<PAGE>
[Logo] M F S(R)
INVESTMENT MANAGEMENT
We invented the mutual fund(r)
[graphic omitted]
MFS(R) GOVERNMENT
SECURITIES FUND
ANNUAL REPORT o FEBRUARY 29, 2000
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 4
Performance Summary ....................................................... 8
Portfolio of Investments .................................................. 12
Financial Statements ...................................................... 14
Notes to Financial Statements ............................................. 21
Independent Auditors' Report .............................................. 27
Trustees and Officers ..................................................... 29
MFS ORIGINAL RESEARCH(SM)
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,
One could easily argue that the Internet represents the greatest technological
development most of us may see in our lifetimes. There is no disputing that this
new communication medium is changing forever the way we work, play, and shop.
One might also argue that investing in this new technology represents the
investment opportunity of a lifetime. The question for any investor is whether
and how to take advantage of it.
The popular press, it seems, would have us believe that by surfing the Web, we
can learn everything we need to know about investing. Indeed, there is no doubt
that Internet-delivered information and brokerage services enable individual
investors to be well informed and to trade at bargain prices. But we believe the
numbers and facts argue that, for most of us, mutual funds purchased through an
investment professional will continue to be one of the best products for
long-term investing in this new millennium.
According to a survey by the Investment Company Institute, the national
association of American investment companies, 44% of American households own
stock or bond mutual funds, while only 25.5% own individual stocks.(1) Of course
that doesn't tell us how well they did owning those funds or stocks, but another
statistic gives us a clue. In the third quarter of 1999, during a period of
volatility in the greatest bull market in history, a quarter of the 7,500 stocks
tracked by Morningstar, a popular rating service, lost more than 20% of their
value. But during the same period, fewer than 1% of the mutual funds tracked by
Morningstar -- 6 out of 10,000 funds -- were down by a similar amount.(2) So an
investor's chance of picking one of those losing stocks was about 25 times
greater than his or her chance of picking an equally losing fund.
The numbers also show that a majority of Americans seek professional advice when
buying mutual funds. Outside of employer-sponsored retirement plans,
approximately 68% of fund shareholders state that their primary method of
purchasing shares is through an investment professional.(1)
Why do we at MFS(R) believe that mutual funds plus professional advice will
continue to define the best course of action for many investors? Let's look at
some of the characteristics of a successful long-term investment approach:
o HAVING A PLAN AND STICKING TO IT: Our experience is that successful investors
-- those whose lives are enriched by the fruits of their investing -- share
two characteristics. They have a plan for reaching their monetary goals, and
they stick with that plan through up as well as down markets. And for many
investors, working with an investment professional may be the best way to
develop a plan. Although the Internet abounds with calculators for developing
all sorts of investment plans, none has your investment professional's high
level of experience and an understanding of your unique situation. And no
calculator can counsel you during a down market, when you may be tempted to
abandon your goals and your plan.
o DIVERSIFICATION: Few investors can afford to own a large number of holdings,
so poor performance of one company can potentially drag down their entire
portfolio. This is especially true when investing in volatile new areas such
as the Internet. On the other hand, a diversified mutual fund that owns dozens
or even hundreds of holdings is better positioned to survive a disappointment
in one or several investments.
o GOOD IN A DOWN MARKET: As we enter the tenth year of the greatest bull market
in history, it's easy to forget that market downturns are an almost inevitable
part of investing. Few mutual funds, of course, are going to be up when the
overall market is down. But as the numbers above from the third quarter of
1999 demonstrate, mutual funds may be less likely to suffer the extreme
downturns experienced by a large number of individual holdings when the market
heads south.
o MFS ORIGINAL RESEARCH(R): The Internet is one of the greatest research tools
ever invented, but it's still not the same as being eyeball to eyeball with
the management of a company and discussing their plans for their firm's
future.
o GOOD PERFORMANCE AT AN ACCEPTABLE LEVEL OF RISK: Investing in individual
stocks or bonds does indeed offer the potential of exhilarating performance
that few mutual funds even attempt. The downside is that the most exciting
investments are also likely to be the ones that give you sleepless nights. The
diversification and professional management of mutual funds help make them
inherently less risky than individual stock picking, and funds are available
in a wide range of risk profiles.
We believe that now, more than ever, mutual funds sold by an investment
professional may offer many investors the best way to participate in whatever
investment opportunities the new millennium may bring. The combination of
professional portfolio management and professional advice recognizes the key
reason that investors give us their money: because they don't want to make a
hobby or a second profession out of investing; they simply want their money to
work for them so they have a better likelihood of realizing their dreams.
As always, we appreciate your confidence in MFS 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 15, 2000
- --------------
(1) Source: Investment Company Institute.
(2) Source: Morningstar CEO Don Phillips' keynote address at The Baltimore Sun's
Dollars and Sense Conference, 10/99. In the period 7/1/99 through 9/30/99,
of the 7,500 stocks tracked by Morningstar, 1,865 lost 20% or more; of the
10,000 mutual funds tracked by Morningstar, six lost 20% or more. Mutual
fund results are at net asset value; if sales charges had been reflected,
results would have been lower.
Investments in mutual funds will fluctuate and may be worth more or less upon
redemption.
The opinions expressed in this letter are those of Jeffrey L. Shames, and no
forecasts can be guaranteed.
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
[Photo of Steven E. Nothern]
Steven E. Nothern
For the 12 months ended February 29, 2000, Class A shares of the Fund provided a
total return of 0.10%, Class B shares -0.52%, Class C shares -0.42%, and Class I
shares 0.43%. These returns, which include the reinvestment of any distributions
but exclude the effects of any sales charges, compare to a 1.41% return over the
same period for the Fund's benchmark, the Lehman Brothers Government/Mortgage
Index (the Lehman Index), an unmanaged index of U.S. Treasury,
government-agency, and mortgage-backed securities. The Fund's results also
compare to a -0.33% return for the average general U.S. government fund tracked
by Lipper Inc., an independent firm that reports mutual fund performance.
Q. WHAT WAS THE INVESTMENT ENVIRONMENT LIKE DURING THE PAST YEAR?
A. In 1999, economic growth momentum in the United States remained robust and
the unemployment rate continued to move lower, engendering concerns that
growth might be exceeding capacity, eventually leading to constraints and
inflationary pressures. As a result, the Federal Reserve Board (the Fed)
became convinced that it needed to apply some restraint to the economy,
gently tapping the brakes in order to moderate aggregate demand. To that
end, the Fed raised short-term interest rates four times, in June, August,
and November 1999, and again in February 2000. While we believe inflation
hasn't really been a problem, it remains quite possible that we might see
broad-based price increases going forward. The Fed has been diligent, paying
close attention to this potential problem and seeking to stay ahead of the
curve by striking at inflation before it emerges.
Q. HOW DID THIS BACKDROP AFFECT THE GOVERNMENT SECURITIES MARKET IN PARTICULAR?
A. Bond yields rose across the entire yield curve -- a representation of the
difference between short- and long-term interest rates -- particularly for
shorter-maturity U.S. Treasuries, which were most affected by the Fed's rate
hikes. With the Fed especially active, fixed-income markets posted fairly
poor returns, because as yields rose, bond prices fell. So far in 2000, the
backdrop has improved and stabilized somewhat, but the Fund's 12-month
returns were especially hurt by the downdraft in the bond markets that
occurred in 1999.
Q. WHAT SORT OF STRATEGY DID YOU PURSUE WITH THE FUND'S DURATION AND MATURITY
STRUCTURE?
A. We did not want to guess on the direction of interest rates, so we kept the
Fund's duration -- a measure of its sensitivity to changes in interest rates
-- neutral relative to the Lehman Index. This approach helped the Fund's
performance because many of its peers tended to carry a longer duration than
the Lehman Index, a position that negatively impacted them in this rising
interest-rate environment. Our maturity-structure approach also helped the
Fund's relative performance. We underweighted the Fund in investments with
maturities of three years or less.
Q. CAN YOU COMMENT ON THE FUND'S LARGEST WEIGHTING, U.S. GOVERNMENT-AGENCY
SECURITIES?
A. Our view regarding U.S. government-agency securities has not changed over
the past year. In fact, we've added to the Fund's overweighting to this
sector relative to the Lehman Index. This overweighting has been an integral
part of our strategy. Our belief is that, over the long term,
government-agency securities offer attractive incremental yields over those
of comparable Treasuries, with essentially the same quality.
Q. WHAT CAN YOU TELL US ABOUT THE FUND'S U.S. TREASURY SECURITY INVESTMENTS?
A. Our Treasury positioning hasn't changed over the past six months, either. We
had fewer investments in that area compared to the Lehman Index, an offshoot
of our strategy related to government-agency securities. We continued to use
the Fund's Treasury investments to manage both the Fund's duration and
maturity. Year to date, our longer-term Treasury holdings have helped
performance, largely because most of the negative impact of rising interest
rates hit shorter- and intermediate-term securities. In addition, the solid
fiscal performance of the U.S. government has led to a budget surplus. With
less of a need to issue debt to finance its operations, the U.S. government
has paid down some of its debt, leading to a lower supply of Treasury
securities at the same time that strong demand has been sustained.
(Principal value and interest on Treasury securities are guaranteed by the
U.S. government if held to maturity.)
Q. WHAT CAN YOU TELL US ABOUT THE FUND'S APPROACH TOWARD INVESTMENTS IN
MORTGAGE-BACKED SECURITIES?
A. Mortgage-backed securities have provided uneven performance, although they
outperformed Treasuries during the 12-month period covered by this report.
During the first half of the period, we underweighted the Fund in this
sector relative to the Lehman Index, a good move given the underperformance
of mortgage-backeds during that timeframe. Since then, we've gradually moved
to a neutral, and then an overweighted position with this segment of the
portfolio. Since the beginning of 2000, mortgages have struggled somewhat
because they tend to be focused in the intermediate part of the yield curve,
which performed relatively poorly. In addition, the duration of
mortgage-backed securities tends to extend as interest rates rise, making
them more and more susceptible to the negative influence of higher interest
rates. Nevertheless, the Fund benefited during the period from the
incremental yield mortgages offered relative to Treasuries, and we expect to
reap the same kinds of rewards going forward.
Q. WHAT IS YOUR OUTLOOK?
A. Oil prices are up, the labor market is tight, the housing market is strong.
These are three significant sources that feed into the Consumer Price Index,
which measures the cost of living (inflation). Unless there is some evidence
of a modest deceleration in economic growth in the U.S. economy, it's
apparent the Fed will remain in the same position, looking to raise rates to
try to dampen growth and keep inflation at bay. Chances are by the end of
the year we'll see some moderating influence caused by the rate hikes that
have already occurred. If that's the case, then the backdrop for the bond
market would become more favorable, and we might see some more pronounced
price appreciation among fixed-income securities. In the meantime, the
market remains uncertain about how much inflation might accelerate and how
far the Fed needs to go to achieve a better balance between growth and the
potential for inflation.
/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.
<PAGE>
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PORTFOLIO MANAGER'S PROFILE
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STEVEN E. NOTHERN IS SENIOR VICE PRESIDENT OF MFS INVESTMENT
MANAGEMENT(R). HE IS PORTFOLIO MANAGER OF MFS(R) GOVERNMENT SECURITIES
FUND AND THE GOVERNMENT SECURITIES SERIES OFFERED THROUGH MFS(R)/SUN
LIFE ANNUITY PRODUCTS. MR. NOTHERN ALSO MANAGES TWO CLOSED-END FUNDS,
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 GLOBAL, SECURITY-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 investment professional, 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: $523.1 MILLION NET ASSETS AS OF FEBRUARY 29, 2000
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.) It is not possible to invest directly
in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 10-year period ended February 29, 2000)
MFS Government Lehman Brothers
Securities Fund Government/Mortgage
Class A Bond Index
--------------- -------------------
2/90 $ 9,525 $10,000
2/92 11,732 12,635
2/94 13,860 14,855
2/96 15,751 16,922
2/98 17,947 19,643
2/00 19,043 21,193
<TABLE>
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN THROUGH FEBRUARY 29, 2000
<CAPTION>
CLASS A
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return Excluding Sales Charge +0.10% +16.62% +35.76% + 99.92%
- -------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +0.10% + 5.26% + 6.31% + 7.17%
- -------------------------------------------------------------------------------------------------------
Average Annual Total Return Including Sales Charge -4.66% + 3.56% + 5.28% + 6.65%
- -------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return Excluding Sales Charge -0.52% +14.37% +31.21% + 91.23%
- -------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge -0.52% + 4.58% + 5.58% + 6.70%
- -------------------------------------------------------------------------------------------------------
Average Annual Total Return Including Sales Charge -4.30% + 3.68% + 5.26% + 6.70%
- -------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return Excluding Sales Charge -0.42% +14.37% +32.43% + 95.02%
- -------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge -0.42% + 4.58% + 5.78% + 6.91%
- -------------------------------------------------------------------------------------------------------
Average Annual Total Return Including Sales Charge -1.36% + 4.58% + 5.78% + 6.91%
- -------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS I
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return Excluding Sales Charge +0.43% +17.85% +37.30% +102.20%
- -------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +0.43% + 5.63% + 6.55% + 7.29%
- -------------------------------------------------------------------------------------------------------
<CAPTION>
COMPARATIVE INDICES(+)
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average general U.S. government fund+ -0.33% + 4.80% + 5.90% + 5.90%
- -------------------------------------------------------------------------------------------------------
Lehman Brothers Government/Mortgage Bond Index# +1.41% + 5.96% + 6.98% + 6.98%
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(+) Average annual rates of return.
+ Source: Lipper Inc.
# Source: Standard & Poor's Micropal, Inc.
<PAGE>
NOTES TO PERFORMANCE SUMMARY
Class A Share Performance Including Sales Charge takes into account the
deduction of the maximum 4.75% sales charge. Class B Share Performance Including
Sales Charge takes into account the deduction of the applicable contingent
deferred sales charge (CDSC), which declines over six years from 4% to 0%. Class
C Share Performance Including Sales Charge takes into account the deduction of
the 1% CDSC applicable to Class C shares redeemed within 12 months. Class I
shares have no sales charge and are only available to certain institutional
investors.
Class B, C, and I share performance includes the performance of the Fund's Class
A shares for periods prior to their inception (blended performance). Class B and
C blended performance has been adjusted to take into account the CDSC applicable
to Class B and C shares rather than the initial sales charge (load) applicable
to Class A shares. Class I share blended performance has been adjusted to
account for the fact that Class I shares have no sales charge. These blended
performance figures have not been adjusted to take into account differences in
class-specific operating expenses. Because operating expenses of Class B and C
shares are higher than those of Class A, the blended Class B and C share
performance is higher than it would have been had Class B and C shares been
offered for the entire period. Conversely, because operating expenses of Class I
shares are lower than those of Class A, the blended Class I share performance is
lower than it would have been had Class I shares been offered for the entire
period.
All 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 capital gains.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MORE
RECENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. 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 29, 2000
PORTFOLIO STRUCTURE
Mortgage Backed 55.9%
Other Government Agencies 26.8%
U.S. Treasuries 17.0%
Cash 0.3%
The portfolio is actively managed, and current holdings may be different.
<PAGE>
</TABLE>
<TABLE>
PORTFOLIO OF INVESTMENTS -- February 29, 2000
<CAPTION>
Bonds - 99.3%
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PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Federal Agencies - 54.5%
Federal Home Loan Mortgage Corp., 6.5s, 2029 $33,003 $ 30,869,590
Federal Home Loan Mortgage Corp., 6.625s, 2009 15,500 14,850,860
Federal Home Loan Mortgage Corp., 7.5s, 2025 - 2099 22,845 22,820,508
Federal National Mortgage Assn., 6.13s, 2011 3,325 3,208,938
Federal National Mortgage Assn., 6.5s, 2005 - 2028 48,056 44,947,705
Federal National Mortgage Assn., 6.864s, 2011 24,041 23,748,000
Federal National Mortgage Assn., 6.956s, 2007 9,606 9,383,910
Federal National Mortgage Assn., 7s, 2029 34,142 32,729,554
Federal National Mortgage Assn., 7.125s, 2005 20,000 20,009,400
Financing Corp., 9.8s, 2018 16,500 21,359,745
Financing Corp., 10.35s, 2018 10,700 14,488,442
Financing Corp., 10.7s, 2017 20,955 28,940,741
Title XI, 6.07s, 2010 13,500 11,966,940
U.S. Department of Housing & Urban Development, 6.59s, 2016 6,599 5,819,494
------------
$285,143,827
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U.S. Government Guaranteed - 44.8%
Government National Mortgage Association - 24.3%
GNMA, 6.5s, 2027 - 2029 $12,335 $ 11,498,463
GNMA, 7s, 2008 - 2029 52,635 50,736,811
GNMA, 7.5s, 2022 - 2029 33,322 32,741,791
GNMA, 8s, 2026 - 2030 19,796 19,894,662
GNMA, 8.5s, 2001 - 2022 8,811 9,049,144
GNMA, 9.25s, 2001 1,803 1,847,510
GNMA, 10.75s, 2015 - 2016 53 58,039
GNMA, 11.5s, 2010 - 2019 424 471,813
GNMA, 12s, 2013 - 2015 246 275,369
GNMA, 12.5s, 2011 483 550,117
------------
$127,123,719
- --------------------------------------------------------------------------------------------------------
Small Business Administration - 3.6%
SBA, 6.24s, 2009 $ 5,000 $ 4,525,000
SBA, 8.625s, 2011 2,347 2,405,635
SBA, 8.8s, 2011 1,090 1,121,719
SBA, 9.05s, 2009 1,008 1,039,425
SBA, 9.1s, 2009 1,625 1,678,577
SBA, 9.25s, 2010 1,507 1,566,476
SBA, 9.3s, 2010 2,353 2,448,045
SBA, 9.5s, 2010 1,123 1,170,786
SBA, 9.65s, 2010 1,467 1,534,783
SBA, 9.7s, 2010 669 700,783
SBA, 9.9s, 2008 384 402,200
SBA, 10.05s, 2008 - 2009 363 381,806
------------
$ 18,975,235
- --------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 16.9%
U.S. Treasury Bonds, 11.875s, 2003 $ 2,000 $ 2,330,940
U.S. Treasury Bonds, 12.375s, 2004 10,650 12,808,329
U.S. Treasury Bonds, 10.375s, 2012 4,200 5,083,302
U.S. Treasury Bonds, 9.875s, 2015 17,300 22,933,226
U.S. Treasury Bonds, 3.625s, 2028 10,425 9,503,351
U.S. Treasury Bonds, 6.125s, 2029 18,000 17,701,920
U.S. Treasury Notes, 4.25s, 2010 18,006 17,949,581
------------
$ 88,310,649
- --------------------------------------------------------------------------------------------------------
Total U.S. Government Guaranteed $234,409,603
- --------------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $540,139,233) $519,553,430
- --------------------------------------------------------------------------------------------------------
Repurchase Agreement - 0.2%
- --------------------------------------------------------------------------------------------------------
Goldman Sachs, dated 2/29/00, due 3/1/00, total to be
received $1,068,171 (secured by various U.S.
Treasury and Federal Agency obligations in a
jointly traded account), at Cost $ 1,068 $ 1,068,000
- --------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $541,207,233) $520,621,430
Other Assets, Less Liabilities - 0.5% 2,481,875
- --------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $523,103,305
- --------------------------------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- -------------------------------------------------------------------------------
FEBRUARY 29, 2000
- -------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $541,207,233) $520,621,430
Investments of cash collateral for securities loaned, at
value and identified cost 24,368,100
Cash 82,310
Receivable for investments sold 17,172,642
Receivable for Fund shares sold 1,897,166
Interest receivable 6,307,498
Other assets 6,219
------------
Total assets $570,455,365
------------
Liabilities:
Payable for Fund shares reacquired $ 5,572,118
Payable for investments purchased 17,103,250
Collateral for securities loaned, at value 24,368,100
Payable to affiliates -
Management fee 4,341
Shareholder servicing agent fee 1,447
Distribution and service fee 8,382
Administrative fee 217
Accrued expenses and other liabilities 294,205
------------
Total liabilities $ 47,352,060
------------
Net assets $523,103,305
============
Net assets consist of:
Paid-in capital $584,769,981
Unrealized depreciation on investments (20,585,803)
Accumulated net realized loss on investments (42,296,568)
Accumulated undistributed net investment income 1,215,695
------------
Total $523,103,305
============
Shares of beneficial interest outstanding 57,173,946
==========
Class A shares:
Net asset value per share
(net assets of $328,337,643 / 35,879,960 shares of beneficial
interest outstanding) $ 9.15
======
Offering price per share (100 / 95.25 of net asset value
per share) $ 9.61
======
Class B shares:
Net asset value and offering price per share
(net assets of $156,478,709 / 17,120,031 shares of beneficial
interest outstanding) $ 9.14
======
Class C shares:
Net asset value and offering price per share
(net assets of $32,708,356 / 3,564,474 shares of beneficial
interest outstanding) $ 9.18
======
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets of $5,578,597 / 609,481 shares of beneficial
interest outstanding) $ 9.15
======
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 29, 2000
- -------------------------------------------------------------------------------
Net investment income:
Interest income $ 39,287,549
------------
Expenses -
Management fee $ 2,252,607
Trustees' compensation 55,716
Shareholder servicing agent fee 568,297
Distribution and service fee (Class A) 1,194,280
Distribution and service fee (Class B) 1,772,818
Distribution and service fee (Class C) 376,189
Administrative fee 72,699
Custodian fee 171,377
Printing 74,162
Postage 86,419
Auditing fees 35,123
Legal fees 6,722
Miscellaneous 387,424
------------
Total expenses $ 7,053,833
Fees paid indirectly (89,042)
Reduction of expenses by investment adviser (565,557)
------------
Net expenses $ 6,399,234
------------
Net investment income $ 32,888,315
------------
Realized and unrealized gain (loss) on investments:
Realized loss (identified cost basis) on investment
transactions $(15,148,397)
Change in unrealized depreciation on investments (19,118,548)
------------
Net realized and unrealized loss on investments $(34,266,945)
------------
Decrease in net assets from operations $ (1,378,630)
============
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ---------------------------------------------------------------------------------------------------------------
YEAR ENDED
-------------------------------------------
FEBRUARY 29, FEBRUARY 28,
2000 1999
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 32,888,315 $ 26,697,161
Net realized gain (loss) on investments (15,148,397) 5,533,151
Net unrealized loss on investments (19,118,548) (7,796,168)
------------ ------------
Increase (decrease) in net assets from operations $ (1,378,630) $ 24,434,144
------------ ------------
Distributions declared to shareholders -
From net investment income (Class A) $(19,903,251) $(17,718,006)
From net investment income (Class B) (9,295,018) (7,332,329)
From net investment income (Class C) (1,954,103) (1,216,257)
From net investment income (Class I) (386,262) (472,212)
------------ ------------
Total distributions declared to shareholders $(31,538,634) $(26,738,804)
------------ ------------
Net increase in net assets from Fund share transactions $ 3,485,231 $136,040,201
------------ ------------
Total increase (decrease) in net assets $(29,432,033) $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
$1,215,695 and ($90,728), respectively) $523,103,305 $552,535,338
============ ============
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 29/28, 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $ 9.69 $ 9.69 $ 9.40 $ 9.67 $ 9.22
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.57 $ 0.56 $ 0.62 $ 0.62 $ 0.66
Net realized and unrealized gain (loss)
on investments (0.56) 0.01 0.28 (0.28) 0.45
------ ------ ------ ------ ------
Total from investment operations $ 0.01 $ 0.57 $ 0.90 $ 0.34 $ 1.11
------ ------ ------ ------ ------
Less distributions declared to
shareholders from net investment income $(0.55) $(0.57) $(0.61) $(0.61) $(0.66)
------ ------ ------ ------ ------
Net asset value - end of period $ 9.15 $ 9.69 $ 9.69 $ 9.40 $ 9.67
====== ====== ====== ====== ======
Total return(+) 0.10% 6.00% 9.91% 3.67% 12.29%
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.90% 0.92% 0.94% 0.91% 0.84%
Net investment income 6.06% 5.76% 6.50% 6.56% 6.83%
Portfolio turnover 124% 176% 212% 339% 352%
Net assets at end of period (000 omitted) $328,338 $335,993 $282,809 $293,286 $322,740
(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 $ 0.56 $ 0.55 $ 0.61 $ 0.61 $ 0.64
Ratios (to average net assets):
Expenses## 1.00% 1.02% 1.04% 1.06% 1.05%
Net investment income 5.96% 5.66% 6.40% 6.41% 6.62%
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from certain expense offset arrangements.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 29/28, 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $ 9.68 $ 9.68 $ 9.39 $ 9.66 $ 9.22
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.51 $ 0.50 $ 0.55 $ 0.55 $ 0.59
Net realized and unrealized gain (loss)
on investments (0.56) 0.01 0.28 (0.28) 0.44
------ ------ ------ ------ ------
Total from investment operations $(0.05) $ 0.51 $ 0.83 $ 0.27 $ 1.03
------ ------ ------ ------ ------
Less distributions declared to
shareholders from net investment income $(0.49) $(0.51) $(0.54) $(0.54) $(0.59)
------ ------ ------ ------ ------
Net asset value - end of period $ 9.14 $ 9.68 $ 9.68 $ 9.39 $ 9.66
====== ====== ====== ====== ======
Total return (0.52)% 5.32% 9.17% 2.92% 11.46%
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.55% 1.57% 1.59% 1.62% 1.56%
Net investment income 5.41% 5.08% 5.84% 5.85% 6.09%
Portfolio turnover 124% 176% 212% 339% 352%
Net assets at end of period (000 omitted) $156,479 $173,569 $117,077 $114,861 $124,921
(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 $ 0.50 $ 0.48 $ 0.54 $ 0.54 $ 0.57
Ratios (to average net assets):
Expenses## 1.65% 1.67% 1.69% 1.77% 1.77%
Net investment income 5.31% 4.98% 5.74% 5.70% 5.88%
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from certain expense offset arrangements.
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED
--------------------------------------------------
FEBRUARY 28, PERIOD ENDED
FEBRUARY 29, ----------------------------- FEBRUARY 28,
2000 1999 1998 1997*
- ----------------------------------------------------------------------------------------------------------------------------
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) $ 0.52 $ 0.49 $ 0.55 $ 0.47
Net realized and unrealized gain (loss)
on investments (0.56) 0.01 0.29 (0.09)
------ ------ ------ ------
Total from investment operations $(0.04) $ 0.50 $ 0.84 $ 0.38
------ ------ ------ ------
Less distributions declared to shareholders from
net investment income $(0.49) $(0.51) $(0.55) $(0.46)
------ ------ ------ ------
Net asset value - end of period $ 9.18 $ 9.71 $ 9.72 $ 9.43
====== ====== ====== ======
Total return (0.42)% 5.23% 9.15% 4.06%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.55% 1.57% 1.59% 1.55%+
Net investment income 5.40% 5.03% 5.85% 5.97%+
Portfolio turnover 124% 176% 212% 339%
Net assets at end of period (000 omitted) $32,708 $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 $ 0.49 $ 0.48 $ 0.54 $ 0.46
Ratios (to average net assets):
Expenses## 1.65% 1.67% 1.69% 1.70%+
Net investment income 5.30% 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.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED
--------------------------------------------------
FEBRUARY 28, PERIOD ENDED
FEBRUARY 29, ----------------------------- FEBRUARY 28,
2000 1999 1998 1997*
- ----------------------------------------------------------------------------------------------------------------------------
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) $ 0.60 $ 0.59 $ 0.62 $ 0.10
Net realized and unrealized gain (loss) on
investments (0.56) 0.01 0.31 (0.01)
------ ------ ------ ------
Total from investment operations $ 0.04 $ 0.60 $ 0.93 $ 0.09
------ ------ ------ ------
Less distributions declared to shareholders from
net investment income $(0.58) $(0.60) $(0.64) $(0.10)
------ ------ ------ ------
Net asset value - end of period $ 9.15 $ 9.69 $ 9.69 $ 9.40
====== ====== ====== ======
Total return 0.43% 6.37% 10.31% 1.03%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.55% 0.57% 0.53% 0.48%+
Net investment income 6.40% 6.13% 6.85% 7.22%+
Portfolio turnover 124% 176% 212% 339%
Net assets at end of period (000 omitted) $5,579 $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 $ 0.59 $ 0.58 $ 0.61 $ 0.09
Ratios (to average net assets):
Expenses## 0.65% 0.67% 0.63% 0.63%+
Net investment income 6.30% 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.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
See notes to financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Government Securities Fund (the Fund) is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investment Valuations - Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues are valued on the basis of
valuations furnished by dealers or by a pricing service with consideration to
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics,
and other market data, without exclusive reliance upon exchange or
over-the-counter prices. Short-term obligations, which mature in 60 days or
less, are valued at amortized cost, which approximates market value.
Repurchase Agreements - The Fund may enter into repurchase agreements with
institutions that the Fund's investment adviser has determined are creditworthy.
Each repurchase agreement is recorded at cost. The Fund requires that the
securities 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.
Security Loans - State Street Bank and Trust Company ("State Street"), as
lending agent, may loan the securities of the Fund to certain qualified
institutions (the "Borrowers") approved by the Fund. The loans are
collateralized at all times by cash and/or U.S. Treasury securities in an amount
at least equal to the market value of the securities loaned. State Street
provides the Fund with indemnification against Borrower default. The Fund bears
the risk of loss with respect to the investment of cash collateral.
Cash collateral is invested in short-term securities. A portion of the income
generated upon investment of the collateral is remitted to the Borrowers, and
the remainder is allocated between the Fund and the lending agent. On loans
collateralized by U.S. Treasury securities, a fee is received from the Borrower,
and is allocated between the Fund and the lending agent. Income from securities
lending is included in interest income on the Statement of Operations. The
interest income earned on the securities loaned is accounted for in the same
manner as other interest income.
At February 29, 2000, the value of securities loaned was $23,872,237. These
loans were collateralized by cash of $24,368,100 which was invested in the
following short-term obligation:
IDENTIFIED COST
ISSUER SHARES AND VALUE
- --------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio 24,368,100 $24,368,100
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 be 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. During
the year ended February 29, 2000, $43,258 was reclassified from accumulated
undistributed net investment income to accumulated net realized loss on
investments due to differences between book and tax accounting for
mortgage-backed securities. This change had no effect on the net assets or net
asset value per share. At February 29, 2000, accumulated undistributed net
investment income under book accounting were different from tax accounting due
to temporary differences in accounting.
At February 29, 2000, the Fund, for federal income tax purposes, had a capital
loss carryforward of $35,215,520 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), February 28, 2005,
($16,126,761), and February 29, 2008, ($8,242,293).
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 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 adviser 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. Included in Trustees' compensation is a net
periodic pension expense of $33,266 for the year ended February 29, 2000.
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
$190,859 for the year ended February 29, 2000, 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 $81,179 for the year ended February 29,
2000. Fees incurred under the distribution plan during the year ended February
29, 2000, 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 $16,536, and $607 for Class B and Class C shares, respectively, for
the year ended February 29, 2000. Fees incurred under the distribution plan
during the year ended February 29, 2000, 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 year ended February 29,
2000, were $39,941, $487,160, and $60,006 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,
aggregated $705,106,048 and $668,718,151, respectively.
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 $541,313,433
------------
Gross unrealized depreciation $(22,949,544)
Gross unrealized appreciation 2,257,541
------------
Net depreciation $(20,692,003)
============
(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 29, 2000 YEAR ENDED FEBRUARY 28, 1999
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 39,616,965 $ 371,462,737 29,078,923 $ 286,082,950
Shares issued to shareholders in
reinvestment of distributions 1,585,223 14,755,887 1,265,402 12,363,603
Shares reacquired (40,006,876) (374,290,526) (24,851,559) (244,539,132)
----------- ------------- ----------- -------------
Net increase 1,195,312 $ 11,928,098 5,492,766 $ 53,907,421
=========== ============= =========== =============
<CAPTION>
Class B Shares
YEAR ENDED FEBRUARY 29, 2000 YEAR ENDED FEBRUARY 28, 1999
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 9,138,245 $ 85,845,299 16,003,714 $ 157,290,466
Shares issued to shareholders in
reinvestment of distributions 704,676 6,558,116 510,124 4,986,686
Shares reacquired (10,657,927) (98,914,468) (10,673,440) (104,618,135)
----------- ------------- ----------- -------------
Net increase (decrease) (815,006) $ (6,511,053) 5,840,398 $ 57,659,017
=========== ============= =========== =============
<CAPTION>
Class C Shares
YEAR ENDED FEBRUARY 29, 2000 YEAR ENDED FEBRUARY 28, 1999
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 4,365,724 $ 41,212,042 6,088,070 $ 59,953,337
Shares issued to shareholders in
reinvestment of distributions 144,298 1,347,863 85,504 841,089
Shares reacquired (4,686,351) (43,805,185) (3,601,290) (35,374,514)
----------- ------------- ----------- -------------
Net increase (decrease) (176,329) $ (1,245,280) 2,572,284 $ 25,419,912
=========== ============= =========== =============
<CAPTION>
Class I
YEAR ENDED FEBRUARY 29, 2000 YEAR ENDED FEBRUARY 28, 1999
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 22,849 $ 218,949 12,891 $ 127,366
Shares issued to shareholders in
reinvestment of distributions 41,446 386,275 48,211 470,569
Shares reacquired (139,645) (1,291,758) (156,330) (1,544,084)
----------- ------------- ----------- -------------
Net decrease (75,350) $ (686,534) (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
year ended February 29, 2000, was $4,184. The Fund had no borrowings during the
year.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders of MFS Government Securities Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Government Securities Fund, including the portfolio of investments, as of
February 29, 2000, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. 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 securities owned as of
February 29, 2000, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Government Securities Fund as of February 29, 2000, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 6, 2000
<PAGE>
- --------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
- --------------------------------------------------------------------------------
IN JANUARY 2000, SHAREHOLDERS WERE MAILED A FORM 1099-DIV REPORTING THE
FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE CALENDAR YEAR
1999.
<PAGE>
<TABLE>
MFS(R) GOVERNMENT SECURITIES FUND
<S> <C>
TRUSTEES SECRETARY
J. Atwood Ives+ - Chairman and Chief Executive Stephen E. Cavan*
Officer, Eastern Enterprises (diversified services Assistant Secretary
company) James R. Bordewick, Jr.*
Lawrence T. Perera+ - Partner, Hemenway CUSTODIAN
& Barnes (attorneys) State Street Bank and Trust Company
William J. Poorvu+ - Adjunct Professor, Harvard AUDITORS
University Graduate School of Business Deloitte & Touche LLP
Administration
INVESTOR INFORMATION
Charles W. Schmidt+ - Private Investor For information on MFS mutual funds, call your
investment professional or, for an information
Arnold D. Scott* - Senior Executive kit, call toll free: 1-800-637-2929 any business
Vice President, Director, and Secretary, day from 9 a.m. to 5 p.m. Eastern time (or leave a
MFS Investment Management message anytime).
Jeffrey L. Shames* - Chairman and Chief INVESTOR SERVICE
Executive Officer, MFS Investment Management MFS Service Center, Inc.
P.O. Box 2281
Elaine R. Smith+ - Independent Consultant Boston, MA 02107-9906
David B. Stone+ - Chairman, North American For general information, call toll free:
Management Corp. (investment adviser) 1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
INVESTMENT ADVISER
Massachusetts Financial Services Company For service to speech- or hearing-impaired, call
500 Boylston Street toll free: 1-800-637-6576 any business day from 9
Boston, MA 02116-3741 a.m. to 5 p.m. Eastern time. (To use this service,
your phone must be equipped with a
DISTRIBUTOR Telecommunications Device for the Deaf.)
MFS Fund Distributors, Inc.
500 Boylston Street For share prices, account balances, exchanges, or
Boston, MA 02116-3741 stock and bond outlooks, call toll free:
1-800-MFS-TALK (1-800-637-8255) anytime from a
CHAIRMAN AND PRESIDENT touch-tone telephone.
Jeffrey L. Shames*
WORLD WIDE WEB
PORTFOLIO MANAGER www.mfs.com
Steven E. Nothern*
TREASURER
W. Thomas London*
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
+ Independent Trustee
* MFS Investment Management
</TABLE>
<PAGE>
MFS(R) GOVERNMENT SECURITIES FUND ------------
BULK RATE
[Logo] M F S(R) U.S. POSTAGE
INVESTMENT MANAGEMENT PAID
We invented the mutual fund(R) MFS
------------
500 Boylston Street
Boston, MA 02116-3741
(c)2000 MFS Investment Management(R).
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116
MGS-2 4/00 48M 26/226/326/826
