions -
Net proceeds from sales of shares $ 51,472,178 $ 76,797,389
Net asset value of shares issued to
shareholders in reinvestment of
distributions 9,127,803 18,466,757
Cost of shares reacquired (68,325,237) (129,977,096)
------------ ------------
Decrease in net assets from Fund
share transactions $ (7,725,256) $(34,712,950)
------------ ------------
Total increase (decrease) in net
assets $ 10,670,078 $(62,514,676)
Net assets:
At beginning of period 423,294,358 485,809,034
------------ ------------
At end of period (including
accumulated undistributed
(distributions in excess of) net
investment income of $1,155,052,
$1,104,312 and $(25,600),
respectively) $433,964,436 $423,294,358
============ ============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------
Six Eleven
Months Ended Year Ended Months Ended Year Ended March 31,
August 31, February 28, February 28, -----------------------------------------
1995 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 9.22 $ 9.79 $10.00 $ 9.43 $ 9.29 $ 9.10
------ ------ ------ ------ ------ ------
Income from investment operations<F3> -
Net investment income<F6> $ 0.34 $ 0.67 $ 0.63 $ 0.67 $ 0.75 $ 0.78
Net realized and unrealized
gain (loss) on investments 0.40 (0.58) (0.20) 0.60 0.14 0.19
------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.74 $ 0.09 $ 0.43 $ 1.27 $ 0.89 $ 0.97
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $(0.33) $(0.66) $(0.58)<F4> $(0.70) $(0.75) $(0.78)
In excess of net realized
gain on investments -- -- (0.06) -- -- --
------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $(0.33) $(0.66) $(0.64) $(0.70) $(0.75) $(0.78)
------ ------ ------ ------ ------ ------
Net asset value - end of period $ 9.63 $ 9.22 $ 9.79 $10.00 $ 9.43 $ 9.29
====== ====== ====== ====== ====== ======
Total return<F5> 8.22%<F2> 1.21% 6.57% 13.94% 9.96% 11.13%
Ratios (to average net assets)/Supplemental data<F6>:
Expenses 0.83%<F1> 0.79% 0.68%<F1> 1.20% 1.25% 1.28%
Net investment income 7.07%<F1> 7.24% 6.83%<F1> 7.18% 7.95% 8.56%
Portfolio turnover 186% 385% 167% 264% 270% 95%
Net assets at end of period
(000 omitted) $318,316 $318,116 $372,702 $356,735 $356,366 $323,612
<FN>
<F1> Annualized.
<F2> Not annualized.
<F3> Per share data subsequent to and including February 28, 1994 is based on average shares outstanding.
<F4> Amount includes distribution in excess of net investment income of less than $0.001 per share for the period indicated.
<F5> 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.
<F6> The investment adviser did not impose a portion of its management 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 $ 0.33 $ 0.65 $ 0.59 -- -- --
Ratios (to average net assets):
Expenses 1.04%<F1> 1.05% 1.17%<F1> -- -- --
Net investment income 6.86%<F1> 6.98% 6.34%<F1> -- -- --
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ----------------------------------------------------------------------------------------------------------------------
Year Ended March 31, 1990 1989 1988 1987 1986 1985<F1>
- ----------------------------------------------------------------------------------------------------------------------
Class A
- ----------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C> <C>
Net asset value - beginning
of period $ 9.05 $ 9.56 $10.22 $10.53 $ 9.95 $ 9.53
------ ------ ------ ------ ------ ------
Income from investment operations -
Net investment income $ 0.82 $ 0.86 $ 0.87 $ 0.94 $ 1.07 $ 0.66
Net realized and
unrealized gain (loss) on
investments 0.04 (0.51) (0.59) (0.20) 0.68 0.33
------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.86 $ 0.35 $ 0.28 $ 0.74 $ 1.75 $ 0.99
------ ------ ------ ------ ------ ------
Less distributions declared
to shareholders -
From net investment income $(0.81) $(0.86) $(0.88) $(0.94) $(1.08) $(0.57)
From net realized gain on
investments -- -- (0.06) (0.11) (0.09) --
------ ------ ------ ------ ------ ------
Total distributions
declared to
shareholders $(0.81) $(0.86) $(0.94) $(1.05) $(1.17) $(0.57)
------ ------ ------ ------ ------ ------
Net asset value - end of period $ 9.10 $ 9.05 $ 9.56 $10.22 $10.53 $ 9.95
====== ====== ====== ====== ====== ======
Total return<F3> 9.72% 3.84% 3.11% 7.48% 18.70% 15.52%<F2>
Ratios (to average net assets)/Supplemental data:
Expenses 1.29% 1.40% 1.18% 1.18% 1.09% 1.29%<F2>
Net investment income 8.81% 9.25% 9.10% 9.14% 10.43% 11.26%<F2>
Portfolio turnover 260% 346% 417% 191% 128% 158%
Net assets at end of period
(000 omitted) $327,877 $348,617 $397,239 $487,975 $343,270 $130,699
<FN>
<F1> For the period from the commencement of investment operations, July 25, 1984 to March 31, 1985.
<F2> Annualized.
<F3> 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.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ------------------------------------------------------------------------------------------------
Six
Months Ended Year Ended Period Ended
August 31, February 28, February 28,
1995 1995 1994<F1>
- ------------------------------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 9.22 $ 9.78 $10.16
------ ------ ------
Income from investment operations<F4> -
Net investment income<F6> $ 0.30 $ 0.59 $ 0.30
Net realized and unrealized gain
(loss) on investments 0.41 (0.56) (0.43)
------ ------ ------
Total from investment operations $ 0.71 $ 0.03 $(0.13)
------ ------ ------
Less distributions declared to shareholders
from net investment income $(0.31) $(0.59) $(0.25)<F5>
------ ------ ------
Net asset value - end of period $ 9.62 $ 9.22 $ 9.78
====== ====== ======
Total return 7.80%<F3> 0.57% (1.29)%<F3>
Ratios (to average net assets)/Supplemental data<F6>:
Expenses 1.54%<F2> 1.51% 1.39%<F2>
Net investment income 6.36%<F2> 6.52% 5.92%<F2>
Portfolio turnover 186% 385% 167%
Net assets at end of period (000 omitted) $115,648 $105,178 $113,107
<FN>
<F1> For the period from the commencement of offering of Class B shares, August 30, 1993 to February 28, 1994.
<F2> Annualized.
<F3> Not annualized.
<F4> Per share data 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> The investment adviser did not impose a portion of its management 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 $ 0.29 $ 0.57 $ 0.28
Ratios (to average net assets):
Expenses 1.75%<F2> 1.77% 1.87%<F2>
Net investment income 6.15%<F2> 6.26% 5.44%<F2>
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
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 market
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.
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 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.
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.
At February 28, 1995, the Fund, for federal income tax purposes, had a capital
loss carryforward 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).
Multiple Classes of Shares of Beneficial Interest - The Fund offers Class A
and Class B shares. The two classes of shares differ in their respective
shareholder servicing agent, distribution and service fees. 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.
(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 is 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. The investment adviser did not impose a portion of its fee, which is
reflected as a preliminary reduction of expenses in the Statement of
Operations. 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 and Mr.
Bailey. Included in Trustees' compensation is a net periodic pension expense
of $6,026 for the six months ended August 31, 1995.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$52,452 for the six months ended August 31, 1995, 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 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. MFD retains the
service fee for accounts not attributable to a securities dealer which
amounted to $39,205 for the six months ended August 31, 1995. Fees incurred
under the distribution plan during the six months ended August 31, 1995 were
0.35% of average daily net assets attributable to Class A shares on an
annualized basis.
The Class B distribution plan provides that the Fund will pay MFD a
distribution fee of 0.75% per annum, and a 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 securities dealers that enter 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. MFD retains the service fee for
accounts not attributable to a securities dealer, which amounted to $15,643,
for Class B shares for the six months ended August 31, 1995. Fees incurred
under the distribution plan during the six months ended August 31, 1995 were
1.00% of average daily net assets attributable to Class B shares on an
annualized basis.
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 is 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 six months ended August 31, 1995
were $937 and $159,854 for Class A and Class B shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee 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 short-term obligations,
aggregated $787,999,860 and $807,940,472, 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 $422,478,401
============
Gross unrealized appreciation $ 8,609,203
Gross unrealized depreciation (3,288,102)
------------
Net unrealized appreciation $ 5,321,101
============
(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:
<TABLE>
<CAPTION>
Class A Shares
Six Months Ended Year Ended
August 31, 1995 February 28, 1995
--------------------------------- ---------------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,439,015 $ 23,160,850 3,766,026 $ 34,652,633
Shares issued to shareholders in
reinvestment
of distributions 730,261 6,858,558 1,546,361 14,188,551
Shares reacquired (4,593,923) (43,517,177) (8,908,608) (82,026,936)
-------------- ---------------- -------------- ----------------
Net decrease (1,424,647) $ (13,497,769) (3,596,221) $ (33,185,752)
============== ================ ============== ================
<CAPTION>
Class B Shares
Six Months Ended Year Ended
August 31, 1995 February 28, 1995
--------------------------------- ---------------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 3,003,832 $ 28,311,328 4,578,868 $ 42,144,756
Shares issued to shareholders in
reinvestment
of distributions 241,847 2,269,245 466,207 4,278,206
Shares reacquired (2,626,749) (24,808,060) (5,201,800) (47,950,160)
-------------- ---------------- -------------- ----------------
Net increase (decrease) 618,930 $ 5,772,513 (156,725) $ (1,527,198)
============== ================ ============== ================
</TABLE>
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by 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 six months ended
August 31, 1995 was $2,734.
<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 August 31, 1995, the related statement of operations for the six months
then ended, the statements of changes in net assets for the six months then
ended and the year ended February 28, 1995, and the financial highlights for
the six months ended August 31, 1995, 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 August 31, 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 August 31, 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
October 6, 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>
MFS(R)
GOVERNMENT ---------------
SECURITIES BULK RATE
FUND U.S. POSTAGE
PAID
500 Boylston Street PERMIT #55638
Boston, MA 02116 BOSTON, MA
---------------
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THE FIRST NAME IN MUTUAL FUNDS
MGS-3-10/95 29.5M 26/226
