<PAGE>
[Logo] M F S (R)
INVESTMENT MANAGEMENT
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
[Graphic Omitted]
MFS(R) GOVERNMENT
SECURITIES FUND
SEMIANNUAL REPORT o AUGUST 31, 1999
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 3
Performance Summary ....................................................... 7
Portfolio of Investments .................................................. 10
Financial Statements ...................................................... 12
Notes to Financial Statements ............................................. 19
MFS' Year 2000 Readiness Disclosure ....................................... 24
Trustees and Officers ..................................................... 25
MFS ORIGINAL RESEARCH(R)
RESEARCH HAS BEEN CENTRAL TO INVESTMENT MANAGEMENT AT MFS
SINCE 1932, WHEN WE CREATED ONE OF THE FIRST IN-HOUSE
RESEARCH DEPARTMENTS IN THE MUTUAL FUND (SM)
INDUSTRY. ORIGINAL RESEARCH(SM) AT MFS IS MORE ORIGINAL RESEARCH
THAN JUST CRUNCHING NUMBERS AND CREATING
ECONOMIC MODELS: IT'S GETTING TO KNOW MFS
EACH SECURITY AND EACH COMPANY PERSONALLY.
MAKES A DIFFERENCE
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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,
The current investment and economic environment bears little resemblance to last
year's. One year ago, global economies were floundering, and the crisis in Asia
threatened an already weak U.S. economy. Corporate earnings were flat, and
economists used the word "deflation" for the first time in recent memory.
Entering 1999, expectations for corporate earnings growth were lowered
dramatically. In an attempt to foster U.S. growth, the Federal Reserve Board
(the Fed) lowered interest rates.
As a result, this year the U.S. economy is booming and unemployment is low. Many
corporations are focused on improving their profitability, and investors have
been rewarded with positive surprises across a variety of industries. Our
analysts predict that corporate earnings growth for 1999 will average 12% - 15%.
Global economies also are showing signs of strength, and the Asian crisis has
passed. In fact, Japan's economic woes seem to have reached bottom. Although the
process is in its infancy, some Japanese corporations not only are talking about
restructuring and cost cutting, they also are beginning to take action, looking
within to become more competitive and improve returns on equity. While still
lagging the United States, Europe is beginning to restructure and consolidate.
These signs of international growth have contributed to concerns that the U.S.
economy now may be too strong. In June, and again in August, the Fed raised
rates by one-quarter of a percentage point to help ward off the specter of
inflation.
After an unprecedented four years of 20% annual returns in the U.S. equity
market, we fear that many investors have become accustomed to high returns and
have lost sight of the risks they take on to achieve them. In the current market
many investors are taking on additional risk - whether through day trading or
investing in speculative Internet stocks.
Risks are as much a part of the market today as they were one year ago. We
believe the market remains overvalued, with stocks priced 30% above our
analysts' earnings projections. And market narrowness has not abated; the top 25
stocks in the Standard & Poor's 500 Composite Index, a popular, unmanaged index
of common stock total return performance, are still the most overvalued. Such
extreme overvaluation makes the stock market sensitive to interest-rate news and
any negative earnings surprises. The Year 2000 (Y2K) computer problem is another
factor causing investor concern. While we believe corporate America is well
prepared to address any Y2K situations that may arise at year-end, no one can
predict investor behavior. In our opinion, it is investor behavior that has the
greatest potential to create market volatility.
We believe the best way to address Y2K and other market risks is through our
continuing commitment to MFS Original Research(R) and our fundamental investment
tenet of long-term investing. Whether markets are up or down, MFS analysts focus
on analyzing industries and visiting companies to determine the long-term
winners and the prices that will make them attractive opportunities. Because all
companies will not benefit equally from the improving international environment,
bottom-up research remains critical to identifying those that we believe are
successfully restructuring, consolidating, and gaining market share.
Changes in market and economic conditions can't be predicted but should always
be expected. The changes we have seen over the past year only reinforce our
commitment to long-term planning and investing. We believe volatility helps to
create opportunity for long-term investors to buy solid companies at attractive
prices. For this reason, we are continuing to expand our domestic and
international capabilities to ensure that MFS has primary, in-house research on
companies worldwide. We believe that we have built the right investment team,
backed by MFS Original Research, to take advantage of those opportunities for
our shareholders.
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)
September 15, 1999
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
[Photo of Steven E. Nothern]
Steven E. Nothern
For the six months ended August 31, 1999, Class A shares of the Fund provided a
total return of -1.67%, Class B shares -1.97%, Class C shares -1.97%, and Class
I shares -1.50%. These returns, which include the reinvestment of any
distributions but exclude the effects of any sales charges, compare to a -0.56%
return over the same period 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 reported by Lipper Analytical Services, Inc., an independent
firm that tracks mutual fund performance, returned -1.69%.
Q. LOOKING FIRST AT THE INVESTMENT ENVIRONMENT, WHAT LED THE FIXED-INCOME
MARKETS TO POST NEGATIVE RETURNS OVER THE PAST SIX MONTHS?
A. In 1999 the markets have had to adjust to a U.S. economy that has continued
to grow more rapidly than expected, sustaining fears that such growth could
eventually spark inflationary pressures. To compensate investors for the
effects of inflation, yields on most fixed-income instruments have risen,
leading to concurrent drops in bond prices and negative total returns. Most
market observers had expected growth to slow this year. However, the global
economy stabilized, and investors turned their focus back to the domestic
economy, where growth exceeded 4% in the first half of 1999. Fears of
inflation were rekindled, especially as unemployment remained at historically
low levels. In response, the Federal Reserve Board (the Fed) felt the need to
restrain the economy, increasing the probability that growth might slow to a
noninflationary level. The Fed increased short-term interest rates twice,
once in June and again in August.
Q. HOW DID YOU STRUCTURE THE PORTFOLIO IN TERMS OF DURATION AND MATURITY?
A. Not wanting to guess on the direction of interest rates, we kept the Fund's
duration -- a measure of its sensitivity to interest-rate changes -- neutral
relative to the Lehman Index. As far as the maturity structure was concerned,
the approach we used helped its relative performance. Over the period,
short-term interest rates rose proportionally more than yields on longer-term
securities because of anticipation of the Fed's tightening monetary policy.
We had anticipated such a scenario and underweighted the Fund's stake in
securities with maturities of three years or less.
Q. WHAT SEGMENT OF THE GOVERNMENT SECURITIES MARKET HAVE YOU FOUND TO BE MOST
ATTRACTIVE?
A. Government-agency securities. After Russia's default on its domestic debt
last year and the ensuing flight to the quality of U.S. Treasury securities,
agency yield spreads relative to those of Treasuries reached attractive
levels. We took advantage of this opportunity by buying high-quality agency
paper at what we believe to be particularly appealing prices. That move
helped performance because during the first several months of 1999 spreads
narrowed when the perceived risks of holding non- Treasuries receded, and
U.S. government-agency securities solidly outperformed comparable Treasuries.
An integral part of our strategy has been to maintain an overweighting in
agency notes relative to the Lehman Index. We believe that, over the long
term, government-agency securities offer attractive incremental returns
relative to comparable Treasuries, with essentially the same quality.
Q. WHAT ABOUT THE FUND'S TREASURY HOLDINGS?
A. The Fund's Treasury position remained underweighted compared to the Lehman
Index as a result of our focus on government-agency securities. For the most
part, we use our Treasury investments to help balance the Fund's duration.
During the period, we emphasized Treasuries with 15- to 20-year maturities
and those with maturities of one year and under, avoiding one- to four-year
Treasury securities because they have been most affected by the recent Fed
tightening.
Q. LET'S TOUCH UPON THE LAST OF THE THREE SECTORS FOUND IN THE FUND,
MORTGAGE-BACKED SECURITIES. WHAT WAS YOUR STRATEGY THERE?
A. For most of the period, we underweighted the Fund's investments in
mortgage-backed securities relative to the Lehman Index. That proved to be a
helpful strategy. While mortgages outperformed during the first few months of
the year, they did poorly as interest rates started to rise. One of the
characteristics of mortgage-backed securities is that their interest-rate
sensitivity increases as interest rates rise -- precisely the scenario an
investor wants to avoid. Therefore, as rates trended upward, mortgages
performed worse. Recently, we have added to the Fund's mortgage-backed
weighting -- largely through purchases of Ginnie Mae (Government National
Mortgage Association) and Fannie Mae (Federal National Mortgage Association)
securities -- because their yields had widened to attractive levels. By doing
so, we have brought the Fund's mortgage stake back in line with that of the
Lehman Index.
Q. WHAT'S YOUR OUTLOOK FOR THE REST OF 1999?
A. Economic growth has continued to exceed expectations. By tightening monetary
policy, the Fed has tried to improve the odds that growth will slow to a more
sustainable rate. Globally, growth has picked up once again. There is a great
deal of excess capacity in everything from automobiles to microchips.
Therefore, though the potential for inflation exists, and the market has been
pricing for that risk, we believe inflation pressures most likely will be
well contained. We believe that the U.S. economy will start to settle down,
and when it does the bond markets will be poised for a solid rebound. We just
have to be patient enough to wait it out. A moderation in growth has taken
longer than expected because in 1999 the U.S. economy rode the momentum
supplied by the Fed's three rate cuts in late 1998. Once we start to feel the
effects of the Fed's recent rate hikes and the economic picture stabilizes,
we think we should see better balance in the fixed-income markets.
/s/ Steven E. Nothern
Steven E. Nothern
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and are
current 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.
It is not possible to invest directly in an index.
<PAGE>
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PORTFOLIO MANAGER'S PROFILE
- --------------------------------------------------------------------------------
STEVEN E. NOTHERN IS SENIOR VICE PRESIDENT 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 ORIGINAL RESEARCH(R), 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 consultant, 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: $575.0 MILLION NET ASSETS AS OF AUGUST 31, 1999
PERFORMANCE SUMMARY
Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for the
applicable time periods. Investment results reflect the percentage change in net
asset value, including reinvestment of dividends. (See Notes to Performance
Summary for more information.)
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN THROUGH AUGUST 31, 1999
<TABLE>
<CAPTION>
CLASS A
6 Months 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return -1.67% -0.54% +20.05% +37.40% +101.05%
- --------------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- -0.54% + 6.28% + 6.56% + 7.23%
- --------------------------------------------------------------------------------------------------------------------
SEC Results -- -5.26% + 4.57% + 5.53% + 6.71%
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
6 Months 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return -1.97% -1.17% +17.70% +32.72% + 92.91%
- --------------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- -1.17% + 5.58% + 5.82% + 6.79%
- --------------------------------------------------------------------------------------------------------------------
SEC Results -- -4.93% + 4.68% + 5.50% + 6.79%
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
6 Months 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return -1.97% -1.25% +17.66% +34.32% + 96.54%
- --------------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- -1.25% + 5.57% + 6.08% + 6.99%
- --------------------------------------------------------------------------------------------------------------------
SEC Results -- -2.19% + 5.57% + 6.08% + 6.99%
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS I
6 Months 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return -1.50% -0.30% +21.22% +38.73% +103.00%
- --------------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- -0.30% + 6.62% + 6.77% + 7.34%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
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 AUGUST 31, 1999
PORTFOLIO STRUCTURE
U.S. Treasuries 28.0%
Other Government Agencies 28.4%
Mortgage Backed 37.1%
Cash 6.5%
The portfolio is actively managed, and current holdings may be different.
<PAGE>
PORTFOLIO OF INVESTMENTS (Unaudited) -- August 31, 1999
<TABLE>
<CAPTION>
Bonds - 92.5%
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PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Federal Agencies - 45.7%
Empresa Energetica Cornito Ltd., 6.07s, 2010 $13,500 $ 12,163,905
Federal Home Loan Mortgage Corp., 6.79s, 2005 5,000 5,045,313
Federal Home Loan Mortgage Corp., 7.5s, 2025 - 2028 6,193 6,156,671
Federal National Mortgage Assn., 5.625s, 2004 26,000 24,992,500
Federal National Mortgage Assn., 5.875s, 2004 4,750 4,574,108
Federal National Mortgage Assn., 6.13s, 2011 3,452 3,351,043
Federal National Mortgage Assn., 6.375s, 2009 6,000 5,787,180
Federal National Mortgage Assn., 6.5s, 2028 48,214 45,637,007
Federal National Mortgage Assn., 6.888s, 2011 9,468 9,410,304
Federal National Mortgage Assn., 6.95s, 2006 10,000 9,789,100
Federal National Mortgage Assn., 6.956s, 2007 9,657 9,584,635
Federal National Mortgage Assn., 7s, 2029 34,757 33,757,956
Federal National Mortgage Assn., 7.5s, 2010 - 2013 19,087 19,241,882
Financing Corp., 9.8s, 2018 16,500 21,354,630
Financing Corp., 10.35s, 2018 10,700 14,490,154
Financing Corp., 10.7s, 2017 20,955 28,960,439
United States Department of Housing and Urban
Development, 6.59s, 2016 6,599 5,928,789
United States Department of Veteran Affairs, 6.3s, 2010 2,229 2,225,301
-------------
$ 262,450,917
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U.S. Government Guaranteed - 46.8%
Government National Mortgage Association - 15.3%
GNMA, 6.5s, 2027 - 2029 $12,704 $ 11,980,957
GNMA, 7s, 2008 - 2029 55,637 54,192,488
GNMA, 7.5s, 2022 - 2027 5,199 5,159,346
GNMA, 8s, 2026 - 2027 8,339 8,443,055
GNMA, 8.5s, 2001 - 2009 4,053 4,220,366
GNMA, 9.25s, 2001 2,242 2,325,343
GNMA, 10.75s, 2015 - 2016 104 112,295
GNMA, 11.5s, 2010 - 2019 478 536,929
GNMA, 12s, 2013 - 2015 296 335,993
GNMA, 12.5s, 2011 506 579,389
------------
$ 87,886,161
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Small Business Administration - 3.9%
SBA, 6.24s, 2009 $ 5,000 $ 4,900,000
SBA, 8.625s, 2011 2,601 2,685,836
SBA, 8.8s, 2011 1,165 1,206,739
SBA, 9.05s, 2009 1,260 1,307,100
SBA, 9.1s, 2009 1,850 1,923,103
SBA, 9.25s, 2010 1,870 1,956,412
SBA, 9.3s, 2010 2,712 2,838,833
SBA, 9.5s, 2010 1,615 1,693,881
SBA, 9.65s, 2010 2,038 2,146,413
SBA, 9.7s, 2010 860 906,465
SBA, 9.9s, 2008 521 549,014
SBA, 10.05s, 2008 - 2009 480 509,047
-------------
$ 22,622,843
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U.S. Treasury Obligations - 27.6%
U.S Treasury Bonds, 11.875s, 2003 $ 2,000 $ 2,420,000
U.S. Treasury Bonds, 12.375s, 2004 10,650 13,319,103
U.S. Treasury Bonds, 10.375s, 2012 4,200 5,248,698
U.S. Treasury Bonds, 9.875s, 2015 26,300 35,209,125
U.S. Treasury Bonds, 3.625s, 2028 10,295 9,584,329
U.S. Treasury Bonds, 3.875s, 2029 10,110 9,838,146
U.S. Treasury Bonds, 5.25s, 2029 9,000 7,872,210
U.S. Treasury Notes, 8.5s, 2000 5,000 5,069,550
U.S. Treasury Notes, 8s, 2001 8,250 8,545,185
U.S. Treasury Notes, 4.25s, 2003 16,375 15,366,955
U.S. Treasury Notes, 5.375s, 2003 25,000 24,535,250
U.S. Treasury Notes, 5.625s, 2008 22,500 21,716,100
------------
$ 158,724,651
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Total U.S. Government Guaranteed $ 269,233,655
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Total Bonds (Identified Cost, $554,511,757) $ 531,684,572
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Repurchase Agreement - 6.5%
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Goldman Sachs, dated 8/31/99, due 9/1/99, total to be
received $37,728,658 (secured by various U.S.
Treasury and Federal Agency obligations in a
jointly traded account), at Cost $37,723 $ 37,723,000
- ----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $592,234,757) $569,407,572
Other Assets, Less Liabilities - 1.0% 5,560,871
- ----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $574,968,443
- ----------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- ------------------------------------------------------------------------------
AUGUST 31, 1999
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $592,234,757) $569,407,572
Cash 168
Receivable for Fund shares sold 1,513,445
Interest receivable 7,525,055
Other assets 6,219
------------
Total assets $578,452,459
------------
Liabilities:
Payable for Fund shares reacquired $ 2,937,728
Payable to affiliates -
Management fee 14,271
Shareholder servicing agent fee 4,757
Distribution and service fee 310,376
Administrative fee 714
Accrued expenses and other liabilities 216,170
------------
Total liabilities $ 3,484,016
------------
Net assets $574,968,443
============
Net assets consist of:
Paid-in capital $629,905,194
Unrealized depreciation on investments (22,827,185)
Accumulated net realized loss on investments (32,734,873)
Accumulated undistributed net investment income 625,307
------------
Total $574,968,443
============
Shares of beneficial interest outstanding 62,112,844
==========
Class A shares:
Net asset value per share
(net assets of $345,733,134 / 37,341,764 shares of
beneficial interest outstanding) $9.26
=====
Offering price per share (100 / 95.25 of net asset value
per share) $9.72
=====
Class B shares:
Net asset value and offering price per share
(net assets of $185,314,427 / 20,038,316 shares of
beneficial interest outstanding) $9.25
=====
Class C shares:
Net asset value and offering price per share
(net assets of $37,543,476 / 4,044,053 shares of
beneficial interest outstanding) $9.28
=====
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets of $6,377,406 / 688,711 shares of
beneficial interest outstanding) $9.26
=====
On sales of $100,000 or more, the offering price of Class A shares is reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A, Class
B, and Class C shares.
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
Statement of Operations (Unaudited)
- ------------------------------------------------------------------------------
SIX MONTHS ENDED AUGUST 31, 1999
- ------------------------------------------------------------------------------
Net investment income:
Interest income $ 19,583,617
------------
Expenses -
Management fee $ 1,155,883
Trustees' compensation 29,460
Shareholder servicing agent fee 294,130
Distribution and service fee (Class A) 608,857
Distribution and service fee (Class B) 911,656
Distribution and service fee (Class C) 197,737
Administrative fee 43,228
Custodian fee 79,452
Printing 25,143
Postage 45,433
Auditing fees 17,279
Legal fees 4,651
Miscellaneous 232,609
------------
Total expenses $ 3,645,518
Fees paid indirectly (45,683)
Reduction of expenses by investment adviser (291,339)
------------
Net expenses $ 3,308,496
------------
Net investment income $ 16,275,121
------------
Realized and unrealized gain (loss) on investments:
Realized loss (identified cost basis) on investment
transactions $ (5,543,444)
Change in unrealized depreciation on investments (21,359,930)
------------
Net realized and unrealized loss on investments $(26,903,374)
------------
Decrease in net assets from operations $(10,628,253)
============
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
AUGUST 31, 1999 FEBRUARY 28, 1999
(UNAUDITED)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 16,275,121 $ 26,697,161
Net realized gain (loss) on investments (5,543,444) 5,533,151
Net unrealized loss on investments (21,359,930) (7,796,168)
------------ ------------
Increase (decrease) in net assets from
operations $(10,628,253) $ 24,434,144
------------ ------------
Distributions declared to shareholders -
From net investment income (Class A) $ (9,783,949) $(17,718,006)
From net investment income (Class B) (4,594,809) (7,332,329)
From net investment income (Class C) (983,433) (1,216,257)
From net investment income (Class I) (196,895) (472,212)
------------ ------------
Total distributions declared to shareholders $(15,559,086) $(26,738,804)
------------ ------------
Net increase in net assets from Fund share
transactions $ 48,620,444 $136,040,201
------------ ------------
Total increase in net assets $ 22,433,105 $133,735,541
Net assets:
At beginning of period 552,535,338 418,799,797
------------ ------------
At end of period (including accumulated
undistributed (distributions in excess
of net) investment income of $625,307
and ($90,728), respectively) $574,968,443 $552,535,338
============ ============
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 28/29
SIX MONTHS ENDED -------------------------------------------------------------------------
AUGUST 31, 1999 1999 1998 1997 1996 1995
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------
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 $ 9.69 $ 9.69 $ 9.40 $ 9.67 $ 9.22 $ 9.79
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.28 $ 0.56 $ 0.62 $ 0.62 $ 0.66 $ 0.67
Net realized and unrealized
gain (loss) on investments (0.44) 0.01 0.28 (0.28) 0.45 (0.58)
------ ------ ------ ------ ------ ------
Total from investment
operations $(0.16) $ 0.57 $ 0.90 $ 0.34 $ 1.11 $ 0.09
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders from net
investment income $(0.27) $(0.57) $(0.61) $(0.61) $(0.66) $(0.66)
------ ------ ------ ------ ------ ------
Net asset value - end of period $ 9.26 $ 9.69 $ 9.69 $ 9.40 $ 9.67 $ 9.22
====== ====== ====== ====== ====== ======
Total return(+) (1.67)%++ 6.00% 9.91% 3.67% 12.29% 1.21%
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 0.91%+ 0.92% 0.94% 0.91% 0.84% 0.79%
Net investment income 5.88%+ 5.76% 6.50% 6.56% 6.83% 7.24%
Portfolio turnover 53% 176% 212% 339% 352% 385%
Net assets at end of period
(000 omitted) $345,733 $335,993 $282,809 $293,286 $322,740 $318,116
(S) The investment adviser voluntarily waived a portion of its fee for the periods indicated. If this fee had been incurred by
the Fund, the net investment income per share and the ratios would have been:
Net investment income $ 0.28 $ 0.55 $ 0.61 $ 0.61 $ 0.64 $ 0.65
Ratios (to average net assets):
Expenses## 1.01%+ 1.02% 1.04% 1.06% 1.05% 1.05%
Net investment income 5.78%+ 5.66% 6.40% 6.41% 6.62% 6.98%
+ 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. 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.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 28/29
SIX MONTHS ENDED -------------------------------------------------------------------------
AUGUST 31, 1999 1999 1998 1997 1996 1995
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of
period $ 9.68 $ 9.68 $ 9.39 $ 9.66 $ 9.22 $ 9.78
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.25 $ 0.50 $ 0.55 $ 0.55 $ 0.59 $ 0.59
Net realized and unrealized
gain (loss) on investments (0.44) 0.01 0.28 (0.28) 0.44 (0.56)
------ ------ ------ ------ ------ ------
Total from investment
operations $(0.19) $ 0.51 $ 0.83 $ 0.27 $ 1.03 $ 0.03
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders from net
investment income $(0.24) $(0.51) $(0.54) $(0.54) $(0.59) $(0.59)
------ ------ ------ ------ ------ ------
Net asset value - end of period $ 9.25 $ 9.68 $ 9.68 $ 9.39 $ 9.66 $ 9.22
====== ====== ====== ====== ====== ======
Total return (1.97)%++ 5.32% 9.17% 2.92% 11.46% 0.57%
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 1.56%+ 1.57% 1.59% 1.62% 1.56% 1.51%
Net investment income 5.23%+ 5.08% 5.84% 5.85% 6.09% 6.52%
Portfolio turnover 53% 176% 212% 339% 352% 385%
Net assets at end of period
(000 omitted) $185,314 $173,569 $117,077 $114,861 $124,921 $105,178
(S) The investment adviser voluntarily waived a portion of its fee for the periods indicated. If this fee had been incurred by the
Fund, the net investment income per share and the ratios would have been:
Net investment income $ 0.25 $ 0.48 $ 0.54 $ 0.54 $ 0.57 $ 0.57
Ratios (to average net assets):
Expenses## 1.66%+ 1.67% 1.69% 1.77% 1.77% 1.77%
Net investment income 5.13%+ 4.98% 5.74% 5.70% 5.88% 6.26%
+ 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. For fiscal years ending after September 1, 1995, the Fund's expenses
are calculated without reduction for this expense offset arrangement.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ---------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED
FEBRUARY 28, PERIOD ENDED
SIX MONTHS ENDED ------------------------------ FEBRUARY 28,
AUGUST 31, 1999 1999 1998 1997*
(UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS C
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 9.71 $ 9.72 $ 9.43 $ 9.51
------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.25 $ 0.49 $ 0.55 $ 0.47
Net realized and unrealized gain (loss) on
investments (0.44) 0.01 0.29 (0.09)
------ ------ ------ ------
Total from investment operations $(0.19) $ 0.50 $ 0.84 $ 0.38
------ ------ ------ ------
Less distributions declared to shareholders from
net investment income $(0.24) $(0.51) $(0.55) $(0.46)
------ ------ ------ ------
Net asset value - end of period $ 9.28 $ 9.71 $ 9.72 $ 9.43
====== ====== ====== ======
Total return (1.97)%++ 5.23% 9.15% 4.06%++
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 1.56%+ 1.57% 1.59% 1.55%+
Net investment income 5.23%+ 5.03% 5.85% 5.97%+
Portfolio turnover 53% 176% 212% 339%
Net assets at end of period (000 omitted) $37,543 $36,340 $11,354 $6,046
(S) The investment adviser voluntarily waived a portion of its fee for the periods indicated. If this fee had been incurred by the
Fund, the net investment income per share and the ratios would have been:
Net investment income $ 0.25 $ 0.48 $ 0.54 $ 0.46
Ratios (to average net assets):
Expenses## 1.66%+ 1.67% 1.69% 1.70%+
Net investment income 5.13%+ 4.93% 5.75% 5.82%+
* For the period from the inception of Class C, April 1, 1996, 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.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED
FEBRUARY 28, PERIOD ENDED
SIX MONTHS ENDED ------------------------------ FEBRUARY 28,
AUGUST 31, 1999 1999 1998 1997*
(UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------
CLASS I
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 9.69 $ 9.69 $ 9.40 $ 9.41
------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.30 $ 0.59 $ 0.62 $ 0.10
Net realized and unrealized gain (loss) on
investments (0.44) 0.01 0.31 (0.01)
------ ------ ------ ------
Total from investment operations $(0.14) $ 0.60 $ 0.93 $ 0.09
------ ------ ------ ------
Less distributions declared to shareholders from
net investment income $(0.29) $(0.60) $(0.64) $(0.10)
------ ------ ------ ------
Net asset value - end of period $ 9.26 $ 9.69 $ 9.69 $ 9.40
====== ====== ====== ======
Total return (1.50)%++ 6.37% 10.31% 1.03%++
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 0.56%+ 0.57% 0.53% 0.48%+
Net investment income 6.23%+ 6.13% 6.85% 7.22%+
Portfolio turnover 53% 176% 212% 339%
Net assets at end of period (000 omitted) $6,377 $6,634 $7,560 $470
(S) The investment adviser voluntarily waived a portion of its fee for the periods indicated. If this fee had been incurred by the
Fund, the net investment income per share and the ratios would have been:
Net investment income $ 0.30 $ 0.58 $ 0.61 $ 0.09
Ratios (to average net assets):
Expenses## 0.66%+ 0.67% 0.63% 0.63%+
Net investment income 6.13%+ 6.03% 6.75% 7.07%+
* 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.
</TABLE>
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS Government Securities Fund (the Fund) is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as 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.
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 distributions from paid-in
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.
At 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. 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 the Fund's average daily net
assets or (ii) 0.25% of the Fund's average daily net assets plus 3.40% of
investment income. The investment advisor has voluntarily agreed to waive a
portion of its fee, which is shown 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 $11,153 for the six months
ended August 31, 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
$123,209 for the six months ended August 31, 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 $43,468 for the six months ended August 31,
1999. Fees incurred under the distribution plan during the six months ended
August 31, 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 $8,466, and $430 for Class B and Class C shares, respectively, for
the six months ended August 31, 1999. Fees incurred under the distribution plan
during the six months ended August 31, 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
redemptions of Class B shares in the event of a shareholder redemption within
six years of purchase. MFD receives all contingent deferred sales charges.
Contingent deferred sales charges imposed during the six months ended August 31,
1999, were $33,135, $234,879, and $24,596 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
0.10%. Prior to April 1, 1999, the fee was 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, were as
follows:
PURCHASES SALES
- -----------------------------------------------------------------------------
U.S. government securities $310,275,372 $284,786,090
------------ ------------
Investments (non-U.S. government securities) $ 20,099,000 $ 4,424,274
------------ ------------
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the Fund, as computed on a federal income tax basis, are as
follows:
Aggregate cost $592,234,757
------------
Gross unrealized depreciation $(24,160,276)
Gross unrealized appreciation 1,333,091
------------
Net depreciation $(22,827,185)
============
(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
SIX MONTHS ENDED AUGUST 31, 1999 YEAR ENDED FEBRUARY 28, 1999
-------------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 22,799,937 $ 217,034,011 29,078,923 $ 286,082,950
Shares issued to shareholders
in reinvestment of distributions 753,444 7,138,219 1,265,402 12,363,603
Shares reacquired (20,896,265) (198,782,039) (24,851,559) (244,539,132)
------------- ------------- ------------- -------------
Net increase 2,657,116 $ 25,390,191 5,492,766 $ 53,907,421
============= ============= ============= =============
<CAPTION>
Class B Shares
SIX MONTHS ENDED AUGUST 31, 1999 YEAR ENDED FEBRUARY 28, 1999
-------------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 5,950,641 $ 56,579,818 16,003,714 $ 157,290,466
Shares issued to shareholders
in reinvestment of distributions 338,991 3,209,365 510,124 4,986,686
Shares reacquired (4,186,353) (39,726,028) (10,673,440) (104,618,135)
------------- ------------- ------------- -------------
Net increase 2,103,279 $ 20,063,155 5,840,398 $ 57,659,017
============= ============= ============= =============
<CAPTION>
Class C Shares
SIX MONTHS ENDED AUGUST 31, 1999 YEAR ENDED FEBRUARY 28, 1999
-------------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 3,121,849 $ 29,749,341 6,088,070 $ 59,953,337
Shares issued to shareholders
in reinvestment of distributions 68,878 654,803 85,504 841,089
Shares reacquired (2,887,477) (27,274,523) (3,601,290) (35,374,514)
------------- ------------- ------------- -------------
Net increase 303,250 $ 3,129,621 2,572,284 $ 25,419,912
============= ============= ============= =============
<CAPTION>
Class I Shares
SIX MONTHS ENDED AUGUST 31, 1999 YEAR ENDED FEBRUARY 28, 1999
-------------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 21,407 $ 205,703 12,891 $ 127,366
Shares issued to shareholders
in reinvestment of distributions 20,772 196,872 48,211 470,569
Shares reacquired (38,299) (365,098) (156,330) (1,544,084)
------------- ------------- ------------- -------------
Net increase (decrease) 3,880 $ 37,477 (95,228) $ (946,149)
============= ============= ============= =============
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in a $820 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 six
months ended August 31, 1999, was $2,070. The Fund had no significant borrowings
during the period.
<PAGE>
MFS' YEAR 2000 READINESS DISCLOSURE
MFS Investment Management(R), as an investment adviser and on behalf of the MFS
funds, is committed to the effective use of technology in managing our portfolio
investments, delivering high-quality service to MFS fund shareholders,
retirement plan participants, and MFS' institutional clients, and supporting the
financial consultants who sell our products. With that in mind, we created a
separately funded Year 2000 Program Management Office in 1996 comprised of a
specialized staff reporting directly to MFS senior management.
The Year 2000 (Y2K) problem arises because calendar-year fields in computers and
software applications traditionally have used two-digit codes so that, for
example, the year 1998 is coded as "98," with the "19" being implied. In the
year 2000, unless necessary corrections have been made, computer applications
may assume "00" refers to 1900 rather than 2000, thus resulting in systems
failures or miscalculations. To address this issue, our team of dedicated
business and technology managers, working with outside experts, is taking steps
to ascertain the Y2K readiness of MFS' internal systems and is working with our
external systems vendors to determine whether they expect their systems to be
ready.
MFS recognizes that fund shareholders and institutional clients also are
concerned about whether the companies whose securities are held in their
portfolios are addressing Y2K issues. As part of the MFS Original Research(R)
process of evaluating portfolio investments, one of the many relevant factors
that MFS' portfolio managers and research analysts may consider is a company's
Y2K readiness. Each year, MFS' research analysts and portfolio managers conduct
more than 1,000 on-site meetings with companies whose securities are, or may be,
held in fund and client portfolios, and host an additional 1,500 meetings at
MFS' headquarters. When assessing the Y2K readiness of these companies, MFS'
research analysts and portfolio managers may rely upon discussions at these
meetings as well as SEC disclosure documents and third-party reports.
Y2K readiness is an enormously complex, worldwide issue. No company or
institution can guarantee that it will be unaffected by the Y2K issue. While MFS
is taking significant steps to protect the integrity of its internal systems,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact on MFS, shareholders of MFS funds, participants in retirement
plans administered by MFS, or MFS' institutional clients.
If you have further questions regarding MFS' Year 2000 Readiness Program, please
visit our Web site at www.mfs.com or contact the MFS Year 2000 Program
Management Office by e-mail at [email protected] or by letter at 500 Boylston Street,
Boston, MA 02116-3741.
<PAGE>
<TABLE>
MFS(R) GOVERNMENT SECURITIES FUND
<S> <C>
TRUSTEES SECRETARY
Richard B. Bailey* - Private Investor; Stephen E. Cavan*
Former Chairman and Director (until 1991),
MFS Investment Management ASSISTANT SECRETARY
James R. Bordewick, Jr.*
J. Atwood Ives - Chairman and Chief Executive
Officer, Eastern Enterprises (diversified services CUSTODIAN
company) State Street Bank and Trust Company
Lawrence T. Perera - Partner, Hemenway INVESTOR INFORMATION
& Barnes (attorneys) For MFS stock and bond market outlooks, call toll
free: 1-800-637-4458 anytime from a touch-tone
William J. Poorvu - Adjunct Professor, Harvard telephone.
University Graduate School of Business
Administration For information on MFS mutual funds, call your
financial consultant or, for an information kit,
Charles W. Schmidt - Private Investor call toll free: 1-800-637-2929 any business day
from 9 a.m. to 5 p.m. Eastern time (or leave a
Arnold D. Scott* - Senior Executive message anytime).
Vice President, Director, and Secretary,
MFS Investment Management INVESTOR SERVICE
MFS Service Center, Inc.
Jeffrey L. Shames* - Chairman, Chief P.O. Box 2281
Executive Officer, and Director, Boston, MA 02107-9906
MFS Investment Management
For general information, call toll free:
Elaine R. Smith - Independent Consultant 1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
David B. Stone - Chairman and Director,
North American Management Corp. For service to speech- or hearing-impaired, call
(investment advisers) toll free: 1-800-637-6576 any business day from
9 a.m. to 5 p.m. Eastern time. (To use this
INVESTMENT ADVISER service, your phone must be equipped with a
Massachusetts Financial Services Company Telecommunications Device for the Deaf.)
500 Boylston Street
Boston, MA 02116-3741 For share prices, account balances, and exchanges,
call toll free: 1-800-MFS-TALK (1-800-637-8255)
DISTRIBUTOR anytime from a touch-tone telephone.
MFS Fund Distributors, Inc.
500 Boylston Street WORLD WIDE WEB
Boston, MA 02116-3741 www.mfs.com
CHAIRMAN AND PRESIDENT
Jeffrey L. Shames*
PORTFOLIO MANAGER
Steven E. Nothern*
TREASURER
W. Thomas London*
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
------------
MFS(R) GOVERNMENT SECURITIES FUND BULK RATE
U.S. POSTAGE
[Logo] M F S(R) PAID
INVESTMENT MANAGEMENT MFS
We invented the mutual fund(R) ------------
500 Boylston Street
Boston, MA 02116-3741
(c)1999 MFS Investment Management.(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116
MGS-3 10/99 44M 26/226/326/826
