<PAGE>
[Logo]
INVESTMENT MANAGEMENT
We invented the mutual fund(SM)
MFS(R) GOVERNMENT
SECURITIES FUND
ANNUAL REPORT O FEBRUARY 28, 1998
The Roth IRA is now available (see page 28)
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IN MEMORIAM
A. KEITH BRODKIN
1935 - 1998
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
MFS INVESTMENT MANAGEMENT(SM)
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[Photo of A. Keith Brodkin]
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On February 2, 1998, Keith Brodkin, a friend and leader to everyone at MFS, died
unexpectedly at age 62. His thoughtful letters to shareholders on the markets
and economy have been an integral part of MFS shareholder reports like this one
for many years.
Keith joined MFS in 1970 as the firm's first fixed-income manager, managing the
bond portion of MFS(R) Total Return Fund. He went on to manage our first pure
bond fund, MFS(R) Bond Fund, when it was introduced in 1974, and he was
considered a pioneer in the art of active bond management.
Keith was named President and Chief Investment Officer of MFS in 1987 and four
years later became Chairman and Chief Executive Officer. During his stewardship,
MFS has achieved significant growth in total assets under management, rising
from some $25 billion in 1991 to the over $70 billion today entrusted to us by
three million individual and institutional investors worldwide. Under Keith's
leadership, MFS has carefully but steadily built its domestic and international
investment capabilities through the introduction of a range of new products and
a still-growing staff that now numbers over 100 equity and fixed-income
professionals.
Throughout his career, Keith was very active in a wide range of charitable
endeavors. He is survived by his wife and three children.
His leadership, friendship, and wise counsel will be sorely missed.
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TABLE OF CONTENTS
Letter from the Chairman .................................................. 2
A Discussion with the Portfolio Manager ................................... 4
Portfolio Manager's Profile ............................................... 7
Fund Facts ................................................................ 8
Performance Summary ....................................................... 8
Portfolio Concentration ................................................... 11
Federal Tax Information ................................................... 11
Portfolio of Investments .................................................. 12
Financial Statements ...................................................... 14
Notes to Financial Statements ............................................. 21
Independent Auditors' Report .............................................. 27
Roth IRA .................................................................. 28
Trustees and Officers ..................................................... 29
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HIGHLIGHTS
o FOR THE YEAR ENDED FEBRUARY 28, 1998, CLASS A SHARES OF THE FUND PROVIDED A
TOTAL RETURN AT NET ASSET VALUE OF 9.91%, CLASS B SHARES 9.17%, CLASS C
SHARES 9.15%, AND CLASS I SHARES 10.31%. (SEE PERFORMANCE SUMMARY FOR MORE
INFORMATION.)
o THE FUND BENEFITED FROM MAINTAINING A SLIGHTLY LONGER DURATION THAN NORMAL,
WHICH PROVIDED INCREMENTAL RETURNS AS INTEREST RATES DECLINED AND THE BOND
MARKET RALLIED.
o PERFORMANCE WAS ALSO HELPED BY OUR DECISION TO EMPHASIZE MATURITIES IN THE
7- TO 20-YEAR RANGE. ALTHOUGH INTEREST RATES DECLINED ACROSS ALL
MATURITIES, THEY DECLINED MORE SHARPLY IN THE LONGER MATURITIES.
o WE CONTINUE TO MAINTAIN AN ABOVE- AVERAGE WEIGHTING IN FEDERAL-AGENCY
DEBENTURES SUCH AS THOSE ISSUED BY THE SMALL BUSINESS ADMINISTRATION, WHICH
PROVIDE INCREMENTAL INCOME AND HELP US ACHIEVE OUR OBJECTIVE OF STRONG,
CONSISTENT INVESTMENT RETURNS.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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LETTER FROM THE CHAIRMAN
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[Photo of Jeffrey L. Shames]
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Jeffrey L. Shames
Dear Shareholders:
As investment managers we take a long-term view of the world's economies, as
well as of the stock and bond markets, and try to avoid getting caught up in
short-term fluctuations. However, it is hard to ignore unexpected events such
as the Asian economic turmoil or closely watched companies that miss their
quarterly earnings estimates. Given the potential for these events and their
possible impact on major market indices, we think it's important
to offer some perspective about recent market behavior and to let you know
what MFS is doing in an effort to provide you with favorable long-term
investment performance.
The most notable recent event affecting investment markets has been the Asian
turmoil, which began in the summer of 1997 as a result of slowing growth rates
in the region and excess speculation in real estate markets. Since then, most
countries in the region have begun to implement the economic and regulatory
restructuring needed to put themselves on a stronger financial foundation.
While it may be a few years before some
of these countries return to solid economic footing, and while there will
probably be a relatively short-term impact on the U.S. economy, we
believe the long-term outlook for the region is quite positive.
The Asian situation has brought home the lesson that major events can quickly
impact investment markets around the world, including those of
the United States. Although U.S. equities have enjoyed a bull market lasting
more than 15 years and have continued to set records in the first several
weeks of 1998, there have been brief bouts of volatility associated with the
Asian turmoil, as well as with perceived downturns for certain industries such
as technology.
While we believe the long-term outlook for the equity markets is favorable,
other, unforeseen events can trigger fairly extended periods during which
prices decline or remain relatively flat. Since no one can predict market
cycles, that makes it that much more important to find companies that can keep
growing in the face of the occasional downturn and even gain market share. For
us, this means using original, bottom-up research to examine each company's
earnings potential and position as well as the overall prospects for its
industry. To that end, MFS continues to increase the research support
available to portfolio managers of MFS funds.
On the fixed-income side, MFS uses active portfolio management based on
extensive research and credit analysis to reduce the potential for price
declines and enhance the opportunity for price appreciation. For both equity
and fixed-income managers, this means visiting and meeting with thousands of
companies and issuers of credit every year, as well as attending many
presentations and closely following sources of industry research.
We believe this approach, based on thorough research, teamwork, innovative
thinking, and the free exchange of ideas, is the best way to get the most
performance for shareholders in MFS funds -- in any market environment.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management
March 16, 1998
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JEFFREY L. SHAMES, A GRADUATE OF WESLEYAN UNIVERSITY AND THE
MASSACHUSETTS INSTITUTE OF TECHNOLOGY SLOAN SCHOOL OF MANAGEMENT, JOINED
MFS IN 1983. AFTER FOUR YEARS AS AN INDUSTRY ANALYST AND PORTFOLIO
MANAGER, HE WAS NAMED CHIEF EQUITY OFFICER IN 1987 AND PRESIDENT AND A
MEMBER OF THE BOARD OF DIRECTORS IN 1993. MR. SHAMES WAS APPOINTED
CHAIRMAN AND CHIEF EXECUTIVE OFFICER IN FEBRUARY 1998.
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A DISCUSSION WITH THE PORTFOLIO MANAGER
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[Photo of Steven E. Nothern]
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Steven E. Nothern
For the year ended February 28, 1998, Class A shares of the Fund provided a
total return of 9.91%, Class B shares 9.17%, Class C shares 9.15%, and Class I
shares 10.31%. These returns, which include the reinvestment of distributions
but exclude the effects of any sales charges, compare to a 10.27% 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 general U.S. government fund as reported
by Lipper Analytical Services, Inc., an independent firm that reports mutual
fund performance, returned 9.76%.
Q. COULD YOU DISCUSS THE FUND'S PERFORMANCE RELATIVE TO ITS BENCHMARK OVER THE
PAST YEAR?
A. Two decisions in particular contributed significantly to the Fund's
favorable performance. The first was our decision to maintain a slightly
longer duration than the benchmark. With the decline in overall interest
rates, the longer-than-index duration provided incrementally positive
returns as the market rallied.
The second contributor to performance was our decision to emphasize
maturities in the 7- to 20-year range. Although interest rates declined
across all maturities, they declined more sharply in the longer maturities.
Yields on two-year U.S. Treasuries, for example, declined by 56 basis points
(0.56%) for the year, whereas yields on 10-year Treasuries declined by 95
basis points (0.95%). Our overweighting in the longer maturities helped
performance, as this was the best-performing maturity sector of the market.
Q. HOW WOULD YOU DESCRIBE THE ECONOMIC AND INVESTMENT ENVIRONMENT OF THE PAST
YEAR?
A. The surprise has been that robust economic growth, especially this late in
the economic cycle, has coincided with a dramatic improvement in inflation
trends. Even though overall economic activity exceeded what the Federal
Reserve Board (the Fed) would consider a noninflationary speed limit for
much of the year, and despite the fact that the Fed saw it necessary to
slightly tighten policy by increasing the federal funds rate to 5.50% on
March 25, 1997, two very favorable trends worked in favor of the market and
helped ease rates somewhat. The first was the sharp decline in the federal
government's deficit borrowing needs. In fact, for the 12-month period ended
January 31, 1998, the government was already running a surplus of about $17
billion and, for the fiscal year ending this October, the surplus may be
significantly higher. The second favorable factor was the declining trend in
inflation rates. Much to the surprise of most economists, inflation moved
significantly lower over the course of the year, with the Consumer Price
Index, for example, declining from 3.3% in 1996 to 1.7% in 1997.
Q. WHAT ABOUT THE FIXED-INCOME ENVIRONMENT, PARTICULARLY AS IT RELATES TO THE
FUND?
A. Although at times volatile, the environment was mostly positive over the
past year. With the general decline in interest rates, coupon income was
augmented by opportunities for capital appreciation, particularly in
longer-maturity securities. For example, an investment in the two-year
sector would have returned approximately 6.97%, whereas the total return in
the 10-year sector was nearly 13.00%. With household income, job growth, and
consumer confidence quite strong, the rally in shorter maturities was
somewhat limited by concerns that the Fed would again find it necessary to
move short-term interest rates higher. The very favorable performance on the
inflation and fiscal fronts, however, provided a positive underpinning for
Treasuries, one that longer maturities were able to benefit from more fully.
This environment benefited the Fund, given our overweighting in
longer-maturity Treasury and agency securities.
Q. COULD YOU TALK ABOUT THE FUND'S DURATION, OR SENSITIVITY TO CHANGES IN
INTEREST RATES, AND HOW THIS REFLECTS YOUR OUTLOOK?
A. For most of the year, the portfolio duration was 5% to 10% longer than the
appropriate benchmark duration. Strength in overall economic activity, along
with the risk that the Fed might tighten once again, argued for caution, so
we did not position duration more aggressively. The many positive
underpinnings to the market, however, did suggest we should position the
Fund to benefit from opportunities for capital appreciation as fears of Fed
action receded.
Q. HAVE YOU CHANGED THE FUND'S DURATION SIGNIFICANTLY IN THE PAST YEAR?
A. Recently, we increased the Fund's duration to perhaps 20% longer than a
benchmark, or neutral, duration. Although an easing by the Fed is still
unlikely, developments in Asia point to a greatly reduced likelihood of
tightening anytime soon. As Fed Chairman Greenspan argued recently, the
Asian crisis should have a salutary effect on our economy, slightly reducing
export demand while further alleviating inflation pressures.
Q. HAS THE TURMOIL IN ASIA AFFECTED YOUR INVESTMENT MARKETS IN ANY WAY?
A. So far, the turmoil has only indirectly impacted our fixed-income market.
The biggest impact has been on expectations for global growth and domestic
inflation. The direct economic impacts, however, have yet to be felt and
are, at this point, of uncertain magnitude.
Q. IN YOUR LAST REPORT, YOU SAID THE FUND CONTINUES TO HOLD A SUBSTANTIAL
POSITION IN GOVERNMENT-AGENCY PASS-THROUGH CERTIFICATES. IS THIS STILL THE
CASE?
A. Yes, we continue to maintain an above-average weighting in agency
debentures, and I would expect this overweighting to remain a hallmark of
this Fund. To the extent that we are able to earn incremental income by
investing in such high-quality federal agency debentures as those issued by
the Small Business Administration, this helps us with our objective of
achieving strong, consistent investment returns.
Q. WHAT DO YOU SEE AS THE GREATEST RISK TO THE FUND THIS YEAR?
A. The Asian crisis has increased the level of economic uncertainty and,
consequently, increased uncertainty about the fixed-income outlook. The
greatest risk is that we miss, or fail to react to, a significant change in
economic and inflation trends.
Q. AS YOU LOOK AHEAD, WHAT CHANGES DO YOU SEE IN THE GENERAL ECONOMIC
ENVIRONMENT OR YOUR MARKET, AND HOW ARE YOU POSITIONING THE FUND FOR THEM?
A. Prospects for the economic environment, and especially for the fixed-income
market, are particularly positive. The supply-side nature of the economic
expansion, with growth in supply outstripping that of demand, and the boom
in global productive capacity have helped to suppress inflation. A declining
profile for inflation at this stage of the economic expansion is remarkable,
and any slowdown in economic growth could quickly trigger still-lower
inflation expectations. Investors have yet to fully embrace the idea that
the economy is at, or close to, price stability. Although the economy is
showing few signs of weakening, interest rates will have considerable room
to fall once economic activity does cool, making the view more broadly
accepted that we are indeed close to our long-term objective of price
stability.
/s/ Steven E. Nothern
Steven E. Nothern
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and
are only through the end of the period of the report as stated on the cover.
The manager's views are subject to change at any time based on market and
other conditions, and no forecasts can be guaranteed.
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PORTFOLIO MANAGER'S PROFILE
STEVEN E. NOTHERN JOINED MFS IN 1986 IN THE FIXED INCOME DEPARTMENT AND
WAS NAMED VICE PRESIDENT -- INVESTMENTS IN 1989 AND SENIOR VICE
PRESIDENT IN 1993. A GRADUATE OF MIDDLEBURY COLLEGE, HE HOLDS A MASTER
OF BUSINESS ADMINISTRATION DEGREE FROM BOSTON UNIVERSITY AND IS A
CHARTERED FINANCIAL ANALYST AND A MEMBER OF THE BOSTON SECURITY ANALYSTS
SOCIETY, INC. HE HAS MANAGED MFS(R) GOVERNMENT SECURITIES FUND SINCE
1991.
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<PAGE>
FUND FACTS
OBJECTIVE: SEEKS CURRENT INCOME AND PRESERVATION OF CAPITAL.
COMMENCEMENT OF
INVESTMENT OPERATIONS: JULY 25, 1984
CLASS INCEPTION: CLASS A JULY 25, 1984
CLASS B AUGUST 30, 1993
CLASS C APRIL 1, 1996
CLASS I JANUARY 2, 1997
SIZE: $418.8 MILLION NET ASSETS AS OF FEBRUARY 28, 1998
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PERFORMANCE SUMMARY
The information below and on the following page illustrates the historical
performance of MFS Government Securities Fund -- Class A shares in comparison
to various market indicators. Class A share performance results reflect the
deduction of the 4.75% maximum sales charge; benchmark comparisons are
unmanaged and do not reflect any fees or expenses.
The performance of other share classes will be greater than or less than
the line shown, based on differences in charges and fees paid by
shareholders investing in the different classes. It is not possible to invest
directly in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 5-year period ended February 28, 1998)
MFS Government Lehman Brothers Consumer Price
Securities Fund Government/ Index
-- Class A Mortgage Index -- U.S.
--------------- ---------------- --------------
2/93 $ 9,520 $10,170 $10,000
2/94 9,950 10,690 10,250
2/95 10,060 10,880 10,550
2/96 11,300 12,180 10,820
2/97 11,720 12,820 11,150
2/98 12,825 14,133 11,314
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 10-year period ended February 28, 1998)
MFS Government Lehman Brothers Consumer Price
Securities Fund Government/ Index
-- Class A Mortgage Index -- U.S.
--------------- ---------------- --------------
2/88 $ 9,520 $10,110 $10,000
2/90 10,740 11,820 11,030
2/92 13,230 14,930 11,950
2/94 15,630 17,560 12,650
2/96 17,760 20,010 13,340
2/98 20,157 23,223 13,957
AVERAGE ANNUAL TOTAL RETURNS AS OF FEBRUARY 28, 1998
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
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<S> <C> <C> <C> <C>
MFS Government Securities Fund (Class A)
including 4.75% sales charge (SEC results) + 4.67% +6.82% +5.31% +7.30%
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MFS Government Securities Fund (Class A)
at net asset value + 9.91% +8.56% +6.34% +7.82%
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MFS Government Securities Fund (Class B)
with CDSC (SEC results) + 5.17% +6.92% +5.36% +7.48%
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MFS Government Securities Fund (Class B)
at net asset value + 9.17% +7.79% +5.67% +7.48%
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MFS Government Securities Fund (Class C)
with CDSC (SEC results) + 8.15% +8.08% +6.06% +7.68%
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MFS Government Securities Fund (Class C)
at net asset value + 9.15% +8.08% +6.06% +7.68%
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MFS Government Securities Fund (Class I)
at net asset value +10.31% +8.72% +6.44% +7.87%
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Average general U.S. government fund* + 9.76% +8.17% +5.77% +7.55%
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Lehman Brothers Government/Mortgage Index** +10.27% +9.10% +6.81% +8.67%
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Consumer Price Index+# + 1.45% +2.37% +2.50% +3.39%
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* Source: Lipper Analytical Services, Inc.
** Source: AIM.
+ Source: CDA/Wiesenberger.
# The Consumer Price Index is published by the U.S. Bureau of Labor Statistics and measures
the cost of living (inflation).
</TABLE>
Class A share ("A") SEC results include the maximum 4.75% sales charge. Class
B share ("B") SEC results reflect the applicable contingent deferred sales
charge (CDSC), which declines over six years from 4% to 0%. Class C shares
("C") have no initial sales charge but, like B, have higher annual fees and
expenses than A. C SEC results reflect the 1% CDSC applicable to shares
redeemed within 12 months. Class I shares ("I") have no sales charge or Rule
12b-1 fees and are only available to certain institutional investors.
B and C results include the performance and the operating expenses
(e.g., Rule 12b-1 fees) of A for periods prior to the inception of B and C.
Because operating expenses of B and C are higher than those of A, B and C
performance generally would have been lower than A performance. The A
performance included in the B and C SEC performance has been adusted to
reflect the CDSC generally applicable to B and C rather than the initial sales
charge generally applicable to A.
I results include the performance and the operating expenses (e.g., Rule 12b-1
fees) of A for periods prior to the inception of I. Because operating expenses
of A are greater than those of I, I performance generally would have been
higher than A performance. The A performance included in the I performance has
been adjusted to reflect the fact that I have no initial
sales charge.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Subsidies and
waivers may be rescinded at any time. See the prospectus for details. 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.
Government guarantees apply to individual securities only and not to prices
and yields of shares in a managed portfolio.
<PAGE>
PORTFOLIO CONCENTRATION AS OF FEBRUARY 28, 1998
LARGEST SECTORS
U.S. Treasuries 35.2%
Other Government Agencies 27.7%
Mortgage Backed 37.1%
For a more complete breakdown, refer to the Portfolio of Investments.
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FEDERAL TAX INFORMATION
IN JANUARY 1999, SHAREHOLDERS WILL BE MAILED A FORM 1099 REPORTING THE
FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE CALENDAR YEAR
1998.
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<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS -- February 28, 1998
Bonds - 98.6%
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<CAPTION>
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
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Federal Home Loan Mortgage Corporation - 1.3%
FHLMC, 6.79s, 2005 $ 5,000 $ 5,260,156
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<S> <C> <C>
U.S. Federal Agencies - 33.2%
Federal National Mortgage Corp., 6.55s, 2007 $ 1,993 $ 1,960,675
Federal National Mortgage Corp., 6.6s, 2007 1,995 2,037,738
Federal National Mortgage Corp., 6.695s, 2007 2,115 2,093,999
Federal National Mortgage Corp., 6.95s, 2006 10,000 10,206,200
Federal National Mortgage Corp., 7.5s, 2003 - 2013 43,900 45,061,862
Federal National Mortgage Corp., 8.46s, 2002 5,655 5,929,252
Financing Corp., 9.8s, 2018 16,500 23,125,740
Financing Corp., 10.35s, 2018 5,000 7,338,300
Financing Corp., 10.7s, 2017 20,790 31,220,759
United States Department of Veteran Affairs, 6.3s, 2010 10,000 10,006,200
------------
$138,980,725
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U.S. Government Guaranteed - 64.1%
Government National Mortgage Association - 23.1%
GNMA, 6.5s, 2027 - 2028 $11,880 $ 11,776,054
GNMA, 7s, 2008 - 2025 37,249 37,817,995
GNMA, 7.5s, 2002 - 2099 18,367 18,936,293
GNMA, 8s, 2026 - 2027 17,301 17,933,391
GNMA, 8.5s, 2001 - 2009 6,827 7,162,121
GNMA, 10.75s, 2015 - 2016 207 234,248
GNMA, 11.5s, 2010 - 2019 984 1,146,730
GNMA, 12s, 2013 - 2019 590 697,243
GNMA, 12.5s, 2011 702 834,493
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$ 96,538,568
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Small Business Administration - 5.7%
SBA, 8.625s, 2011 $ 3,675 $ 3,983,906
SBA, 8.8s, 2011 1,735 1,898,494
SBA, 9.05s, 2009 1,973 2,139,744
SBA, 9.1s, 2009 2,627 2,857,874
SBA, 9.25s, 2010 2,414 2,648,534
SBA, 9.3s, 2010 4,082 4,515,869
SBA, 9.5s, 2010 249 275,817
SBA, 9.65s, 2010 1,303 1,448,371
SBA, 9.7s, 2010 1,242 1,379,797
SBA, 9.9s, 2008 1,001 1,101,964
SBA, 10.05s, 2008 - 2009 1,546 1,714,161
------------
$ 23,964,531
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U.S. Treasury Obligations - 34.4%
U.S. Treasury Notes, 9.125s, 1999 $ 8,000 $ 8,327,520
U.S. Treasury Notes, 8.5s, 2000 14,000 14,750,260
U.S. Treasury Notes, 5.375s, 2001 16,450 16,375,481
U.S. Treasury Notes, 8s, 2001 14,750 15,773,208
U.S. Treasury Notes, 5.5s, 2003 10,000 9,957,800
U.S. Treasury Bonds, 12.375s, 2004 10,650 14,344,165
U.S. Treasury Bonds, 10.375s, 2012 4,200 5,590,578
U.S. Treasury Bonds, 11.25s, 2015 12,685 19,933,336
U.S. Treasury Bonds, 6.125s, 2027 38,160 39,227,335
------------
$144,279,683
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Other - 0.9%
AID Israel, 9.25s, 2001 $ 3,560 $ 3,778,898
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Total U.S. Government Guaranteed $268,561,680
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Total Bonds (Identified Cost, $406,473,648) $412,802,561
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Short-Term Obligation - 3.0%
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Federal Home Loan Mortgage Corp., due 3/17/98,
at Amortized Cost $12,600 $ 12,569,816
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Repurchase Agreement - 0.2%
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Investments in repurchase agreements with Goldman
Sachs, in a joint trading account ($174,204,000), dated
2/27/98, due 3/2/98, total to be received $174,285,876,
collateralized by various U.S. Treasury and federal
agency obligations (with $125,572,000 par and valued
at $174,204,292), at cost $ 762 $ 762,000
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Total Investments (Identified Cost, $419,805,464) $426,134,377
Other Assets, Less Liabilities - (1.8)% (7,334,580)
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Net Assets - 100.0% $418,799,797
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See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
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FEBRUARY 28, 1998
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $419,805,464) $426,134,377
Cash 44
Receivable for investments sold 16,415,000
Receivable for Fund shares sold 4,725,007
Interest receivable 5,503,226
Other assets 3,751
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Total assets $452,781,405
------------
Liabilities:
Payable for investments purchased $ 32,870,461
Payable for Fund shares reacquired 715,680
Payable to affiliates -
Management fee 6,843
Shareholder servicing agent fee 2,565
Distribution and service fee 187,377
Administrative fee 342
Accrued expenses and other liabilities 198,340
------------
Total liabilities $ 33,981,608
------------
Net assets $418,799,797
============
Net assets consist of:
Paid-in capital $445,319,666
Unrealized appreciation on investments 6,328,913
Accumulated net realized loss on investments (33,134,833)
Accumulated undistributed net investment income 286,051
------------
Total $418,799,797
============
Shares of beneficial interest outstanding 43,235,099
==========
Class A shares:
Net asset value per share
(net assets of $282,809,345 / 29,191,882 shares of
beneficial interest outstanding) $ 9.69
======
Offering price per share (100 / 95.25) $10.17
======
Class B shares:
Net asset value and offering price per share
(net assets of $117,076,595 / 12,094,639 shares of
beneficial interest outstanding) $ 9.68
======
Class C shares:
Net asset value and offering price per share
(net assets of $11,354,225 / 1,168,519 shares of
beneficial interest outstanding) $ 9.72
======
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets of $7,559,632 / 780,059 shares of
beneficial interest outstanding) $ 9.69
======
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
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YEAR ENDED FEBRUARY 28, 1998
- --------------------------------------------------------------------------------
Net investment income:
Interest income $30,232,009
-----------
Expenses -
Management fee $ 1,635,005
Trustees' compensation 37,784
Shareholder servicing agent fee 520,789
Distribution and service fee (Class A) 1,007,906
Distribution and service fee (Class B) 1,124,713
Distribution and service fee (Class C) 75,869
Administrative fee 57,901
Custodian fee 180,984
Postage 70,886
Printing 50,281
Auditing fees 37,399
Legal fees 3,988
Miscellaneous 220,550
-----------
Total expenses $ 5,024,055
Fees paid indirectly (147,098)
Reduction of expenses by investment adviser (420,618)
-----------
Net expenses $ 4,456,339
-----------
Net investment income $25,775,670
-----------
Realized and unrealized gain on investments:
Realized gain (identified cost basis) on investment
transactions $ 4,173,134
Change in unrealized appreciation on investments 7,678,440
-----------
Net realized and unrealized gain on investments $11,851,574
-----------
Increase in net assets from operations $37,627,244
===========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Statement of Changes in Net Assets
- -----------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
FEBRUARY 28, 1998 FEBRUARY 28, 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 25,775,670 $ 27,357,230
Net realized gain (loss) on investments 4,173,134 (16,888,266)
Net unrealized gain on invesments 7,678,440 4,038,792
------------ ------------
Increase in net assets from operations $ 37,627,244 $ 14,507,756
------------ ------------
Distributions declared to shareholders -
From net investment income (Class A) $(18,372,972) $(19,813,814)
From net investment income (Class B) (6,423,382) (6,922,954)
From net investment income (Class C) (424,810) (177,171)
From net investment income (Class I) (98,923) (5,243)
------------ ------------
Total distributions declared to shareholders $(25,320,087) $(26,919,182)
------------ ------------
Net decrease in net assets from Fund share transactions $ (8,169,658) $(20,586,791)
------------ ------------
Total increase (decrease) in net assets $ 4,137,499 $(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 $286,051 and $28,040, respectively) $418,799,797 $414,662,298
============ ============
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED
---------------------------------------------------- ELEVEN
FEBRUARY 28, MONTHS ENDED
------------------- FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $ 9.40 $ 9.67 $ 9.22 $ 9.79 $10.00
------ ------ ------ ------ ------
Income from investment
operations# -
Net investment income(S) $ 0.62 $ 0.62 $ 0.66 $ 0.67 $ 0.63
Net realized and unrealized gain
(loss) on investments 0.28 (0.28) 0.45 (0.58) (0.20)
------ ------ ------ ------ ------
Total from investment operations $ 0.90 $ 0.34 $ 1.11 $ 0.09 $ 0.43
------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $(0.61) $(0.61) $(0.66) $(0.66) $(0.58)(++)
In excess of net realized gain on
investments -- -- -- -- (0.06)
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.61) $(0.61) $(0.66) $(0.66) $(0.64)
------ ------ ------ ------ ------
Net asset value - end of period $ 9.69 $ 9.40 $ 9.67 $ 9.22 $ 9.79
====== ====== ====== ====== ======
Total return(+) 9.91% 3.67% 12.29% 1.21% 6.57%+
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 0.94% 0.91% 0.84% 0.79% 0.68%+
Net investment income 6.50% 6.56% 6.83% 7.24% 6.83%+
Portfolio turnover 212% 339% 352% 385% 167%
Net assets at end of period
(000 omitted) $282,809 $293,286 $322,740 $318,116 $372,702
+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.
(++)Amount includes distribution in excess of net investment income of less than $0.001 per
share for the period indicated.
(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 the ratios would have been:
Net investment income $ 0.61 $ 0.61 $ 0.64 $ 0.65 $ 0.59
Ratios (to average net assets):
Expenses## 1.04% 1.06% 1.05% 1.05% 1.17%+
Net investment income 6.40% 6.41% 6.62% 6.98% 6.34%+
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights - continued
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED MARCH 31, 1993 1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------------------------------------------
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 $ 9.43 $ 9.29 $ 9.10 $ 9.05 $ 9.56 $10.22
------ ------ ------ ------ ------ ------
Income from investment operations -
Net investment income $ 0.67 $ 0.75 $ 0.78 $ 0.82 $ 0.86 $ 0.87
Net realized and unrealized gain (loss) on investments 0.60 0.14 0.19 0.04 (0.51) (0.59)
------ ------ ------ ------ ------ ------
Total from investment operations $ 1.27 $ 0.89 $ 0.97 $ 0.86 $ 0.35 $ 0.28
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.70) $(0.75) $(0.78) $(0.81) $(0.86) $(0.88)
In excess of net realized gain on investments -- -- -- -- -- (0.06)
------ ------ ------ ------ ------ ------
Total distributions declared to shareholders $(0.70) $(0.75) $(0.78) $(0.81) $(0.86) $(0.94)
------ ------ ------ ------ ------ ------
Net asset value - end of period $10.00 $ 9.43 $ 9.29 $ 9.10 $ 9.05 $ 9.56
====== ====== ====== ====== ====== ======
Total return(+) 13.94% 9.96% 11.13% 9.72% 3.84% 3.11%
Ratios (to average net assets)/
Supplemental data:
Expenses 1.20% 1.25% 1.28% 1.29% 1.40% 1.18%
Net investment income 7.18% 7.95% 8.56% 8.81% 9.25% 9.10%
Portfolio turnover 264% 270% 95% 260% 346% 417%
Net assets at end of period (000 omitted) $356,735 $356,366 $323,612 $327,877 $348,617 $397,239
(+)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.
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights - continued
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED
---------------------------------------------------- PERIOD
FEBRUARY 28, ENDED
------------------------ FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994*
- --------------------------------------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $ 9.39 $ 9.66 $ 9.22 $ 9.78 $10.16
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.55 $ 0.55 $ 0.59 $ 0.59 $ 0.30
Net realized and unrealized gain
(loss) on investments 0.28 (0.28) 0.44 (0.56) (0.43)
------ ------ ------ ------ ------
Total from investment operations $ 0.83 $ 0.27 $ 1.03 $ 0.03 $(0.13)
------ ------ ------ ------ ------
Less distributions declared to
shareholders from net investment income $(0.54) $(0.54) $(0.59) $(0.59) $(0.25)(++)
------ ------ ------ ------ ------
Net asset value - end of period $ 9.68 $ 9.39 $ 9.66 $ 9.22 $ 9.78
====== ====== ====== ====== ======
Total return 9.17% 2.92% 11.46% 0.57% (1.29)%++
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 1.59% 1.62% 1.56% 1.51% 1.39%+
Net investment income 5.84% 5.85% 6.09% 6.52% 5.92%+
Portfolio turnover 212% 339% 352% 385% 167%
Net assets at end of period (000 omitted) $117,077 $114,861 $124,921 $105,178 $113,107
*For the period from the inception of Class B, August 30, 1993, through February 28, 1994.
+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.
(++)Amount includes distribution in excess of net investment income of less than $0.001 per
share for the period indicated.
(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 the ratios would have been:
Net investment income $ 0.54 $ 0.54 $ 0.57 $ 0.57 $ 0.28
Ratios (to average net assets):
Expenses## 1.69% 1.77% 1.77% 1.77% 1.87%+
Net investment income 5.74% 5.70% 5.88% 6.26% 5.44%+
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights - continued
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1998 1997** 1998 1997***
- --------------------------------------------------------------------------------------------------------------
CLASS C CLASS I
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $ 9.43 $ 9.51 $ 9.40 $ 9.41
------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.55 $ 0.47 $ 0.62 $ 0.10
Net realized and unrealized gain (loss) on
investments 0.29 (0.09) 0.31 (0.01)
------ ------ ------ ------
Total from investment operations $ 0.84 $ 0.38 $ 0.93 $ 0.09
------ ------ ------ ------
Less distributions declared to shareholders from
net investment income $(0.55) $(0.46) $(0.64) $(0.10)
------ ------ ------ ------
Net asset value - end of period $ 9.72 $ 9.43 $ 9.69 $ 9.40
====== ====== ====== ======
Total return 9.15% 4.06%++ 10.31% 1.03%++
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 1.59% 1.55%+ 0.53% 0.48%+
Net investment income 5.85% 5.97%+ 6.85% 7.22%+
Portfolio turnover 212% 339% 212% 339%
Net assets at end of period (000 omitted) $11,354 $6,046 $7,560 $ 470
**For the period from the inception of Class C, April 1, 1996, through February 28, 1997.
***For the period from the inception of Class I, 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 the ratios would have been:
Net investment income $ 0.54 $ 0.46 $ 0.61 $ 0.09
Ratios (to average net assets):
Expenses## 1.69% 1.70%+ 0.63% 0.63%+
Net investment income 5.75% 5.82%+ 6.75% 7.07%+
See notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Government Securities Fund (the Fund) is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company.
(2) Significant Accounting Policies
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.
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 discount is amortized or accreted for financial statement and tax
reporting purposes as required by federal income tax regulations. Some
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. The fee is reduced according to an
arrangement that 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. During the year ended February 28, 1998, $197,572 was reclassified from
accumulated undistributed net investment income to accumulated net realized
loss on investments due to differences between book and tax accounting for
mortgage backed securities. This change had no effect on net assets or the net
asset value per share. At February 28, 1998, accumulated undistributed net
investment income and accumulated net realized loss on investments under book
accounting were different from tax accounting due to significant temporary
differences in accounting for capital losses.
At February 28, 1998, the Fund, for federal income tax purposes, had a capital
loss carryforward of ($33,115,849) 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, 2003, ($16,989,088), and February
28, 2005, ($16,126,761).
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 based on 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 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 income. The
investment adviser voluntarily agreed to waive a portion of its fee, which is
reflected as a 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 at the following annual percentages of the Fund's
average daily net assets, provided that the administrative fee is not assessed
on Fund assets that exceed $3 billion:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
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
$13,980 for the year ended February 28, 1998.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$58,587 for the year ended February 28, 1998, as its portion of the sales
charge on sales of Class A shares of the Fund.
The Trustees have adopted a distribution plan 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 $113,469 for the year ended February 28, 1998. Fees incurred under
the distribution plan during the year ended February 28, 1998, 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 $41,186
and $2,075 for Class B and Class C, respectively, for the year ended February
28, 1998. Fees incurred under the distribution plan during the year ended
February 28, 1998, were 1.00% of average daily net assets attributable to
Class B and Class C shares on an annualized basis.
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 purchase. MFD receives all contingent deferred sales charges.
Contingent deferred sales charges imposed during the year ended February 28,
1998, were $3,470, $279,216, and $2,556 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. Effective January 1,
1998, the fee is calculated as a percentage of the fund's average daily net
assets at an effective annual rate of 0.1125%. Prior to January 1, 1998, the
fee was calculated as a percentage of the Fund's average daily net assets at
an effective annual rate of 0.13%
(4) Portfolio Securities
Purchases and sales of investments, other than short-term obligations,
aggregated $858,452,455 and $805,348,962, 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 $419,824,448
------------
Gross unrealized appreciation $ 7,492,612
Gross unrealized depreciation (1,182,683)
------------
Net unrealized appreciation $ 6,309,929
============
(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
YEAR ENDED FEBRUARY 28, 1998 YEAR ENDED FEBRUARY 28, 1997
--------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 5,464,276 $ 52,177,939 4,140,119 $ 38,922,278
Shares issued to shareholders in
reinvestment of distributions 1,227,491 11,623,317 1,321,595 12,427,596
Shares transferred to Class I -- -- (49,744) (468,094)
Shares reacquired (8,693,936) (82,954,183) (7,593,288) (71,389,880)
---------- ------------- ---------- -------------
Net decrease (2,002,169) $ (19,152,927) (2,181,318) $ (20,508,100)
========== ============= ========== =============
<CAPTION>
Class B Shares
YEAR ENDED FEBRUARY 28, 1998 YEAR ENDED FEBRUARY 28, 1997
--------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 3,856,898 $ 36,904,049 3,497,240 $ 32,902,922
Shares issued to shareholders in
reinvestment of distributions 429,480 4,065,291 466,248 4,381,846
Shares reacquired (4,422,381) (42,111,012) (4,666,881) (43,848,545)
---------- ------------- ---------- -------------
Net decrease (136,003) $ (1,141,672) (703,393) $ (6,563,777)
========== ============= ========== =============
<CAPTION>
Class C Shares
YEAR ENDED FEBRUARY 28, 1998 PERIOD ENDED FEBRUARY 28, 1997*
--------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 746,832 $ 7,168,488 655,092 $ 6,142,479
Shares issued to shareholders in
reinvestment of distributions 31,482 299,383 15,823 148,965
Shares reacquired (251,237) (2,396,844) (29,473) (276,397)
---------- ------------- ---------- -------------
Net increase 527,077 $ 5,071,027 641,442 $ 6,015,047
========== ============= ========== =============
*For the period from the inception of Class C, April 1, 1996, through February 28, 1997.
<CAPTION>
Class I Shares
YEAR ENDED FEBRUARY 28, 1998 PERIOD ENDED FEBRUARY 28, 1997**
---------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 733,115 $ 7,080,671 529 $ 5,013
Shares issued to shareholders in
reinvestment of distributions 10,257 98,774 558 5,242
Shares transferred from Class A -- -- 49,744 468,094
Shares reacquired (13,261) (125,531) (883) (8,310)
---------- ------------- ---------- -------------
Net increase 730,111 $ 7,053,914 49,948 $ 470,039
========== ============= ========== =============
**For the period from the inception of Class I, January 2, 1997, through February 28, 1997.
</TABLE>
(6) 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
year ended February 28, 1998, was $2,440.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders of MFS Government Securities Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Government Securities Fund as of February
28, 1998, the related statement of operations for the year then ended, the
statement of changes in net assets for the years ended February 28, 1998 and
1997, and the financial highlights for each of the years in the five- year
period ended February 28, 1998 and for each of the years in the six-year period
ended March 31, 1993. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of the
securities owned at February 28, 1998 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Government
Securities Fund at February 28, 1998, 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
April 10, 1998
--------------------------------------------
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>
<TABLE>
MFS(R) GOVERNMENT SECURITIES FUND
<S> <C>
TRUSTEES CUSTODIAN
Richard B. Bailey* - Private Investor; State Street Bank and Trust Company
Former Chairman and Director (until 1991),
MFS Investment Management AUDITORS
Deloitte & Touche LLP
Peter G. Harwood - Private Investor
Investor Information For MFS stock and
J. Atwood Ives - Chairman and Chief bond market outlooks, call toll free:
Executive Officer, Eastern Enterprises 1-800-637-4458 anytime from a touch-tone
telephone. For information on MFS mutual
Lawrence T. Perera - Partner, Hemenway & funds, call your financial adviser or, for
Barnes an information kit, call toll free:
1-800-637-2929 any business day from 9
William J. Poorvu - Adjunct Professor, a.m. to 5 p.m. Eastern time (or leave a
Harvard University Graduate School of message anytime).
Business Administration
INVESTOR SERVICE
Charles W. Schmidt - Private Investor MFS Service Center, Inc.
P.O. Box 2281
Arnold D. Scott* - Senior Executive Vice Boston, MA 02107-9906
President, Director, and Secretary, MFS
Investment Management For general information, call toll free:
1-800-225-2606 any business day from 8
Jeffrey L. Shames* - Chairman, Chief a.m. to 8 p.m. Eastern time. For service
Executive Officer, and Director, MFS to speech- or hearing-impaired, call toll
Investment Management free: 1-800-637-6576 any business day from
9 a.m. to 5 p.m. Eastern time. (To use
Elaine R. Smith - Independent Consultant this service, your phone must be equipped
with a Telecommunications Device for the
David B. Stone - Chairman, North American Deaf.) For share prices, account balances,
Management Corp. (investment advisers) and exchanges, call toll free:
1-800-MFS-TALK (1-800-637-8255) anytime
INVESTMENT ADVISER from a touch-tone telephone.
Massachusetts Financial Services Company
500 Boylston Street WORLD WIDE WEB
Boston, MA 02116-3741 www.mfs.com
DISTRIBUTOR [Dalbar Logo] For the fourth year in a
MFS Fund Distributors, Inc. row, MFS earned a #1 ranking in the
500 Boylston Street DALBAR, Inc. Broker/Dealer Survey, Main
Boston, MA 02116-3741 Office Operations Service Quality
Category. The firm achieved a 3.42 overall
PORTFOLIO MANAGER score on a scale of 1 to 4 in the 1997
Steven E. Nothern* survey. A total of 111 firms responded,
offering input on the quality of service
TREASURER they received from 29 mutual fund
W. Thomas London* companies nationwide. The survey contained
questions about service quality in 11
ASSISTANT TREASURERS categories, including "knowledge of
Mark E. Bradley* operations contact," "keeping you
Ellen Moynihan* informed," and "ease of doing business"
James O. Yost* with the firm.
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
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MFS(R) Government Bulk Rate
Securities Fund U.S. Postage
Paid
[Logo] MFS
INVESTMENT MANAGEMENT ----------------
We invented the mutual fund(SM)
500 Boylston Street
Boston, MA 02116-3741
[Dalbar Logo]
(C)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MGS-2 4/98 47M 26/226/326/826
