<PAGE>
[Logo] MFS(R)
INVESTMENT MANAGEMENT
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
[graphic omitted]
MFS(R) GOVERNMENT
SECURITIES FUND
ANNUAL REPORT o FEBRUARY 28, 1999
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DIVERSIFYING YOUR INVESTMENT PORTFOLIO (see page 27)
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<PAGE>
Table of Contents
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 3
Performance Summary ....................................................... 7
Portfolio of Investments .................................................. 11
Financial Statements ...................................................... 13
Notes to Financial Statements ............................................. 19
Independent Auditors' Report .............................................. 24
MFS' Year 2000 Readiness Disclosure ....................................... 26
Trustees and Officers ..................................................... 29
MFS CELEBRATES ITS DIAMOND ANNIVERSARY!
MARCH 21, 1999, MARKS THE 75TH ANNIVERSARY OF MFS' INVENTION OF THE
MUTUAL FUND. THE MUTUAL FUND INDUSTRY HAS BROUGHT THE POWER OF INVESTING
TO EVERY AMERICAN, OFFERING THEM THE OPPORTUNITY FOR COLLEGE DEGREES,
HOME OWNERSHIP, AND COMFORTABLE RETIREMENT.
IMAGINE TODAY'S WORLD WITHOUT MUTUAL
FUNDS. WE COULDN'T. AND WHILE THE
YEARS AHEAD WILL BRING A NUMBER OF [GRAPHIC OMITTED]
CHALLENGES, OUR 75 YEARS OF EXPERIENCE
WILL HELP GUIDE A NEW GENERATION OF
INVESTORS INTO THE FUTURE.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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<PAGE>
Letter from the Chairman
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders,
Since we launched Massachusetts Investors Trust, the nation's first mutual fund,
75 years ago, MFS has weathered numerous market and economic cycles, from the
occasional recession to long periods of growth and prosperity. Throughout that
time, we have tried to give investors a realistic assessment of the investment
markets and, when necessary, to sound a note of caution -- even when market
conditions appear quite favorable.
Although the equity markets have overcome last year's volatility, we still think
stocks are overdue for a correction that will rid them of the excesses that have
developed. Perhaps the most glaring measure of those excesses is the high level
of valuations, that is, the amount equity investors are paying for each dollar
of earnings. By mid-March, the price-to-earnings (P/E) ratio of the average
stock in the Standard & Poor's 500 Composite Index, a popular, unmanaged index
of common stock total return performance, was almost 28% higher than it was a
year ago. While P/E ratios keep going up, earnings have essentially been flat,
and we believe they are likely to stay that way, for a few months at least. This
leaves stock prices vulnerable to negative events such as a domestic or
international crisis, a sudden increase in interest rates, or a slowing economy,
any of which could lead to lower corporate earnings.
While risks in the overall market have increased, one industry calls for
particular attention. For several months, Internet-related stocks have exhibited
extreme price volatility. The Internet's potential impact on the way individuals
and companies communicate and conduct business is certainly great, but we feel
that most of the recent run-up in the share prices of these companies is
unjustified. Many of them have not yet reported any profits, and there is no way
of knowing which of today's "hot" Internet stocks will be successful -- or even
in existence -- a few years from now. Therefore, we think the frenzy surrounding
even the best-known Internet stocks is purely speculative.
However, there are some established companies offering Internet-related products
and services that may generate revenue. These include companies that provide
networking equipment, that make servers to store information, and that help
customers make better use of Internet services. Because they already have
profitable businesses as well as the potential to use the Internet to increase
their opportunities to generate revenue, these companies have been the focus of
our research efforts.
Although we think valuations for the overall equity market, and especially for
Internet stocks, are excessive, we see this situation as an opportunity for our
portfolio managers to capitalize on MFS(R) Original Research(SM). This is a
fundamental, company-by-company process that helps us find investments that we
believe are most likely to achieve long-term earnings growth, through both
negative and positive market cycles.
We also rely heavily on our research process when investing in the fixed-income
markets. Last year, turmoil in emerging markets and volatility in the U.S. stock
market helped create a "flight to quality," meaning that investors moved toward
U.S. Treasury securities, which are seen as carrying less risk, and away from
almost everything else. As a result, yields on non-Treasury securities
increased, while yields on Treasuries fell. Some of these yield spreads, or
differentials, have narrowed, but they have not returned to the levels seen
before last year's market turmoil. We think this has created opportunities for
our portfolio managers to find attractive yields in these markets.
Individual investors, meanwhile, should keep in mind that the tremendous
increases in the broad stock market averages of the past several years are a
historical aberration and do not necessarily indicate future market performance.
If they are not already diversified across a range of investments, including
growth stock funds, value-oriented funds, and fixed-income funds, investors may
want to talk to their financial advisers about developing well-diversified
portfolios with the potential to weather unexpected changes in the markets.
Doing so may help investors more effectively meet their long-term financial
goals. We appreciate your confidence 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(R)
March 16, 1999
<PAGE>
Management Review and Outlook
[Photo of Steven E. Nothern]
Steven E. Nothern
For the 12 months ended February 28, 1999, Class A shares of the Fund provided a
total return of 6.00%, Class B shares 5.32%, Class C shares 5.23%, and Class I
shares 6.37%. These returns, which include the reinvestment of distributions but
exclude the effects of any sales charges, compare to a 6.39% return for the
Lehman Brothers Government/Mortgage Bond 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 tracked by
Lipper Analytical Services, Inc., an independent firm that reports mutual fund
performance, returned 5.08%.
Q. LET'S START BY TALKING ABOUT SOME OF THE MAJOR DEVELOPMENTS IN THE GLOBAL
MARKETS DURING THE PAST 12 MONTHS.
A. It's been a period of both good and bad news. When equity markets around the
world corrected sharply in the late summer and fall of 1998, yields on U.S.
Treasury bonds declined to record lows. One would be hard pressed to pick
another period that proved as volatile as the third quarter of 1998 for both
the bond and the stock markets. The Federal Reserve Board (the Fed) responded
to the market tumult by lowering short-term interest rates three times in
October and November and, as a result, Treasury bond yields fell to their
lowest levels in 30 years. (Principal value and interest on Treasury
securities are guaranteed by the U.S. government if held to maturity.)
Q. HOW DOES THE FUND'S STRATEGY AFFECT ITS POSITIONING AMONG VARIOUS GOVERNMENT
SECURITIES?
A. The Fund pursues its strategy of seeking current income and capital
preservation by owning just U.S. government securities and the very
highest-quality government-agency paper, such as that issued by the Federal
National Mortgage Association (Fannie Mae). We also invest in securities
issued by the Small Business Association and in 15- and 30-year
mortgage-backed securities. We have a very restricted list of eligible
investments, which means no corporate bonds, mortgage-derivative securities,
futures or options positions. This may limit some of our opportunities during
good times, but we believe it should help lower price risk in shaky
environments.
Q. HOW HAS INVESTOR PREFERENCE FOR U.S. TREASURIES IMPACTED THE FUND?
A. We somewhat underperformed the Lehman Index during the period because of the
sharp rally in the U.S. Treasury market in the summer and fall. This rally
came at the expense of other fixed-income markets such as government- agency
and mortgage-backed securities. However, we continue to believe that the
additional yield offered by these securities will provide better total
returns than Treasuries over the long term. In fact, the non-Treasury markets
have since recovered most of the ground they lost during the fall.
Q. WHAT CHANGES HAVE YOU MADE TO THE FUND SINCE LAST FALL'S MARKET TURMOIL?
A. Relative to the Lipper universe, we are maintaining the overweighting in
government-agency and mortgage-backed securities. Last fall, we felt that
these securities presented a great opportunity to add additional yield when
their interest rates versus comparable-maturity Treasuries reached what we
thought were high levels. Going forward, any additional financial market
turmoil could lead to a further increase in the yield differential of
government-agency and mortgage-backed securities over Treasuries, and we
would see that as another opportunity to add to our position in these
securities.
Q. BY BLENDING SHORT-, INTERMEDIATE-, AND LONGER-TERM SECURITIES, A FUND CAN
CHANGE ITS DURATION, THAT IS, ITS EXPOSURE TO CHANGES IN INTEREST RATES. WHAT
IS THIS FUND'S DURATION?
A. Right now, the duration is 4.85 years, or about the same as the Lehman Index.
We want to avoid having too many long-maturity bonds because their prices
would go down if interest rates, which move in the opposite direction, went
up. By the same token, we don't want too many short- maturity bonds because
of their relatively low yields. If the economy shows signs of weakness over
the next few months, we would consider extending duration a little. That
would mean buying long-maturity securities to pick up additional yield at a
time when we believe interest rates are likely to remain stable or even
decline.
Q. DO YOU SEE INTEREST RATES CHANGING IN THE NEAR FUTURE?
A. We don't see much reason for a large change in either direction. The U.S.
economy grew by a surprisingly robust 6.1% in the fourth quarter of 1998.
Consumer spending was the biggest factor as lower inflation and strong wage
gains boosted household spending power. Given the domestic situation, we see
little reason for the Fed to cut interest rates at this time. On the other
hand, the Fed is constrained by weak economic activity overseas. Given the
fragility of several foreign financial systems, which leaves the United
States as an island of prosperity, we feel the Fed can't afford to slow the
U.S. economy by raising interest rates.
Q. WHAT DOES THIS STABLE INTEREST-RATE ENVIRONMENT MEAN FOR THE BOND MARKET, AND
WHAT CHANGES MIGHT YOU MAKE IN THE FUND AS A RESULT?
A. In the near term, we think the bond market will continue to adjust to the
growing acceptance that there is no need to cut interest rates. This outlook
would keep two-year Treasury yields at around 4.85% to 5.125%. Yields on
longer-term Treasuries, meanwhile, may reflect growth perceptions. With the
Fed on the sidelines, if bond investors believe growth is too strong, they
may push up interest rates to put the brakes on a surging economy. Remember,
an environment of excessive growth is generally perceived as not good for
bond investors because it can lead to higher interest rates and lower bond
prices. However, because inflation has remained in check and the bond market
responds to the same concerns about a possible rise in global growth as the
Fed, we believe any rate increase would be limited and would present a buying
opportunity for the Fund.
/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.
<PAGE>
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PORTFOLIO MANAGER'S PROFILE
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STEVEN E. NOTHERN IS SENIOR VICE PRESIDENT AND A MEMBER OF THE FIXED INCOME
MANAGEMENT GROUP OF MFS INVESTMENT MANAGEMENT(R). HE IS PORTFOLIO MANAGER OF
MFS(R) GOVERNMENT SECURITIES FUND, THE GOVERNMENT SECURITIES SERIES OFFERED
THROUGH MFS(R)/SUN LIFE ANNUITY PRODUCTS, MFS(R) INTERMEDIATE INCOME TRUST,
AND MFS(R) GOVERNMENT MARKETS INCOME TRUST.
MR. NOTHERN JOINED MFS IN 1986 IN THE FIXED INCOME DEPARTMENT AND WAS NAMED
VICE PRESIDENT IN 1989, PORTFOLIO MANAGER IN 1991, AND SENIOR VICE PRESIDENT
IN 1993. HE IS A GRADUATE OF MIDDLEBURY COLLEGE AND HOLDS A MASTER OF
BUSINESS ADMINISTRATION DEGREE FROM BOSTON UNIVERSITY. HE IS A CHARTERED
FINANCIAL ANALYST AND A MEMBER OF THE BOSTON SECURITY ANALYSTS SOCIETY, INC.
ALL PORTFOLIO MANAGERS AT MFS INVESTMENT MANAGEMENT(R) ARE SUPPORTED BY AN
INVESTMENT STAFF OF OVER 100 PROFESSIONALS UTILIZING MFS(R) ORIGINAL
RESEARCH(SM), A COMPANY-ORIENTED, BOTTOM-UP PROCESS OF SELECTING SECURITIES.
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. A prospectus containing more information,
including the exchange privilege and all charges and expenses, for any other MFS
product is available from your financial adviser, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
<PAGE>
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FUND FACTS
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OBJECTIVE: SEEKS CURRENT INCOME AND CAPITAL PRESERVATION.
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: $552.5 MILLION NET ASSETS AS OF FEBRUARY 28, 1999
PERFORMANCE SUMMARY
The following information illustrates the historical performance of the Fund's
original share class in comparison to various market indicators. Performance
results include the deduction of the maximum applicable sales charge and reflect
the percentage change in net asset value, including reinvestment of dividends.
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. (See Notes to Performance Summary for more information.)
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, 1999)
Lehman
MFS Brothers
Government Government/
Securities Mortgage
Fund - Class A Bond Index
- --------------------------------------------
2/94 $ 9,523 $10,000
2/95 9,638 10,183
2/96 10,823 11,391
2/97 11,221 11,991
2/98 12,332 13,223
2/99 13,072 14,068
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 10-year period ended February 28, 1999)
Lehman
MFS Brothers
Government Government/
Securities Mortgage
Fund - Class A Bond Index
- --------------------------------------------
2/89 $ 9,548 $10,000
2/91 11,616 12,695
2/93 14,540 15,951
2/95 15,455 17,079
2/97 17,992 20,111
2/99 20,961 23,594
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS THROUGH FEBRUARY 28, 1999
Class A
1 Year 3 Years 5 Years 10 Years/Life
- --------------------------------------------------------------------------------
Average Annual Total Return +6.00% +6.49% +6.54% +8.18%
- --------------------------------------------------------------------------------
SEC Results +0.96% +4.78% +5.51% +7.66%
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Class B
1 Year 3 Years 5 Years 10 Years/Life
- --------------------------------------------------------------------------------
Average Annual Total Return +5.32% +5.77% +5.81% +7.77%
- --------------------------------------------------------------------------------
SEC Results +1.32% +4.87% +5.50% +7.77%
- --------------------------------------------------------------------------------
Class C
1 Year 3 Years 5 Years 10 Years/Life
- --------------------------------------------------------------------------------
Average Annual Total Return +5.23% +5.80% +6.12% +7.97%
- --------------------------------------------------------------------------------
SEC Results +4.23% +5.80% +6.12% +7.97%
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Class I
1 Year 3 Years 5 Years 10 Years/Life
- --------------------------------------------------------------------------------
Average Annual Total Return +6.37% +6.78% +6.71% +8.27%
- --------------------------------------------------------------------------------
Comparative Indices
1 Year 3 Years 5 Years 10 Years/Life
- --------------------------------------------------------------------------------
Average U.S. government fund* +5.08% +6.18% +5.92% +7.94%
- --------------------------------------------------------------------------------
Lehman Brothers Government/
Mortgage Bond Index+ +6.39% +7.30% +7.06% +8.96%
- --------------------------------------------------------------------------------
* Source: Lipper Analytical Services, Inc.
+ Source: AIM.
<PAGE>
NOTES TO PERFORMANCE SUMMARY
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 adjusted 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. See the prospectus for details.
PORTFOLIO CONCENTRATION AS OF FEBRUARY 28, 1999
PORTFOLIO STRUCTURE
U.S. Treasuries 37.0%
Mortgage Backed 30.7%
Other Government Agencies 26.7%
Cash 5.6%
The portfolio is actively managed, and holdings are subject to change.
<PAGE>
PORTFOLIO OF INVESTMENTS -- February 28, 1999
Bonds - 93.7%
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PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- -----------------------------------------------------------------------------
U.S. Federal Agencies - 39.6%
Federal Home Loan Mortgage Corp., 5s, 2004 $26,000 $ 25,309,440
Federal Home Loan Mortgage Corp., 6.79s, 2005 5,000 5,312,500
Federal National Mortgage Assn., 5.25s, 2009 6,000 5,745,960
Federal National Mortgage Assn., 6s, 2013 6,862 6,792,977
Federal National Mortgage Assn., 6.5s, 2028 49,570 49,213,161
Federal National Mortgage Assn., 6.839s, 2011 4,900 4,956,656
Federal National Mortgage Assn., 6.95s, 2006 10,000 10,189,100
Federal National Mortgage Assn., 6.959s, 2007 9,862 10,219,188
Federal National Mortgage Assn., 7.5s,
2010 - 2013 22,812 23,503,423
Financing Corp., 9.8s, 2018 16,500 23,149,005
Financing Corp., 10.35s, 2018 10,700 15,710,596
Financing Corp., 10.7s, 2017 20,790 31,100,593
United States Department of Veteran Affairs,
6.3s, 2010 7,349 7,351,056
------------
$218,553,655
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U.S. Government Guaranteed - 54.1%
Government National Mortgage Association - 14.0%
GNMA, 6.5s, 2027 - 2028 $11,348 $ 11,280,726
GNMA, 7s, 2008 - 2025 31,426 31,956,686
GNMA, 7.5s, 2002 - 2027 13,197 13,598,262
GNMA, 8s, 2026 - 2027 10,333 10,765,893
GNMA, 8.5s, 2001 - 2009 4,875 5,091,174
GNMA, 9.25s, 2001 2,682 2,818,874
GNMA, 10.75s, 2015 - 2016 126 136,885
GNMA, 11.5s, 2010 - 2019 569 645,182
GNMA, 12s, 2013 - 2015 399 455,455
GNMA, 12.5s, 2011 544 623,479
------------
$ 77,372,616
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Small Business Administration - 3.4%
SBA, 8.625s, 2011 $ 2,867 $ 3,088,348
SBA, 8.8s, 2011 1,459 1,585,516
SBA, 9.05s, 2009 1,537 1,651,291
SBA, 9.1s, 2009 2,055 2,214,641
SBA, 9.25s, 2010 1,988 2,161,027
SBA, 9.3s, 2010 3,296 3,612,098
SBA, 9.5s, 2010 205 224,975
SBA, 9.65s, 2010 1,097 1,206,397
SBA, 9.7s, 2010 1,020 1,119,759
SBA, 9.9s, 2008 842 912,683
SBA, 10.05s, 2008 - 2009 815 890,167
------------
$ 18,666,902
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U.S. Treasury Obligations - 36.7%
U.S. Treasury Notes, 8.5s, 2000 $62,500 $ 64,472,500
U.S. Treasury Notes, 8s, 2001 8,250 8,721,818
U.S. Treasury Notes, 5.375s, 2003 25,000 25,058,500
U.S. Treasury Bonds, 11.875s, 2003 2,000 2,530,320
U.S. Treasury Notes, 4.75s, 2004 16,375 16,034,727
U.S. Treasury Bonds, 12.375s, 2004 10,650 13,979,829
U.S. Treasury Notes, 4.75s, 2008 10,000 9,587,500
U.S. Treasury Bonds, 10.375s, 2012 4,200 5,546,604
U.S. Treasury Bonds, 9.875s, 2015 7,050 10,079,314
U.S. Treasury Bonds, 6.375s, 2027 10,800 11,652,228
U.S. Treasury Bonds, 6.625s, 2027 14,000 15,577,240
U.S. Treasury Bonds, 3.625s, 2028 20,111 19,545,083
------------
$202,785,663
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Total U.S. Government Guaranteed $298,825,181
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Total Bonds (Identified Cost, $518,846,091) $517,378,836
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Short-Term Obligation - 5.3%
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Federal Home Loan Mortgage Corp., due 3/01/99,
at Amortized Cost $29,400 $ 29,400,000
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Total Investments (Identified Cost, $548,246,091) $546,778,836
Other Assets, Less Liabilities - 1.0% 5,756,502
- -----------------------------------------------------------------------------
Net Assets - 100.0% $552,535,338
- -----------------------------------------------------------------------------
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- --------------------------------------------------------------------------
February 28, 1999
- --------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $548,246,091) $546,778,836
Cash 22,574
Receivable for Fund shares sold 3,074,507
Interest receivable 5,571,089
Other assets 6,218
------------
Total assets $555,453,224
------------
Liabilities:
Payable for Fund shares reacquired $ 2,421,746
Payable to affiliates -
Management fee 13,559
Shareholder servicing agent fee 5,084
Distribution and service fee 282,652
Administrative fee 678
Accrued expenses and other liabilities 194,167
------------
Total liabilities $ 2,917,886
------------
Net assets $552,535,338
============
Net assets consist of:
Paid-in capital $581,284,750
Unrealized depreciation on investments (1,467,255)
Accumulated net realized loss on investments (27,191,429)
Accumulated distributions in excess of net investment
income (90,728)
------------
Total $552,535,338
============
Shares of beneficial interest outstanding 57,045,319
==========
Class A shares:
Net asset value per share
(net assets of $335,992,533 / 34,684,648 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 $173,568,650 / 17,935,037 shares of
beneficial interest outstanding) $ 9.68
======
Class C shares:
Net asset value and offering price per share
(net assets of $36,340,015 / 3,740,803 shares of
beneficial interest outstanding) $ 9.71
======
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets of $6,634,140 / 684,831 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
- -------------------------------------------------------------------------
YEAR ENDED FEBRUARY 28, 1999
- -------------------------------------------------------------------------
Net investment income:
Interest income $32,086,337
-----------
Expenses -
Management fee $ 1,937,954
Trustees' compensation 42,570
Shareholder servicing agent fee 544,624
Distribution and service fee (Class A) 1,076,050
Distribution and service fee (Class B) 1,444,726
Distribution and service fee (Class C) 245,257
Administrative fee 59,509
Custodian fee 168,447
Printing 52,013
Postage 77,027
Auditing fees 37,480
Legal fees 19,443
Miscellaneous 289,759
-----------
Total expenses $ 5,994,859
Fees paid indirectly (120,060)
Reduction of expenses by investment adviser (485,623)
-----------
Net expenses $ 5,389,176
-----------
Net investment income $26,697,161
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (identified cost basis) on investment
transactions $ 5,533,151
Change in unrealized depreciation on investments (7,796,168)
-----------
Net realized and unrealized loss on investments $(2,263,017)
-----------
Increase in net assets from operations $24,434,144
===========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 28, 1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 26,697,161 $ 25,775,670
Net realized gain on investments 5,533,151 4,173,134
Net unrealized gain (loss) on investments (7,796,168) 7,678,440
------------- -------------
Increase in net assets from operations $ 24,434,144 $ 37,627,244
------------- -------------
Distributions declared to shareholders -
From net investment income (Class A) $ (17,718,006) $ (18,372,972)
From net investment income (Class B) (7,332,329) (6,423,382)
From net investment income (Class C) (1,216,257) (424,810)
From net investment income (Class I) (472,212) (98,923)
------------- -------------
Total distributions declared to shareholders $ (26,738,804) $ (25,320,087)
------------- -------------
Net increase (decrease) in net assets from Fund share
transactions $ 136,040,201 $ (8,169,658)
------------- -------------
Total increase in net assets $ 133,735,541 $ 4,137,499
Net assets:
At beginning of period 418,799,797 414,662,298
------------- -------------
At end of period (including accumulated undistributed
(distributions in excess of) net investment income of
($90,728) and $286,051, respectively) $ 552,535,338 $ 418,799,797
============= =============
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 28/29, 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A
- -----------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $ 9.69 $ 9.40 $ 9.67 $ 9.22 $ 9.79
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.56 $ 0.62 $ 0.62 $ 0.66 $ 0.67
Net realized and unrealized gain (loss)
on investments 0.01 0.28 (0.28) 0.45 (0.58)
------ ------ ------ ------ ------
Total from investment operations $ 0.57 $ 0.90 $ 0.34 $ 1.11 $ 0.09
------ ------ ------ ------ ------
Less distributions declared to
shareholders from net investment income $(0.57) $(0.61) $(0.61) $(0.66) $(0.66)
------ ------ ------ ------ ------
Net asset value - end of period $ 9.69 $ 9.69 $ 9.40 $ 9.67 $ 9.22
====== ====== ====== ====== ======
Total return(+) 6.00% 9.91% 3.67% 12.29% 1.21%
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.92% 0.94% 0.91% 0.84% 0.79%
Net investment income 5.76% 6.50% 6.56% 6.83% 7.24%
Portfolio turnover 176% 212% 339% 352% 385%
Net assets at end of period (000 omitted) $335,993 $282,809 $293,286 $322,740 $318,116
# Per share data are based on average shares outstanding.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash maintained
by the Fund with its custodian and dividend disbursing agent. For fiscal years ending after September 1, 1995, the Fund's
expenses are calculated without reduction for this expense offset arrangement.
(+) 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 the ratios would have been:
Net investment income $ 0.55 $ 0.61 $ 0.61 $ 0.64 $ 0.65
Ratios (to average net assets):
Expenses## 1.02% 1.04% 1.06% 1.05% 1.05%
Net investment income 5.66% 6.40% 6.41% 6.62% 6.98%
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 28/29, 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B
- -----------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $ 9.68 $ 9.39 $ 9.66 $ 9.22 $ 9.78
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.50 $ 0.55 $ 0.55 $ 0.59 $ 0.59
Net realized and unrealized gain (loss)
on investments 0.01 0.28 (0.28) 0.44 (0.56)
------ ------ ------ ------ ------
Total from investment operations $ 0.51 $ 0.83 $ 0.27 $ 1.03 $ 0.03
------ ------ ------ ------ ------
Less distributions declared to
shareholders from net investment income $(0.51) $(0.54) $(0.54) $(0.59) $(0.59)
------ ------ ------ ------ ------
Net asset value - end of period $ 9.68 $ 9.68 $ 9.39 $ 9.66 $ 9.22
====== ====== ====== ====== ======
Total return 5.32% 9.17% 2.92% 11.46% 0.57%
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.57% 1.59% 1.62% 1.56% 1.51%
Net investment income 5.08% 5.84% 5.85% 6.09% 6.52%
Portfolio turnover 176% 212% 339% 352% 385%
Net assets at end of period (000 omitted) $173,569 $117,077 $114,861 $124,921 $105,178
# Per share data are based on average shares outstanding.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash maintained by
the Fund with its custodian and dividend disbursing agent. For fiscal years ending after September 1, 1995, the Fund's expenses
are calculated without reduction for this expense offset arrangement.
(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 $ 0.48 $ 0.54 $ 0.54 $ 0.57 $ 0.57
Ratios (to average net assets):
Expenses## 1.67% 1.69% 1.77% 1.77% 1.77%
Net investment income 4.98% 5.74% 5.70% 5.88% 6.26%
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
FEBRUARY 28, PERIOD ENDED FEBRUARY 28, PERIOD ENDED
------------------------- FEBRUARY 28, ----------------------- FEBRUARY 28,
1999 1998 1997** 1999 1998 1997***
- ------------------------------------------------------------------------------------------------------------------------------
CLASS C CLASS I
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of
period $ 9.72 $ 9.43 $ 9.51 $ 9.69 $ 9.40 $ 9.41
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.49 $ 0.55 $ 0.47 $ 0.59 $ 0.62 $ 0.10
Net realized and unrealized
gain (loss) on investments 0.01 0.29 (0.09) 0.01 0.31 (0.01)
------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.50 $ 0.84 $ 0.38 $ 0.60 $ 0.93 $ 0.09
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders from net
investment income $(0.51) $(0.55) $(0.46) $(0.60) $(0.64) $(0.10)
------ ------ ------ ------ ------ ------
Net asset value - end of period $ 9.71 $ 9.72 $ 9.43 $ 9.69 $ 9.69 $ 9.40
====== ====== ====== ====== ====== ======
Total return 5.23% 9.15% 4.06%++ 6.37% 10.31% 1.03%++
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 1.57% 1.59% 1.55%+ 0.57% 0.53% 0.48%+
Net investment income 5.03% 5.85% 5.97%+ 6.13% 6.85% 7.22%+
Portfolio turnover 176% 212% 339% 176% 212% 339%
Net assets at end of period
(000 omitted) $36,340 $11,354 $6,046 $6,634 $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 has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash maintained
by the Fund with its custodian and dividend disbursing agent. The Fund's expenses are calculated without reduction for this
expense offset arrangement.
(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 $ 0.48 $ 0.54 $ 0.46 $ 0.58 $ 0.61 $ 0.09
Ratios (to average net assets):
Expenses## 1.67% 1.69% 1.70%+ 0.67% 0.63% 0.63%+
Net investment income 4.93% 5.75% 5.82%+ 6.03% 6.75% 7.07%+
</TABLE>
See notes to financial statements
<PAGE>
Notes to Financial Statements
(1) Business and Organization
MFS Government Securities Fund (the Fund) is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an 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 collateral 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 collateral to ensure that its value, including
accrued interest, 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 discount is
accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Interest payments received in additional
securities are recorded on the ex-interest date in an amount equal to the value
of the security on such date. 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 month end 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 net realized gains.
During the year ended February 28, 1999, $335,136 and $75,117 were reclassified
from accumulated distributions in excess of net investment income and paid-in
capital, respectively, 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 the net assets or the net asset value per share.
As of February 28, 1999, the Fund, for federal income tax purposes, had a
capital loss carryforward of $26,973,227 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, ($10,846,466) and February 28,
2005, ($16,126,761).
Multiple Classes of Shares of Beneficial Interest - The Fund offers multiple
classes of shares, which 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. Class B shares will convert to Class A
shares approximately eight years after purchase.
(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
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 reduction of expenses in the Statement of Operations.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive remuneration
for their services to the Fund from MFS. Certain 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 $26,626 for the year ended
February 28, 1999.
Administrator - 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:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$199,411 for the year ended February 28, 1999, 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 paid 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 and 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. MFD retains the service fee for accounts not attributable to a
securities dealer, which amounted to $76,373 for the year ended February 28,
1999. Fees incurred under the distribution plan during the year ended February
28, 1999, 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 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 $21,724 and $571 for Class B and Class C shares, respectively, for
the year ended February 28, 1999. Fees incurred under the distribution plan
during the year ended February 28, 1999, were 1.00% of average daily net assets
attributable to Class B and Class C shares on an annualized basis.
Certain Class A and Class C shares are subject to a contingent deferred sales
charge in the event of a shareholder redemption within 12 months following
purchase. A contingent deferred sales charge is imposed on shareholder
redemption's of Class B shares in the event of a shareholder redemption within
six years of purchase. MFD receives all contingent deferred sales charges.
Contingent deferred sales charges imposed during the year ended February 28,
1999, were $3,509, $429,961, and $21,937 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
0.1125%.
(4) Portfolio Securities
Purchases and sales of investments, other than short-term obligations,
aggregated $917,728,850 and $810,889,559, 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 $548,464,294
------------
Gross unrealized depreciation $ (7,267,424)
Gross unrealized appreciation 5,581,966
------------
Net unrealized depreciation $ (1,685,458)
============
(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. Transactions in
Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares
YEAR ENDED FEBRUARY 28, 1999 YEAR ENDED FEBRUARY 28, 1998
------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 29,078,923 $ 286,082,950 5,464,276 $ 52,177,939
Shares issued to shareholders in
reinvestment of distributions 1,265,402 12,363,603 1,227,491 11,623,317
Shares reacquired (24,851,559) (244,539,132) (8,693,936) (82,954,183)
------------ -------------- ------------ -------------
Net increase (decrease) 5,492,766 $ 53,907,421 (2,002,169) $ (19,152,927)
============ ============== ============ =============
<CAPTION>
Class B Shares
YEAR ENDED FEBRUARY 28, 1999 YEAR ENDED FEBRUARY 28, 1998
------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 16,003,714 $ 157,290,466 3,856,898 $ 36,904,049
Shares issued to shareholders in
reinvestment of distributions 510,124 4,986,686 429,480 4,065,291
Shares reacquired (10,673,440) (104,618,135) (4,422,381) (42,111,012)
------------ -------------- ------------ -------------
Net increase (decrease) 5,840,398 $ 57,659,017 (136,003) $ (1,141,672)
============ ============== ============ =============
<CAPTION>
Class C Shares
YEAR ENDED FEBRUARY 28, 1999 YEAR ENDED FEBRUARY 28, 1998
------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 6,088,070 $ 59,953,337 746,832 $ 7,168,488
Shares issued to shareholders in
reinvestment of distributions 85,504 841,089 31,482 299,383
Shares reacquired (3,601,290) (35,374,514) (251,237) (2,396,844)
------------ -------------- ------------ -------------
Net increase 2,572,284 $ 25,419,912 527,077 $ 5,071,027
============ ============== ============ =============
<CAPTION>
Class I Shares
YEAR ENDED FEBRUARY 28, 1999 YEAR ENDED FEBRUARY 28, 1998
------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 12,891 $ 127,366 733,115 $ 7,080,671
Shares issued to shareholders in
reinvestment of distributions 48,211 470,569 10,257 98,774
Shares reacquired (156,330) (1,544,084) (13,261) (125,531)
------------ -------------- ------------ -------------
Net increase (decrease) (95,228) $ (946,149) 730,111 $ 7,053,914
============ ============== ============ =============
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in an $805 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, 1999, was $3,695.
<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, 1999, the related statement of operations for the year then ended, the
statement of changes in net assets for the years ended February 28, 1999 and
February 28, 1998, and the financial highlights for each of the years in the
five-year period ended February 28, 1999. 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, 1999 by correspondence with the custodian. 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, 1999, 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 9, 1999
<PAGE>
- --------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
- --------------------------------------------------------------------------------
In January 1999, shareholders were mailed a Form 1099 reporting the federal
tax status of all distributions paid during the calendar year 1998.
<PAGE>
MFS(R) GOVERNMENT SECURITIES FUND
TRUSTEES SECRETARY
Richard B. Bailey* - Private Stephen E. Cavan*
Investor; Former Chairman and
Director (until 1991), MFS ASSISTANT SECRETARY
Investment Management James R. Bordewick, Jr.*
Peter G. Harwood - Private CUSTODIAN
Investor State Street Bank and Trust
Company
J. Atwood Ives - Chairman and
Chief Executive Officer, Eastern INVESTOR INFORMATION
Enterprises (diversified services For MFS stock and bond market
company) outlooks, call toll free:
1-800-637-4458 anytime from
Lawrence T. Perera - Partner, a touch-tone telephone.
Hemenway & Barnes (attorneys)
For information on MFS mutual
William J. Poorvu - Adjunct funds, call your financial adviser
Professor, Harvard University or, for an information kit, call
Graduate School of Business toll free: 1-800-637-2929 any
Administration business day from 9 a.m. to 5 p.m.
Eastern time (or leave a message
Charles W. Schmidt - Private anytime).
Investor
INVESTOR SERVICE
Arnold D. Scott* - Senior MFS Service Center, Inc.
Executive Vice President, P.O. Box 2281
Director, and Secretary, MFS Boston, MA 02107-9906
Investment Management
For general information, call toll
Jeffrey L. Shames* - Chairman, free: 1-800-225-2606 any business
Chief Executive Officer, and day from 8 a.m. to 8 p.m. Eastern
Director, MFS Investment time.
Management
For service to speech- or
Elaine R. Smith - Independent hearing-impaired, call toll free:
Consultant 1-800-637-6576 any business day
from 9 a.m. to 5 p.m. Eastern
David B. Stone - Chairman and time. (To use this service, your
Director, North American phone must be equipped with a
Management Corp. (investment Telecommunications Device for the
advisers) Deaf.)
INVESTMENT ADVISER For share prices, account
Massachusetts Financial balances, and exchanges, call toll
Services Company free: 1-800-MFS-TALK
500 Boylston Street (1-800-637-8255) anytime from a
Boston, MA 02116-3741 touch-tone telephone.
DISTRIBUTOR WORLD WIDE WEB
MFS Fund Distributors, Inc. www.mfs.com
500 Boylston Street
Boston, MA 02116-3741
PORTFOLIO MANAGER
Steven E. Nothern*
TREASURER
W. Thomas London*
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
*Affiliated with the Investment Adviser
<PAGE>
----------------
MFS(R) GOVERNMENT Bulk Rate
SECURITIES FUND U.S. Postage
Paid
MFS
[Logo] MFS(R) ----------------
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
500 Boylston Street
Boston, MA 02116-3741
(C)1999 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MGS-2 4/99 37M 26/226/326/826
