<PAGE>
[LOGO] M F S(SM) Semiannual Report
INVESTMENT MANAGEMENT August 31, 1997
MFS(R) GOVERNMENT SECURITIES FUND
[GRAPHIC OMITTED]
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Portfolio Manager's Overview .............................................. 2
Portfolio Manager's Profile ............................................... 4
Portfolio Concentration ................................................... 4
Fund Facts ................................................................ 5
Performance Summary ....................................................... 5
Portfolio of Investments .................................................. 7
Financial Statements ...................................................... 9
Notes to Financial Statements ............................................. 19
Trustees and Officers ..................................................... 25
HIGHLIGHTS
o FOR THE SIX MONTHS ENDED AUGUST 31, 1997, CLASS A SHARES OF THE FUND
PROVIDED A TOTAL RETURN AT NET ASSET VALUE OF 4.16%, CLASS B SHARES 3.82%,
CLASS C SHARES 3.71%, AND CLASS I SHARES 4.34%. (SEE PERFORMANCE SUMMARY
FOR MORE INFORMATION.)
o IN AN ENVIRONMENT OF FAIRLY STABLE INTEREST RATES, YIELDS ON TWO-YEAR U.S.
TREASURY SECURITIES, WHICH WERE AT 6.09% AT THE END OF FEBRUARY 1997, EASED
MODESTLY TO 5.96% BY THE END OF AUGUST, WHILE YIELDS ON 10-YEAR TREASURIES
DECLINED FROM 6.55% TO 6.34%.
o THE FUND'S PORTFOLIO DURATION (OR MEASURE OF INTEREST-RATE SENSITIVITY) IS
CURRENTLY 4.4 YEARS, APPROXIMATELY EQUIVALENT TO THAT OF A FIVE-YEAR
TREASURY AND TO ITS BENCHMARK INDEX AVERAGE.
o BEING SENSITIVE TO THE ROLE OF INFLATIONARY EXPECTATIONS AND TO THE FEDERAL
RESERVE BOARD'S NEED FOR CREDIBILITY IN THE PROCESS OF CONTROLLING
INFLATION, WE ANTICIPATE MAINTAINING A NEUTRAL-TO-DEFENSIVE INTEREST-RATE
EXPOSURE IN THE PORTFOLIO FOR THE NEXT SEVERAL MONTHS.
<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of A. Keith Brodkin]
Dear Shareholders:
An unprecedented combination of generally positive factors has helped the U.S.
economy enjoy a sustained period of relative stability and moderate growth in
which thousands of new jobs have been created every month, inflation remains
under control, and the investment climate -- at least until now -- has been
favorable. For example, the increased use of technology and other productivity
enhancements, as well as corporate restructuring and global competition, is
improving companies' balance sheets and helping control inflation. Meanwhile,
borrowing by corporations and governments continues to decline, while consumer
confidence is increasing, although consumer debt levels are still uncomfortably
high. While some lenders are beginning to tighten standards to address this
problem, consumer debt and personal bankruptcies continue to rise. The rapid
pace of growth seen in the first quarter slowed slightly in the second quarter,
to an annual rate of 3.3%. While real (inflation-adjusted) growth could moderate
further in the third quarter, we believe economic momentum will carry well into
the first quarter of 1998. The money supply is increasing at a rapid rate, the
housing and automobile markets are strengthening, and it now appears that
Christmas sales could be quite good. Because economic growth continues to be
impressive, markets are likely to begin focusing on the Federal Reserve Board's
(the Fed's) willingness to raise interest rates.
In the fixed-income markets, we have been encouraged by the Fed's decision at
its July meeting not to raise short-term interest rates. But we cannot rule out
the possibility of future monetary tightening in the second half of the year if,
as we now expect, the economy strengthens during the balance of 1997. Therefore,
our risk/reward outlook for the fixed-income markets is neutral, and we believe
that fixed-income investors should think in terms of earning the coupon income
from their investments rather than seeking possible gains from price
appreciation.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/ A. Keith Brodkin
- -------------------------
A. Keith Brodkin
Chairman and President
September 15, 1997
<PAGE>
PORTFOLIO MANAGER'S OVERVIEW
[Photo of Steven E. Nothern]
STEVEN E. NOTHERN
Dear Shareholders:
It is becoming increasingly apparent to many people that the business investment
boom the American economy is undergoing has enabled the economy to expand at
rates well above what the Fed believed was possible without putting upward
pressure on inflation. Although there is, as of yet, no sign of inflation
surfacing, there is also no sign of slowing growth. While an expectation of
slower growth ahead may have been a reason for the Fed's not raising interest
rates at recent meetings, mounting evidence that growth is not slowing suggests
it may yet feel compelled to exercise caution and nudge rates higher later in
the year or early next year. Given this possibility, the risks remain fairly
balanced, and interest rates have remained in a fairly narrow range. Yields on
two-year U.S. Treasury securities, which were at 6.09% at the end of February
1997, eased modestly to 5.96% by the end of August, while yields on 10-year
Treasuries declined from 6.55% to 6.34%. During this period, an investment in
two-year Treasuries would have provided a total return of 3.44%, while an
investment in 10-year Treasuries would have produced a total return of 4.73%.
(Principal value and interest on Treasury securities are guaranteed by the U.S.
government if held to maturity.)
In this environment, Class A shares of the Fund provided a total return of 4.16%
for the six months ended August 31, 1997, while Class B shares returned 3.82%,
Class C shares 3.71%, and Class I shares 4.34%. These returns, which include the
reinvestment of distributions but exclude the effects of any sales charges,
compare to a 4.50% return for the Lehman Brothers Government/Mortgage Index (the
Lehman Index), an unmanaged index of U.S. Treasury, government- agency, and
mortgage-backed securities. During the same period, the average government
securities fund as reported by Lipper Analytical Services, Inc., an independent
firm that reports mutual fund performance, returned 3.85%.
The Fund's portfolio duration (or measure of interest-rate sensitivity) is
currently 4.4 years, approximately equivalent to that of a five-year Treasury
and to the Lehman Index average. Our overall inflation outlook has not changed,
and we continue to see a structurally healthy economy, as opposed to one that is
overheating due to excess demand. Inflation pressures going forward look muted,
and we are unconvinced that the pickup in wages poses a clear inflation risk.
But we also remain sensitive to the role of inflationary expectations and to the
Fed's need for credibility in the process of controlling inflation. Especially
if the core Consumer Price Index were to show signs of tilting upward, the Fed
would likely feel compelled to tighten monetary conditions. Consequently, we
anticipate maintaining a neutral-to- defensive overall interest-rate exposure in
the portfolio for the next several months.
The portfolio continues to hold a substantial position in government-agency
mortgage-backed pass-through certificates. Yield spreads to Treasuries with
equivalent durations are approximately 1%, and we do not expect a major
refinancing wave to occur until yields on 10-year Treasuries significantly dip
below 6%. In spite of the downward movement in interest rates, several factors
that support high demand for these issues remain. First, mortgage prepayment
rates have been very stable, giving investors some comfort that the securities
will have a predictable yield. Second, these securities' yield spreads to
Treasuries have remained attractive, while spreads in competing sectors have
narrowed. Finally, U.S. government agencies such as the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation continue to
buy for their own portfolios, while foreign investors have become large
purchasers of Government National Mortgage Association issues.
The Fund remains substantially invested in government-sponsored or agency
securities, as we have been able to add attractive incremental yield to the
portfolio in this sector. The Fund's ability to invest in government-agency,
Treasury, and mortgage-backed securities within a range of maturities has proven
helpful in this rapidly changing environment. As always, we will maintain our
commitment to seek competitive and consistent returns over the long term.
Respectfully,
/s/ Steven E. Nothern
- --------------------------
Steven E. Nothern
Portfolio Manager
<PAGE>
PORTFOLIO MANAGER'S PROFILE
STEVEN E. NOTHERN JOINED MFS IN 1986 IN THE FIXED INCOME DEPARTMENT AND WAS
NAMED VICE PRESIDENT IN 1989 AND SENIOR VICE PRESIDENT IN 1993. A GRADUATE OF
MIDDLEBURY COLLEGE WITH A MASTER'S IN BUSINESS ADMINISTRATION DEGREE FROM
BOSTON UNIVERSITY, HE IS A CHARTERED FINANCIAL ANALYST AND A MEMBER OF THE
BOSTON SECURITY ANALYSTS SOCIETY. HE HAS MANAGED MFS() R GOVERNMENT
SECURITIES FUND SINCE 1991.
PORTFOLIO CONCENTRATION AS OF AUGUST 31, 1997
LARGEST SECTORS
Mortgage-Backed Securities 48.7%
Other Government Agencies 23.7%
U.S. Treasuries 19.9%
Cash and Cash Equivalence 7.7%
For a more complete breakdown, refer to the Portfolio of Investments.
FUND FACTS
OBJECTIVE: THE FUND'S INVESTMENT OBJECTIVE IS TO SEEK CURRENT
INCOME AND PRESERVATION OF CAPITAL.
COMMENCEMENT OF
INVESTMENT OPERATIONS: CLASS A SHARES: JULY 25, 1984
CLASS B SHARES: AUGUST 30, 1993
CLASS C SHARES: APRIL 1, 1996
CLASS I SHARES: JANUARY 2, 1997
SIZE: $398.8 MILLION NET ASSETS AS OF AUGUST 31, 1997
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, Class B, Class C, and Class I
shares for the applicable time periods.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN AS OF AUGUST 31, 1997
CLASS A INVESTMENT RESULTS
(net asset value change including reinvested distributions)
<TABLE>
<CAPTION>
6 Months 1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return +4.16% +9.16% +35.34% +114.50%
- --------------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +9.16% + 6.24% + 7.93%
- --------------------------------------------------------------------------------------------------------------------------------
SEC Results -- +3.99% + 5.22% + 7.41%
- --------------------------------------------------------------------------------------------------------------------------------
CLASS B INVESTMENT RESULTS
(net asset value change including reinvested distributions)
<CAPTION>
6 Months 1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return +3.82% +8.42% +31.57% +108.61%
- --------------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +8.42% + 5.64% + 7.63%
- --------------------------------------------------------------------------------------------------------------------------------
SEC Results -- +4.42% + 5.33% + 7.63%
- --------------------------------------------------------------------------------------------------------------------------------
CLASS C INVESTMENT RESULTS
(net asset value change including reinvested distributions)
<CAPTION>
6 Months 1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return +3.71% +8.37% +33.89% +112.32%
- --------------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +8.37% + 6.01% + 7.82%
- --------------------------------------------------------------------------------------------------------------------------------
SEC Results -- +7.37% + 6.01% + 7.82%
- --------------------------------------------------------------------------------------------------------------------------------
CLASS I INVESTMENT RESULTS
(net asset value change including reinvested distributions)
<CAPTION>
6 Months 1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return +4.34% +9.43% +35.73% +115.09%
- --------------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +9.43% + 6.30% + 7.96%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
All results are historical and assume the reinvestment of dividends and capital
gains. Investment return and principal value will fluctuate, and shares, when
redeemed, may be worth more or less than their original cost. Past performance
is no guarantee of future results.
Class A share SEC results include the maximum 4.75% sales charge. Class B share
SEC results reflect the applicable contingent deferred sales charge (CDSC),
which declines over six years as follows: 4%, 4%, 3%, 3%, 2%, 1%, 0%. Class C
shares have no initial sales charge but, along with Class B shares, have higher
annual fees and expenses than Class A shares. Class C share purchases are
subject to a 1% CDSC if redeemed within 12 months of purchase. Class I shares,
which became available on January 2, 1997, have no sales charge or Rule 12b-1
fees and are only available to certain institutional investors.
Class B and Class C share results include the performance and the operating
expenses (e.g., Rule 12b-1 fees) of the Fund's Class A shares for periods prior
to the commencement of offering of Class B and Class C shares. Because operating
expenses attributable to Class B and Class C shares are higher than those of
Class A shares, Class B and Class C share performance generally would have been
lower than Class A share performance. The Class A share performance included
within the Class B and Class C share SEC performance has been adjusted to
reflect the CDSC generally applicable to Class B and Class C shares rather than
the initial sales charge generally applicable to Class A shares.
Class I share results include the performance and the operating expenses (e.g.,
Rule 12b-1 fees) of the Fund's Class A shares for periods prior to the
commencement of offering of Class I shares. Because operating expenses
attributable to Class A shares are greater than those of Class I shares, Class I
share performance generally would have been higher than Class A share
performance. The Class A share performance included within the Class I share
performance has been adjusted to reflect the fact that Class I shares have no
initial sales charge.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Current subsidies and
waivers may be discontinued at any time.
<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED) - August 31, 1997
Bonds - 92.3%
- ----------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- ----------------------------------------------------------------------------
U.S. Federal Agencies - 27.7%
Federal National Mortgage Assn., 6.95s, 2006 $10,000 $ 9,984,400
Federal National Mortgage Assn., 7s, 2026 20,718 20,465,813
Federal National Mortgage Assn., 7.5s, 2003 11,618 11,907,968
Federal National Mortgage Assn., 8.46s, 2002 5,678 6,130,341
Financing Corp., 9.8s, 2018 16,500 21,609,885
Financing Corp., 10.35s, 2018 5,000 6,859,350
Financing Corp., 10.7s, 2017 20,790 29,248,827
Government Trust Certificates, 9.25s, 2001 4,000 4,241,993
------------
$110,448,577
- ----------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation - 10.0%
FHLMC, 7.5s, 2027 $39,498 $ 39,942,685
- ----------------------------------------------------------------------------
U.S. Government Guaranteed - 54.6%
Government National Mortgage Association - 26.5%
GNMA, 7s, 2022 - 2024 $18,850 $ 18,680,426
GNMA, 7.5s, 2002 - 2027 36,152 36,640,193
GNMA, 8s, 2026 - 2027 19,112 19,649,245
GNMA, 8.5s, 2001 - 2026 26,208 27,384,781
GNMA, 10.75s, 2015 - 2016 271 306,740
GNMA, 11.5s, 2010 - 2019 1,086 1,259,864
GNMA, 12s, 2013 - 2019 655 769,462
GNMA, 12.5s, 2011 821 971,678
------------
$105,662,389
- ----------------------------------------------------------------------------
Small Business Administration - 8.2%
SBA, 8.625s, 2011 $ 3,751 $ 3,995,773
SBA, 8.8s, 2011 1,839 1,976,517
SBA, 9.05s, 2009 2,080 2,225,223
SBA, 9.1s, 2009 2,809 3,014,189
SBA, 9.25s, 2010 2,754 2,978,901
SBA, 9.3s, 2010 4,280 4,657,557
SBA, 9.45s, 2010 6,569 7,146,160
SBA, 9.5s, 2010 274 299,073
SBA, 9.65s, 2010 1,375 1,507,064
SBA, 9.7s, 2010 1,315 1,441,190
SBA, 9.9s, 2008 1,079 1,178,027
SBA, 10.05s, 2008 - 2009 1,257 1,383,199
SBA, 10.35s, 1997 941 940,953
------------
$ 32,743,826
- ----------------------------------------------------------------------------
U.S. Treasury Obligations - 19.9%
U.S. Treasury Bonds, 12.375s, 2004 $10,650 $ 14,111,250
U.S. Treasury Bonds, 11.25s, 2015 12,475 18,387,028
U.S. Treasury Notes, 9.25s, 1998 21,000 21,662,760
U.S. Treasury Notes, 9.125s, 1999 10,000 10,504,700
U.S. Treasury Notes, 8.5s, 2000 14,000 14,767,760
------------
$ 79,433,498
- ----------------------------------------------------------------------------
Total U.S. Government Guaranteed $217,839,713
- ----------------------------------------------------------------------------
Total Bonds (Identified Cost, $365,375,731) $368,230,975
- ----------------------------------------------------------------------------
Repurchase Agreement - 6.7%
- ----------------------------------------------------------------------------
Investments in repurchase agreements with
Goldman Sachs, in a joint trading account
($351,286,000), dated 8/29/97, due 9/02/97,
total to be received $351,502,626,
collateralized by various U.S. Treasury and
federal agency obligations (with
$310,038,000 par and valued at
$351,286,195), at Cost $26,692 $ 26,692,000
- ----------------------------------------------------------------------------
Total Investments (Identified Cost, $392,067,731) $394,922,975
Other Assets, Less Liabilities - 1.0% 3,897,802
- ----------------------------------------------------------------------------
Net Assets - 100.0% $398,820,777
- ----------------------------------------------------------------------------
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- --------------------------------------------------------------------------------
AUGUST 31, 1997
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $392,067,731) $394,922,975
Cash 16
Receivable for Fund shares sold 199,513
Interest receivable 4,724,673
Other assets 3,751
------------
Total assets $399,850,928
------------
Liabilities:
Payable for Fund shares reacquired $ 634,489
Payable to affiliates -
Management fee 9,896
Administrative fee 495
Shareholder servicing agent fee 4,287
Distribution and service fee 198,428
Accrued expenses and other liabilities 182,556
------------
Total liabilities $ 1,030,151
------------
Net assets $398,820,777
============
Net assets consist of:
Paid-in capital $434,413,299
Unrealized appreciation on investments 2,855,244
Accumulated net realized loss on investments (38,728,964)
Accumulated undistributed net investment income 281,198
------------
Total $398,820,777
============
Shares of beneficial interest outstanding 42,090,448
==========
Class A shares:
Net asset value per share
(net assets of $282,725,083 / 29,829,559 shares of
beneficial interest outstanding) $9.48
=====
Offering price per share (100 / 95.25) $9.95
=====
Class B shares:
Net asset value and offering price per share
(net assets of $108,781,159 / 11,490,965 shares of
beneficial interest outstanding) $9.47
=====
Class C shares:
Net asset value and offering price per share
(net assets of $6,848,770 / 720,784 shares of
beneficial interest outstanding) $9.50
=====
Class I shares:
Net asset value, offering price and redemption
price per share (net assets of
$465,765 / 49,140 shares of beneficial
interest outstanding) $9.48
=====
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, Class
B, and Class C shares.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations (Unaudited)
- ------------------------------------------------------------------------------
SIX MONTHS ENDED AUGUST 31, 1997
- ------------------------------------------------------------------------------
Net investment income:
Interest income $ 15,205,192
------------
Expenses -
Management fee $ 824,602
Trustees' compensation 18,939
Shareholder servicing agent fee 266,404
Distribution and service fee (Class A) 509,656
Distribution and service fee (Class B) 557,293
Distribution and service fee (Class C) 33,442
Administrative fee 30,910
Custodian fee 82,222
Postage 36,895
Auditing fee 17,874
Legal fee 2,783
Miscellaneous 152,153
------------
Total expenses $ 2,533,173
Fees paid indirectly (71,030)
Preliminary reduction of expenses by investment adviser (225,063)
------------
Net expenses $ 2,237,080
------------
Net investment income $ 12,968,112
------------
Realized and unrealized gain (loss) on investments:
Realized loss (identified cost basis) on
investment transactions $ (1,223,425)
Change in unrealized appreciation on investments 4,204,771
------------
Net realized and unrealized gain on investments $ 2,981,346
------------
Increase in net assets from operations $ 15,949,458
============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ----------------------------------------------------------------------------------------------
SIX MONTHS ENDED
AUGUST 31, 1997 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 1997
- ----------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
<S> <C> <C>
Net investment income $ 12,968,112 $ 27,357,230
Net realized loss on investments (1,223,425) (16,888,266)
Net unrealized gain on investments 4,204,771 4,038,792
------------- -------------
Increase in net assets from operations $ 15,949,458 $ 14,507,756
------------- -------------
Distributions declared to shareholders -
From net investment income (Class A) $ (9,300,233) $ (19,813,814)
From net investment income (Class B) (3,209,811) (6,922,954)
From net investment income (Class C) (188,953) (177,171)
From net investment income (Class I) (15,957) (5,243)
------------- -------------
Total distributions declared to shareholders $ (12,714,954) $ (26,919,182)
------------- -------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 27,672,800 $ 78,440,786
Net asset value of shares issued to shareholders in
reinvestment of distributions 7,943,534 16,963,649
Cost of shares reacquired (54,692,359) (115,991,226)
------------- -------------
Decrease in net assets from Fund share transactions $ (19,076,025) $ (20,586,791)
------------- -------------
Total decrease in net assets $ (15,841,521) $ (32,998,217)
Net assets:
At beginning of period 414,662,298 447,660,515
------------- -------------
At end of period (including accumulated undistributed net
investment income of $281,198, and $28,040, respectively) $ 398,820,777 $ 414,662,298
============= =============
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- --------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
AUGUST 31, 1997 YEAR ENDED YEAR ENDED
(UNAUDITED) FEBRUARY 28, 1997 FEBRUARY 29, 1996
- --------------------------------------------------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C>
Net asset value - beginning of period $ 9.40 $ 9.67 $ 9.22
------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.31 $ 0.62 $ 0.66
Net realized and unrealized gain (loss) on
investments 0.07 (0.28) 0.45
------ ------ ------
Total from investment operations $ 0.38 $ 0.34 $ 1.11
------ ------ ------
Less distributions declared to shareholders
from net investment income $(0.30) $(0.61) $(0.66)
------ ------ ------
Net asset value - end of period $ 9.48 $ 9.40 $ 9.67
====== ====== ======
Total return(+) 4.16%++ 3.67% 12.29%
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.95%+ 0.91% 0.84%
Net investment income 6.52%+ 6.56% 6.83%
Portfolio turnover 81% 339% 352%
Net assets, end of period (000 omitted) $282,725 $293,286 $322,740
+ Annualized.
++ Not annualized.
# Per share data for the periods subsequent to February 28, 1994, are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid indirectly.
(+) 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.
(S) The investment adviser voluntarily waived 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 ratios would have been:
Net investment income $ 0.30 $ 0.61 $ 0.64
Ratios (to average net assets):
Expenses## 1.05%+ 1.06% 1.05%
Net investment income 6.42%+ 6.41% 6.62%
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- --------------------------------------------------------------------------------------------------------------------------
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED
FEBRUARY 28, 1995 FEBRUARY 28, 1994 MARCH 31, 1993
- --------------------------------------------------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C>
Net asset value - beginning of period $ 9.79 $10.00 $ 9.43
------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.67 $ 0.63 $ 0.67
Net realized and unrealized gain (loss) on
investments (0.58) (0.20) 0.60
------ ------ ------
Total from investment operations $ 0.09 $ 0.43 $ 1.27
------ ------ ------
Less distributions declared to shareholders -
From net investment income(++) $(0.66) $(0.58) $(0.70)
In excess of net realized gain on investments -- (0.06) --
------ ------ ------
Total distributions declared to shareholders $(0.66) $(0.64) $(0.70)
------ ------ ------
Net asset value - end of period $ 9.22 $ 9.79 $10.00
====== ====== ======
Total return(+) 1.21% 6.57%+ 13.94%
Ratios (to average net assets)/Supplemental data(S):
Expenses 0.79% 0.68%+ 1.20%
Net investment income 7.24% 6.83%+ 7.18%
Portfolio turnover 385% 167% 264%
Net assets, end of period (000 omitted) $318,116 $372,702 $356,735
+ Annualized.
# Per share data for the periods subsequent to February 28, 1994, are based on average shares outstanding.
(+) 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.
(++) Includes distributions in excess of net investment income of less than $0.001 per share for the eleven months ended February
28, 1994.
(S) The investment adviser voluntarily waived a portion of its management fee for certain of the periods indicated. If this fee
had been incurred by the Fund, the net investment income per share and ratios would have been:
Net investment income $ 0.65 $ 0.59 $ --
Ratios (to average net assets):
Expenses 1.05% 1.17%+ --
Net investment income 6.98% 6.34%+ --
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31, 1992 1991 1990 1989 1988 1987
- ------------------------------------------------------------------------------------------------------------------------------
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 $ 9.29 $ 9.10 $ 9.05 $ 9.56 $10.22 $10.53
------ ------ ------ ------ ------ ------
Income from investment operations -
Net investment income $ 0.75 $ 0.78 $ 0.82 $ 0.86 $ 0.87 $ 0.94
Net realized and unrealized
gain (loss) on investments 0.14 0.19 0.04 (0.51) (0.59) (0.20)
------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.89 $ 0.97 $ 0.86 $ 0.35 $ 0.28 $ 0.74
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $(0.75) $(0.78) $(0.81) $(0.86) $(0.88) $(0.94)
In excess of net realized gain
on investments -- -- -- -- (0.06) (0.11)
------ ------ ------ ------ ------ ------
Total distributions
declared to shareholders $(0.75) $(0.78) $(0.81) $(0.86) $(0.94) $(1.05)
------ ------ ------ ------ ------ ------
Net asset value - end of period $ 9.43 $ 9.29 $ 9.10 $ 9.05 $ 9.56 $10.22
====== ====== ====== ====== ====== ======
Total return(+) 9.96% 11.13% 9.72% 3.84% 3.11% 7.48%
Ratios (to average net assets)/
Supplemental data:
Expenses 1.25% 1.28% 1.29% 1.40% 1.18% 1.18%
Net investment income 7.95% 8.56% 8.81% 9.25% 9.10% 9.14%
Portfolio turnover 270% 95% 260% 346% 417% 191%
Net assets, end of period (000
omitted) $356,366 $323,612 $327,877 $348,617 $397,239 $487,975
(+) 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
AUGUST 31, 1997 YEAR ENDED YEAR ENDED
(UNAUDITED) FEBRUARY 28, 1997 FEBRUARY 29, 1996
- -------------------------------------------------------------------------------------------------------------------------
CLASS B
- -------------------------------------------------------------------------------------------------------------------------
Per share data
(for a share outstanding throughout each period):
<S> <C> <C> <C>
Net asset value - beginning of period $ 9.39 $ 9.66 $ 9.22
----- ----- -----
Income from investment operations# -
Net investment income(S) $ 0.28 $ 0.55 $ 0.59
Net realized and unrealized gain (loss) on
investments 0.07 (0.28) 0.44
------ ------ ------
Total from investment operations $ 0.35 $ 0.27 $ 1.03
------ ------ ------
Less distributions declared to shareholders from net
investment income $(0.27) $(0.54) $(0.59)
------ ------ ------
Net asset value - end of period $ 9.47 $ 9.39 $ 9.66
====== ====== ======
Total return 3.82%++ 2.92% 11.46%
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.60%+ 1.62% 1.56%
Net investment income 5.86%+ 5.85% 6.09%
Portfolio turnover 81% 339% 352%
Net assets, end of period (000 omitted) $108,781 $114,861 $124,921
+ Annualized.
++ Not annualized.
# Per share data for the periods subsequent to February 28, 1994, are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid indirectly.
(S) The investment adviser voluntarily waived 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 ratios would have been:
Net investment income $ 0.27 $ 0.54 $ 0.57
Ratios (to average net assets):
Expenses## 1.70%+ 1.77% 1.77%
Net investment income 5.76%+ 5.70% 5.88%
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
FEBRUARY 28, 1995 FEBRUARY 28, 1994**
- ------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C>
Net asset value - beginning of period $ 9.78 $10.16
------ ------
Income from investment operations# -
Net investment income(S) $ 0.59 $ 0.30
Net realized and unrealized loss on investments (0.56) (0.43)
------ ------
Total from investment operations $ 0.03 $(0.13)
------ ------
Less distributions declared to shareholders from net
investment income(++) $(0.59) $(0.25)
------ ------
Net asset value - end of period $ 9.22 $ 9.78
====== ======
Total return 0.57% (1.29)%+
Ratios (to average net assets)/Supplemental data(S):
Expenses 1.51% 1.39%+
Net investment income 6.52% 5.92%+
Portfolio turnover 385% 167%
Net assets, end of period (000 omitted) $105,178 $113,107
** For the period from the commencement of the Fund's offering of Class B shares, August 30, 1993, through February 28, 1994.
+ Annualized.
# Per share data for the periods subsequent to February 28, 1994, are based on average shares outstanding.
(++) Includes distributions in excess of net investment income of less than $0.001 per share for the period ended February
28, 1994.
(S) The investment adviser voluntarily waived 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 ratios would have been:
Net investment income $ 0.57 $ 0.28
Ratios (to average net assets):
Expenses 1.77% 1.87%+
Net investment income 6.26% 5.44%+
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
AUGUST 31, 1997 FEBRUARY 28,
(UNAUDITED) 1997***
- ------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C>
Net asset value - beginning of period $ 9.43 $ 9.51
------ ------
Income from investment operations# -
Net investment income(S) $ 0.28 $ 0.47
Net realized and unrealized gain (loss) on investments 0.06 (0.09)
------ ------
Total from investment operations $ 0.34 $ 0.38
------ ------
Less distributions declared to shareholders from net investment
income $(0.27) $(0.46)
----- -----
Net asset value - end of period $ 9.50 $ 9.43
====== ======
Total return 3.71%++ 4.06%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.60%+ 1.55%+
Net investment income 5.86%+ 5.97%+
Portfolio turnover 81% 339%
Net assets, end of period (000 omitted) $6,849 $6,046
*** For the period from commencement of the Fund's offering of Class C shares, April 1, 1996, through February 28, 1997.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid indirectly.
(S) The investment adviser voluntarily waived 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 ratios would have been:
Net investment income $ 0.27 $ 0.46
Ratios (to average net assets):
Expenses## 1.70%+ 1.70%+
Net investment income 5.76%+ 5.82%+
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
AUGUST 31, 1997 FEBRUARY 28,
(UNAUDITED) 1997****
- ------------------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C>
Net asset value - beginning of period $ 9.40 $ 9.41
------ ------
Income from investment operations# -
Net investment income(S) $ 0.32 $ 0.10
Net realized and unrealized gain (loss) on investments 0.08 (0.01)
------ ------
Total from investment operations $ 0.40 $ 0.09
------ ------
Less distributions declared to shareholders from net
investment income $(0.32) $(0.10)
------ ------
Net asset value - end of period $ 9.48 $ 9.40
====== ======
Total return 4.34%++ 1.03%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.60%+ 0.48%+
Net investment income 6.87%+ 7.22%+
Portfolio turnover 81% 339%
Net assets, end of period (000 omitted) $466 $470
**** For the period from the commencement of the Fund's offering of Class I shares, January 2, 1997, through February 28, 1997.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid indirectly.
(S) The investment adviser voluntarily waived 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 ratios would have been:
Net investment income $ 0.31 $ 0.09
Ratios (to average net assets):
Expenses## 0.70%+ 0.63%+
Net investment income 6.77%+ 7.07%+
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(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
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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. The
Fund, along with other affiliated entities of Massachusetts Financial Services
Company (MFS), may utilize a joint trading account for the purpose of entering
into one or more repurchase agreements.
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 is amortized or accreted for financial statement and tax
reporting purposes as required by federal income tax regulations. Some
government securities may be purchased on a "when-issued" or "forward delivery"
basis, which means that the securities will be delivered to the Fund at a future
date, usually beyond customary settlement time.
Fees Paid Indirectly - The Fund's custody fee is calculated as a percentage of
the Fund's average daily net assets. This fee is reduced according to an
arrangement which measures the value of cash deposited with the custodian by the
Fund. This amount is shown as a reduction of expenses on the Statement of
Operations.
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 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 tax 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, 1997, the Fund, for federal income tax purposes, had a capital
loss carryforward of $37,119,277 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, 1999 ($272,762), February 28, 2003 ($20,719,753), and
February 28, 2005 ($16,126,762).
Multiple Classes of Shares of Beneficial Interest - The Fund offers multiple
classes of shares. The classes of shares differ in their respective 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 MFS to
provide overall investment advisory and administrative services and general
office facilities. The management fee is computed daily and paid monthly at an
effective annual rate equal to the lesser of (i) 0.40% of average daily net
assets or (ii) 0.25% of average daily net assets plus 3.40% of investment
income. The investment adviser has voluntarily agreed to waive a portion of its
fee, which is reflected as a preliminary reduction of expenses in the Statement
of Operations.
Administrator - Effective March 1, 1997, the Fund has an administrative services
agreement with MFS to provide the Fund with certain financial, legal,
shareholder servicing, compliance, and other administrative services. As a
partial reimbursement for the cost of providing these services, the Fund pays
MFS an administrative fee up to 0.015% per annum of the Fund's average daily net
assets, provided that the administrative fee is not assessed on Fund assets that
exceed $3 billion.
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 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 $7,009 for the period ended
August 31, 1997.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$27,947 for the period ended August 31, 1997, 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, Class B, and
Class C shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as
follows:
The Fund's distribution plan provides that the Fund will pay MFD up to 0.35% per
annum 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 $54,851 for the period ended August 31,
1997. Fees incurred under the distribution plan during the period ended August
31, 1997, were 0.35% of average daily net assets attributable to Class A shares
on an annualized basis.
The Fund's 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 and Class C 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 and Class C shares, and
will pay to such securities dealers all of the distribution fee attributable to
Class C shares. The service fee is intended to be additional consideration for
services rendered by the dealer with respect to Class B and Class C shares. MFD
retains the service fee for accounts not attributable to a securities dealer,
which amounted to $19,579 and $51 for Class B and Class C shares, respectively,
for the period ended August 31, 1997. Fees incurred under the distribution plan
during the period ended August 31, 1997, were 1.00% and 1.00% of average daily
net assets attributable to Class B and Class C shares on an annualized basis,
respectively.
Purchases over $1 million of Class A shares and certain purchases by retirement
plans are subject to a contingent deferred sales charge in the event of a
shareholder redemption within 12 months following such 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. A contingent
deferred sales charge is imposed on shareholder redemptions of Class C shares in
the event of a shareholder redemption within 12 months of purchases made on or
after April 1, 1996. MFD receives all contingent deferred sales charges.
Contingent deferred sales charges imposed during the period ended August 31,
1997, were $1,840, $157,604, and $782 for Class A, Class B, and Class C 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 Fund's average daily net assets at an effective annual rate of
0.13%. Prior to January 1, 1997, the fee was 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%, up to 0.22%, and up to 0.15% attributable to Class A, Class B, and
Class C shares, respectively. (4) Portfolio Securities Purchases and sales of
investments, other than purchased option transactions and short-term
obligations, aggregated $307,395,285 and $289,993,078, 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 $392,067,731
============
Gross unrealized appreciation $ 5,944,950
Gross unrealized depreciation (3,089,706)
------------
Net unrealized appreciation $ 2,855,244
============
(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
PERIOD ENDED YEAR ENDED
AUGUST 31, 1997 FEBRUARY 28, 1997
--------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,669,129 $ 15,652,556 4,140,119 $ 38,922,278
Shares issued to shareholders in
reinvestment of distributions 618,151 5,779,338 1,321,595 12,427,596
Shares transferrred to Class I -- -- (49,744) (468,094)
Shares reacquired (3,651,772) (34,317,378) (7,593,288) (71,389,880)
---------- -------------- ---------- --------------
Net decrease (1,364,492) $ (12,885,484) (2,181,318) $ (20,508,100)
========== ============== ========== ==============
<CAPTION>
Class B Shares
PERIOD ENDED YEAR ENDED
AUGUST 31, 1997 FEBRUARY 28, 1997
--------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,067,091 $ 10,005,776 3,497,240 $ 32,902,922
Shares issued to shareholders in
reinvestment of distributions 214,858 2,007,383 466,248 4,381,846
Shares reacquired (2,021,626) (18,938,931) (4,666,881) (43,848,545)
---------- -------------- ---------- --------------
Net decrease (739,677) $ (6,925,772) (703,393) $ (6,563,777)
========== ============== ========== ==============
<CAPTION>
Class C Shares
PERIOD ENDED PERIOD ENDED
AUGUST 31, 1997 FEBRUARY 28, 1997*
--------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 207,346 $ 1,951,069 655,092 $ 6,142,479
Shares issued to shareholders in
reinvestment of distributions 15,034 141,003 15,823 148,965
Shares reacquired (143,038) (1,349,048) (29,473) (276,397)
---------- -------------- ---------- --------------
Net increase 79,342 $ 743,024 641,442 $ 6,015,047
========== ============== ========== ==============
*For the period from the commencement of the Fund's offering of Class C shares, April 2, 1996,
through February 28, 1997.
<CAPTION>
Class I Shares
PERIOD ENDED PERIOD ENDED
AUGUST 28, 1997 FEBRUARY 28, 1997**
--------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 6,778 $ 63,399 529 $ 5,013
Shares issued to shareholders in
reinvestment of distributions 1,690 15,810 558 5,242
Shares transferred from Class
A -- -- 49,744 468,094
Shares reacquired (9,276) (87,002) (883) (8,310)
---------- -------------- ---------- --------------
Net increase (decrease) (808) $ (7,793) 49,948 $ 470,039
========== ============== ========== ==============
** For the period from the commencement of the Fund's offering of Class I shares, January 2, 1997,
through February 28, 1997.
</TABLE>
(7) Line of Credit
The Fund and other affiliated funds participate in a $400 million unsecured line
of credit provided by a syndication of banks under a line of credit agreement.
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
period ended August 31, 1997, was $1,314.
--------------------------------------------
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 FUND
<TABLE>
<S> <C>
TRUSTEES CUSTODIAN
A. Keith Brodkin* - Chairman and President State Street Bank and Trust Company
Richard B. Bailey* - Private Investor; INVESTOR INFORMATION
Former Chairman and Director (until 1991), For MFS stock and bond market outlooks, call toll
Massachusetts Financial Services Company; free: 1-800-637-4458 anytime from a touch-tone
Director, Cambridge Bancorp; Director, Cambridge telephone.
Trust Company
For information on MFS mutual funds, call your
Peter G. Harwood - Private Investor financial adviser or, for an information kit, call
toll free: 1-800-637-2929 any business day from 9
J. Atwood Ives - Chairman and Chief Executive a.m. to 5 p.m. Eastern time (or leave a message
Officer, Eastern Enterprises anytime).
Lawrence T. Perera - Partner, Hemenway INVESTOR SERVICE
& Barnes MFS Service Center, Inc.
P.O. Box 2281
William J. Poorvu - Adjunct Professor, Harvard Boston, MA 02107-9906
University Graduate School of Business
Administration For general information, call toll free:
1-800-225-2606 any business day from
Charles W. Schmidt - Private Investor 8 a.m. to 8 p.m. Eastern time.
Arnold D. Scott* - Senior Executive Vice For service to speech- or hearing-impaired, call
President, Director and Secretary, Massachusetts toll free: 1-800-637-6576 any business day from 9
Financial Services Company a.m. to 5 p.m. Eastern time. (To use this service,
your phone must be equipped with a
Jeffrey L. Shames* - President and Director, Telecommunications Device for the Deaf.)
Massachusetts Financial Services Company
For share prices, account balances, and exchanges,
Elaine R. Smith - Independent Consultant call toll free: 1-800-MFS-TALK (1-800-637-8255)
anytime from a touch-tone telephone.
David B. Stone - Chairman, North American
Management Corp. (investment advisers) WORLD WIDE WEB
www.mfs.com
INVESTMENT ADVISER
Massachusetts Financial Services Company [DALBAR For the fourth year in a row,
500 Boylston Street LOGO] MFS earned a #1 ranking in the
Boston, MA 02116-3741 DALBAR, Inc. Broker/Dealer Survey,
Main Office Operations Service Quality
DISTRIBUTOR Category. The firm achieved a 3.42
MFS Fund Distributors, Inc. overall score on a scale of 1 to 4 in
500 Boylston Street the 1997 survey. A total of 111 firms
Boston, MA 02116-3741 responded, offering input on the
quality of service they received from
PORTFOLIO MANAGER 29 mutual fund companies nationwide.
Steven E. Nothern* The survey contained questions about
service quality in 11 categories,
TREASURER including "knowledge of operations
W. Thomas London* contact," "keeping you informed,"
"ease of doing business" with the firm.
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
-------------
MFS(R) GOVERNMENT BULK RATE
SECURITIES FUND U.S. POSTAGE
PAID
MFS
-------------
500 Boylston Street
Boston, MA 02116-3741
[LOGO] M F S(SM)
INVESTMENT MANAGEMENT
We invented the mutual fund(SM)
[DALBAR
LOGO]
TOP-RATED SERVICE
(c)1997 MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116-3741
MGS-3 10/97 37M 26/226/326/826
