<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, 2000
-----------------------------------
MUTUAL FUND GIFT KITS (see page 27)
-----------------------------------
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 5
Performance Summary ...................................................... 9
Portfolio of Investments .................................................. 12
Financial Statements ...................................................... 14
Notes to Financial Statements ............................................. 21
Trustees and Officers ..................................................... 29
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,
If you've been reading our fund reports for any length of time, you've probably
sensed the pride we have in our research process. More than anything else, we
think MFS Original Research(R) -- and the performance results it has yielded for
shareholders -- make us unique among investment management companies. We think
that uniqueness stems from three factors: philosophy, process, and people.
PHILOSOPHY
In over 75 years of managing mutual funds, we've developed a number of beliefs
about the best ways to invest over a variety of market conditions. First, we
believe in bottom-up research, which means we use a company-by-company, one-
security-at-a-time approach to building a portfolio. What we look for is the
truth about the fundamentals of a company's business -- things such as the
ability of management to execute its business plan, the ability of that plan to
be scaled up as the company grows, actual demand for the company's products and
services, cash flows, profits, and earnings.
Second, we believe that, over the long term, stock prices follow earnings. In
our view, stock prices are basically a multiple of projected earnings, with the
multiple increasing as the market perceives that a company has something
customers want and will continue to want. One of the major elements of Original
Research(SM) is doing our best to project a company's future earnings and
determine how much the market will pay for those earnings.
Third, we believe there are at least three ways to potentially achieve
competitive long-term performance: be early, uncover second chances, and avoid
mistakes. All of these are based on bottom-up research. In both domestic and
international markets, early discovery has historically been a hallmark of our
investment style. Some of the stocks with which MFS has been most successful are
those in which we've taken large positions before the market discovered or
believed in them. Similarly, some of our best fixed-income investments have been
early positions in companies or governments that our research revealed were
potential candidates for credit upgrades. (A credit upgrade causes the value of
a bond to rise because it indicates the market has increased confidence that
principal and interest on the bond will be repaid.)
"Second-chance" opportunities are companies whose stock prices have stumbled but
that we believe still have the potential to be market leaders. For example, a
quarterly earnings shortfall of a few cents may cause the market to temporarily
lose confidence in a company. If we believe the business remains fundamentally
strong, we may use the price decline as a buying opportunity.
Avoiding mistakes is another way we feel Original Research may help performance.
In fixed-income investing this means, among other things, trying to be better
than our peers at avoiding bond issuers that may default. In equity investing,
avoiding mistakes means we strive to know a company and its industry well enough
to distinguish truth from hype.
PROCESS
We acquire our information firsthand, by researching thousands of companies to
determine which firms may make good investments. Our analysis of an individual
company may include
o face-to-face contact with senior management as well as front-line workers
o analysis of the company's financial statements and balance sheets
o contact with the company's current and potential customers
o contact with the company's competitors
o our own forecasts of the company's future market share, cash flows, and
earnings
Our analysts and portfolio managers disseminate this information in the form of
daily notes e-mailed worldwide to all members of our investment team. This
ensures that our best ideas are shared throughout the company, without barriers
between equity and fixed-income, international and domestic, or value and growth
investment areas. We believe this allows each of our portfolio managers -- and
thus each of our investors -- to potentially benefit from any relevant item of
Original Research.
John Ballen, our President and Chief Investment Officer, has often said that the
thought he hopes each manager will have when they read the daily notes is, "I
could never perform as well at any other investment company, because nowhere
else could the quality of the research be this good."
PEOPLE
Our team of research analysts and portfolio managers traces its roots back to
1932, when we created one of the first in-house research departments in the
industry. Today, we believe we have an investment team distinguished for its
unique blend of talent, continuity, and cohesiveness.
MFS' team culture and commitment to quality research have proven to be of
tremendous value in attracting some of the best and brightest talent from
leading business schools and from other investment management companies. Our
company culture was a key factor in our recognition by Fortune magazine in it's
January 10, 2000 issue as one of the "100 Best Companies to Work For" in
America. As befits a great team, our people tend to stick around -- the average
MFS tenure of our portfolio managers is 11 years, with over 16 years in the
investment industry. Contributing to this continuity is our policy that all
equity portfolio managers are promoted from within, after distinguishing
themselves first as research analysts. And because many of us who are now
managing funds or managing the company itself have been working together for
well over a decade, we have a cohesiveness, a shared philosophy of investing,
and a unity of purpose that we believe bodes well for the future of the company.
We also have scale. Our research analyst team is over 35 members strong and
growing. Each analyst is our in-house expert on a specific industry or group of
industries in a specific region of the globe. In pursuing their research, our
analysts and portfolio managers each year will visit more than 2,000 companies
throughout the world, meet with representatives from more than 3,000 companies
at one of our four worldwide offices, attend roughly 5,000 company presentations
sponsored by major Wall Street firms, and consult with over 1,000 analysts from
hundreds of U.S. and foreign brokerage houses.
All of this culminates in our analysts making buy and sell recommendations on a
wide range of potential investments for all of our portfolios. In the end, the
goal of Original Research is to try to give our portfolio managers an advantage
over their peers -- to enable our managers to deliver competitive performance,
by finding opportunities before they are generally recognized by the market and
by avoiding mistakes whenever possible. Original Research does, we believe, make
a difference.
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)
September 15, 2000
A prospectus containing more complete information on any MFS product, including
all charges and expenses, can be obtained from your investment professional.
Please read it carefully before you invest or send money. 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 six months ended August 31, 2000, Class A shares of the fund provided a
total return of 5.27%, Class B shares 4.84%, Class C shares 4.84%, and Class I
shares 5.44%. These returns, which include the reinvestment of any distributions
but exclude the effects of any sales charges, compare to a 5.57% 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. During the same period, the
average U.S. government fund tracked by Lipper Inc., an independent firm that
reports market fund performance, returned 5.36%.
Q. WHAT WAS THE MARKET ENVIRONMENT LIKE DURING THE PERIOD?
A. The fixed-income markets were characterized by uncertainty during the past
six months, as investors tried to determine how much the Federal Reserve
Board (the Fed) would have to hike short-term interest rates in order to
slow growth and head off inflation. U.S. economic growth continued to
surpass expectations through the winter and spring. To dampen this growth,
the Fed has raised the federal funds rate three more times thus far in 2000
-- bringing it from 5.50% to 6.50% -- after having raised it three times in
1999. More recently, however, there have been signs that economic growth has
moderated while productivity has continued to accelerate. Meanwhile, core
inflationary pressures increased only modestly through the period,
significant upswings in the price of oil. While questions surrounding how
much oil price increases could affect other aspects of the economy have
exacerbated the market's uncertainty, bond prices recently rallied
dramatically amid hopes that the Fed may be done raising interest rates.
Q. DID ANY OTHER FACTORS COME INTO PLAY?
A. The other significant factor was the U.S. government's handling of its
second full fiscal year of budget surpluses, and the implications on the
Treasury market. With the U.S. Treasury planning to redeem more than $30
billion in debt this fiscal year and to curtail its auctions of new issues,
the market has tried to come to terms with a dramatic decline in the supply
of Treasury securities. Since all other sectors of the fixed-income market
are priced relative to Treasuries, this situation has made it hard for bond
investors to evaluate the relative values of fixed-income securities and has
created some illiquidity in the market. The value of long-term Treasuries
rose sharply as buyers competed with each other to own them.
At the same time, U.S. government agency securities confronted some
difficulties during the first half of 2000. Specifically, some in Washington
called into question the implicit government backing of agencies such as the
Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal
National Mortgage Association (Fannie Mae). Concerns revolved around the
expansion of agency activities beyond their original mission, and the
potential liability to taxpayers. As a result of this added scrutiny, agency
securities underperformed Treasuries. (Principal value and interest on
Treasury securities are guaranteed by the U.S. government if held to
maturity.)
Q. WAS THE FUND POSITIONED TO TAKE ADVANTAGE OF THE IMPROVING ENVIRONMENT FOR
TREASURIES?
A. The fund has traditionally maintained an overweighted position in agency
securities because these high-quality assets have offered a performance
advantage over Treasuries. During the past six months, when Treasuries
proved to be the market leaders, the performance of the fund was hurt by its
focus on agency securities. The fund began the year with a neutral weighting
in mortgage-backed securities, a position that helped its performance
because their performance somewhat lagged Treasuries. As the period
progressed, we added to both the agency and mortgage-backed security
positions because we continued to believe opportunities there offered
tremendous long-term value. Over time, we think the added yield offered by
these investments could provide a very powerful source of returns.
Q. HOW DID YOU MANAGE THE MATURITY AND DURATION OF THE FUND?
A. As far as maturity was concerned, we positioned the Treasury portion of the
fund to take advantage of increases in short-term rates and decreases in
long-term rates. Specifically, we used a "barbell" strategy, investing the
fund in long-term Treasuries on the one hand and very short-term cash
equivalents on the other, with an underweighting in between. By doing so,
the fund was able to benefit from short-term securities when the Fed raised
rates, realize the capital appreciation offered by long-term Treasuries as
their prices rose, and avoid the intermediate-term securities that
underperformed. However, because we are more confident that we are nearing
the end of this current Fed tightening cycle, we will likely move away from
the barbell structure, aiming instead to target specific maturities that we
feel offer particular opportunity.
We kept the fund's duration -- a measure of its sensitivity to changes in
interest rates -- somewhat long, or more sensitive, because of our positive
outlook regarding inflation and the Treasury market.
Q. WHAT'S YOUR OUTLOOK FOR THE GOVERNMENT BOND MARKET?
A. Looking ahead, we, along with the rest of the market, will try to gauge the
effects of the Fed's monetary policy. Generally, it takes 9 to 18 months to
measure the impact of Fed rates moves on the economy. It could very well be
that most of the inflationary impact of rising oil prices is already behind
us and that inflation has been well-contained by the Fed's policy actions.
Overall, we feel it should be a good environment for fixed-income investing.
If the Fed hasn't already reached the end of its rate-hike program, we think
it appears to be close. If so, we could witness growth settling back into a
range of approximately 3.0% to 3.5%, which the Fed feels is not
inflationary. The government continued to run up sizable surpluses and pay
down debt. The market seems to have nearly universal confidence in the Fed's
ability to keep inflation from getting out of hand. In sum, we feel the
environment could prove to be very favorable for Treasuries. This steadier
backdrop could also bode well for sectors represented in the fund, such as
agencies and mortgage-backed securities.
/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
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STEVEN E. NOTHERN IS SENIOR VICE PRESIDENT OF MFS INVESTMENT MANAGEMENT(R). HE
IS PORTFOLIO MANAGER OF THE GOVERNMENT SECURITIES PORTFOLIOS OF OUR MUTUAL
FUNDS, VARIABLE ANNUITIES AND OFFSHORE FUNDS, AND ALSO MANAGES TWO CLOSED-END
FUNDS, MFS(R) INTERMEDIATE INCOME TRUST AND MFS(R) GOVERNMENT MARKETS INCOME
TRUST.
STEVE 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
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 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: $529.8 MILLION NET ASSETS AS OF AUGUST 31, 2000
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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 the reinvestment of dividends. (See Notes to Performance
Summary.)
TOTAL RATES OF RETURN THROUGH AUGUST 31, 2000
<TABLE>
<CAPTION>
CLASS A
6 Months 1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return
Excluding Sales Charge +5.27% +7.16% +17.86% +32.06% +103.86%
--------------------------------------------------------------------------------------------------------------------
Average Annual Total Return
Excluding Sales Charge -- +7.16% + 5.63% + 5.72% + 7.38%
--------------------------------------------------------------------------------------------------------------------
Average Annual Total Return
Including Sales Charge -- +2.07% + 3.93% + 4.70% + 6.86%
--------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
6 Months 1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return
Excluding Sales Charge +4.84% +6.39% +15.50% +27.62% + 94.21%
--------------------------------------------------------------------------------------------------------------------
Average Annual Total Return
Excluding Sales Charge -- +6.39% + 4.92% + 5.00% + 6.86%
--------------------------------------------------------------------------------------------------------------------
Average Annual Total Return
Including Sales Charge -- +2.39% + 4.02% + 4.68% + 6.86%
--------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
6 Months 1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return
Excluding Sales Charge +4.84% +6.50% +15.63% +28.31% + 98.07%
--------------------------------------------------------------------------------------------------------------------
Average Annual Total Return
Excluding Sales Charge -- +6.50% + 4.96% + 5.11% + 7.07%
--------------------------------------------------------------------------------------------------------------------
Average Annual Total Return
Including Sales Charge -- +5.50% + 4.96% + 5.11% + 7.07%
--------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS I
6 Months 1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return
Excluding Sales Charge +5.44% +7.51% +19.09% +33.78% +106.51%
--------------------------------------------------------------------------------------------------------------------
Average Annual Total Return
Excluding Sales Charge -- +7.51% + 6.00% + 5.99% + 7.52%
--------------------------------------------------------------------------------------------------------------------
</TABLE>
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 in
effect during the periods shown; without these, the results would have been less
favorable. 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 AUGUST 31, 2000
PORTFOLIO STRUCTURE
Mortgage Backed 54.2%
Government Agency 21.8%
U.S. Treasuries 18.0%
Cash 6.0%
The portfolio is actively managed, and current holdings may be different.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) -- August 31, 2000
<CAPTION>
Bonds - 92.8%
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PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
--------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Federal Agencies - 54.5%
Title XI, 6.07s, 2010 $ 13,060 $ 12,189,159
Federal Home Loan Mortgage Corp., 6.5s, 2029 32,247 30,831,551
Federal Home Loan Mortgage Corp., 6.625s, 2009 15,500 15,206,895
Federal Home Loan Mortgage Corp., 7.5s, 2014 - 2028 5,226 5,196,500
Federal National Mortgage Assn., 6.136s, 2011 3,101 3,014,472
Federal National Mortgage Assn., 6.5s, 2005 - 2028 45,887 43,868,286
Federal National Mortgage Assn., 6.83s, 2011 22,305 22,099,535
Federal National Mortgage Assn., 6.956s, 2007 9,553 9,469,429
Federal National Mortgage Assn., 7s, 2029 - 2030 44,626 43,503,918
Federal National Mortgage Assn., 7.5s, 2010 - 2030 32,647 32,592,569
Financing Corp., 10.7s, 2017 20,955 29,002,977
Financing Corp., 9.8s, 2018 16,500 21,426,735
Financing Corp., 10.35s, 2018 10,700 14,528,567
U.S. Department of Housing & Urban Development,
6.59s, 2016 6,599 6,000,967
------------
$288,931,560
--------------------------------------------------------------------------------------------------
U.S. Government Guaranteed - 38.3%
Government National Mortgage Association - 18.1%
GNMA, 7s, 2028 $ 210 $ 206,209
GNMA, 7s, 2008 - 2029 42,719 41,961,990
GNMA, 7.5s, 2022 - 2029 16,617 16,617,888
GNMA, 8s, 2026 - 2030 26,182 26,558,275
GNMA, 8.5s, 2001 - 2022 7,954 8,143,831
GNMA, 9.25s, 2001 1,419 1,443,778
GNMA, 10.75s, 2015 - 2016 52 56,360
GNMA, 11.5s, 2010 - 2019 351 386,559
GNMA, 12s, 2013 - 2015 226 250,419
GNMA, 12.5s, 2011 426 480,107
------------
$ 96,105,416
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Small Business Administration - 2.4%
SBA, 8.625s, 2011 $ 2,129 $ 2,183,845
SBA, 8.8s, 2011 952 978,582
SBA, 9.05s, 2009 791 813,680
SBA, 9.1s, 2009 1,379 1,420,683
SBA, 9.25s, 2010 1,365 1,414,832
SBA, 9.3s, 2010 2,195 2,276,062
SBA, 9.5s, 2010 984 1,021,701
SBA, 9.65s, 2010 1,240 1,291,620
SBA, 9.7s, 2010 617 643,083
SBA, 9.9s, 2008 358 372,555
SBA, 10.05s, 2008 - 2009 347 363,117
------------
$ 12,779,760
--------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 17.8%
U.S. Treasury Bonds, 11.875s, 2003 $ 2,000 $ 2,326,560
U.S. Treasury Bonds, 12.375s, 2004 10,650 12,823,239
U.S. Treasury Bonds, 9.875s, 2015 17,300 24,000,982
U.S. Treasury Bonds, 3.625s, 2028 10,671 10,170,874
U.S. Treasury Bonds, 6.125s, 2029 11,000 11,522,500
U.S. Treasury Bonds, 6.25s, 2030 4,000 4,330,000
U.S. Treasury Notes, 5.75s, 2010 18,570 18,584,484
U.S. Treasury Notes, 6.5s, 2010 9,930 10,367,516
------------
$ 94,126,155
--------------------------------------------------------------------------------------------------
Total U.S. Government Guaranteed $203,011,331
--------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $501,616,599) $491,942,891
--------------------------------------------------------------------------------------------------
Repurchase Agreement - 5.9%
--------------------------------------------------------------------------------------------------
Goldman Sachs, dated 8/31/2000, due 9/1/2000, total
to be received $31,133,733 (secured by various U.S.
Treasury and Federal Agency obligations in a
jointly traded account), at Cost $31,128 $ 31,128,000
----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $532,744,599) $523,070,891
Other Assets, Less Liabilities - 1.3% 6,716,218
----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $529,787,109
----------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
------------------------------------------------------------------------------
AUGUST 31, 2000
------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $532,744,599) $523,070,891
Investments of cash collateral for securities loaned,
at value and identified cost 52,617,493
Cash 36,489
Receivable for fund shares sold 1,979,945
Interest receivable 6,080,583
Other assets 2,767
------------
Total assets $583,788,168
------------
Liabilities:
Payable for fund shares reacquired $ 1,112,373
Collateral for securities loaned, at value 52,617,493
Payable to affiliates -
Management fee 5,034
Shareholder servicing agent fee 1,438
Distribution and service fee 8,349
Administrative fee 252
Accrued expenses and other liabilities 256,120
------------
Total liabilities $ 54,001,059
------------
Net assets $529,787,109
============
Net assets consist of:
Paid-in capital $581,875,110
Unrealized depreciation on investments (9,673,708)
Accumulated net realized loss on investments (43,782,730)
Accumulated undistributed net investment income 1,368,437
------------
Total $529,787,109
============
Shares of beneficial interest outstanding 56,816,818
==========
Class A shares:
Net asset value per share (net assets of $335,333,663 /
35,955,692 shares of beneficial interest outstanding) $9.33
=====
Offering price per share (100 / 95.25 of net asset
value per share) $9.80
=====
Class B shares:
Net asset value and offering price per share
(net assets of $147,010,583 / 15,785,405 shares
of beneficial interest outstanding) $9.31
=====
Class C shares:
Net asset value and offering price per share
(net assets of $42,235,280 / 4,517,672 shares of
beneficial interest outstanding) $9.35
=====
Class I shares:
Net asset value, offering price, and redemption price
per share (net assets of $5,207,583 / 558,049
shares of beneficial interest outstanding) $9.33
=====
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, 2000
------------------------------------------------------------------------------
Net investment income:
Interest income $18,938,755
-----------
Expenses -
Management fee $ 1,037,538
Trustees' compensation 22,384
Shareholder servicing agent fee 259,173
Distribution and service fee (Class A) 574,471
Distribution and service fee (Class B) 736,971
Distribution and service fee (Class C) 185,916
Administrative fee 44,292
Custodian fee 82,883
Printing 1,328
Postage 28,203
Auditing fees 17,400
Legal fees 384
Miscellaneous 201,849
-----------
Total expenses $ 3,192,792
Fees paid indirectly (61,235)
Reduction of expenses by investment adviser (215,669)
-----------
Net expenses $ 2,915,888
-----------
Net investment income $16,022,867
-----------
Realized and unrealized gain (loss) on investments:
Realized loss (identified cost basis) on
investment transactions $(1,486,162)
Change in unrealized appreciation on investments 10,912,095
-----------
Net realized and unrealized gain on investments $ 9,425,933
-----------
Increase in net assets from operations $25,448,800
===========
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
AUGUST 31, 2000 FEBRUARY 29, 2000
(UNAUDITED)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 16,022,867 $ 32,888,315
Net realized loss on investments (1,486,162) (15,148,397)
Net unrealized gain (loss) on investments 10,912,095 (19,118,548)
------------- -------------
Increase (decrease) in net assets from operations $ 25,448,800 $ (1,378,630)
------------- -------------
Distributions declared to shareholders -
From net investment income (Class A) $ (10,372,178) $ (19,903,251)
From net investment income (Class B) (4,244,214) (9,295,018)
From net investment income (Class C) (1,072,120) (1,954,103)
From net investment income (Class I) (181,613) (386,262)
------------- -------------
Total distributions declared to shareholders $ (15,870,125) $ (31,538,634)
------------- -------------
Net increase (decrease) in net assets from fund share transactions $ (2,894,871) $ 3,485,231
------------- -------------
Total increase (decrease) in net assets $ 6,683,804 $ (29,432,033)
Net assets:
At beginning of period 523,103,305 552,535,338
------------- -------------
At end of period (including accumulated undistributed
net investment income of $1,368,437 and $1,215,695, respectively) $ 529,787,109 $ 523,103,305
============= =============
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
<CAPTION>
Financial Highlights
------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 29/28
SIX MONTHS ENDED -------------------------------------------------------------------------
AUGUST 31, 2000 2000 1999 1998 1997 1996
(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 $ 9.15 $ 9.69 $ 9.69 $ 9.40 $ 9.67 $ 9.22
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.30 $ 0.57 $ 0.56 $ 0.62 $ 0.62 $ 0.66
Net realized and unrealized
gain (loss) on investments 0.17 (0.56) 0.01 0.28 (0.28) 0.45
------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.47 $ 0.01 $ 0.57 $ 0.90 $ 0.34 $ 1.11
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders from net
investment income $(0.29) $(0.55) $(0.57) $(0.61) $(0.61) $(0.66)
------ ------ ------ ------ ------ ------
Net asset value - end of period $ 9.33 $ 9.15 $ 9.69 $ 9.69 $ 9.40 $ 9.67
====== ====== ====== ====== ====== ======
Total return(+) 5.27%++ 0.10% 6.00% 9.91% 3.67% 12.29%
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 0.92%+ 0.90% 0.92% 0.94% 0.91% 0.84%
Net investment income 6.41%+ 6.06% 5.76% 6.50% 6.56% 6.83%
Portfolio turnover 22% 124% 176% 212% 339% 352%
Net assets at end of period
(000 omitted) $335,334 $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 $ 0.29 $ 0.56 $ 0.55 $ 0.61 $ 0.61 $ 0.64
Ratios (to average net assets):
Expenses## 1.00%+ 1.00% 1.02% 1.04% 1.06% 1.05%
Net investment income 6.33%+ 5.96% 5.66% 6.40% 6.41% 6.62%
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense 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.
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
<CAPTION>
Financial Highlights - continued
------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 29/28
SIX MONTHS ENDED -------------------------------------------------------------------------
AUGUST 31, 2000 2000 1999 1998 1997 1996
(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 $ 9.14 $ 9.68 $ 9.68 $ 9.39 $ 9.66 $ 9.22
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.27 $ 0.51 $ 0.50 $ 0.55 $ 0.55 $ 0.59
Net realized and unrealized
gain (loss) on investments 0.17 (0.56) 0.01 0.28 (0.28) 0.44
------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.44 $(0.05) $ 0.51 $ 0.83 $ 0.27 $ 1.03
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders from net
investment income $(0.27) $(0.49) $(0.51) $(0.54) $(0.54) $(0.59)
------ ------ ------ ------ ------ ------
Net asset value - end of period $ 9.31 $ 9.14 $ 9.68 $ 9.68 $ 9.39 $ 9.66
====== ====== ====== ====== ====== ======
Total return 4.84%++ (0.52)% 5.32% 9.17% 2.92% 11.46%
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 1.57%+ 1.55% 1.57% 1.59% 1.62% 1.56%
Net investment income 5.76%+ 5.41% 5.08% 5.84% 5.85% 6.09%
Portfolio turnover 22% 124% 176% 212% 339% 352%
Net assets at end of period
(000 omitted) $147,011 $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 $ 0.26 $ 0.50 $ 0.48 $ 0.54 $ 0.54 $ 0.57
Ratios (to average net assets):
Expenses## 1.65%+ 1.65% 1.67% 1.69% 1.77% 1.77%
Net investment income 5.68%+ 5.31% 4.98% 5.74% 5.70% 5.88%
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
<CAPTION>
Financial Highlights - continued
----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 29/28 PERIOD ENDED
SIX MONTHS ENDED --------------------------------------------- FEBRUARY 28,
AUGUST 31, 2000 2000 1999 1998 1997*
(UNAUDITED)
----------------------------------------------------------------------------------------------------------------------------
CLASS C
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 9.18 $ 9.71 $ 9.72 $ 9.43 $ 9.51
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.26 $ 0.52 $ 0.49 $ 0.55 $ 0.47
Net realized and unrealized gain
(loss) on investments 0.18 (0.56) 0.01 0.29 (0.09)
------ ------ ------ ------ ------
Total from investment operations $ 0.44 $(0.04) $ 0.50 $ 0.84 $ 0.38
------ ------ ------ ------ ------
Less distributions declared to shareholders
from net investment income $(0.27) $(0.49) $(0.51) $(0.55) $(0.46)
------ ------ ------ ------ ------
Net asset value - end of period $ 9.35 $ 9.18 $ 9.71 $ 9.72 $ 9.43
====== ====== ====== ====== ======
Total return 4.84%++ (0.42)% 5.23% 9.15% 4.06%++
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 1.57%+ 1.55% 1.57% 1.59% 1.55%+
Net investment income 5.76%+ 5.40% 5.03% 5.85% 5.97%+
Portfolio turnover 22% 124% 176% 212% 339%
Net assets at end of period
(000 omitted) $42,235 $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 $ 0.26 $ 0.49 $ 0.48 $ 0.54 $ 0.46
Ratios (to average net assets):
Expenses## 1.65%+ 1.65% 1.67% 1.69% 1.70%+
Net investment income 5.68%+ 5.30% 4.93% 5.75% 5.82%+
* For the period from the inception of Class C shares, 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.
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
<CAPTION>
Financial Highlights - continued
----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 29/28 PERIOD ENDED
SIX MONTHS ENDED --------------------------------------------- FEBRUARY 28,
AUGUST 31, 2000 2000 1999 1998 1997*
(UNAUDITED)
----------------------------------------------------------------------------------------------------------------------------
CLASS I
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 9.15 $ 9.69 $ 9.69 $ 9.40 $ 9.41
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.31 $ 0.60 $ 0.59 $ 0.62 $ 0.10
Net realized and unrealized gain
(loss) on investments 0.18 (0.56) 0.01 0.31 (0.01)
------ ------ ------ ------ ------
Total from investment operations $ 0.49 $ 0.04 $ 0.60 $ 0.93 $ 0.09
------ ------ ------ ------ ------
Less distributions declared to shareholders
from net investment income $(0.31) $(0.58) $(0.60) $(0.64) $(0.10)
------ ------ ------ ------ ------
Net asset value - end of period $ 9.33 $ 9.15 $ 9.69 $ 9.69 $ 9.40
====== ====== ====== ====== ======
Total return 5.44%++ 0.43% 6.37% 10.31% 1.03%++
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 0.57%+ 0.55% 0.57% 0.53% 0.48%+
Net investment income 6.77%+ 6.40% 6.13% 6.85% 7.22%+
Portfolio turnover 22% 124% 176% 212% 339%
Net assets at end of period
(000 omitted) $5,208 $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 $ 0.31 $ 0.59 $ 0.58 $ 0.61 $ 0.09
Ratios (to average net assets):
Expenses## 0.65%+ 0.65% 0.67% 0.63% 0.63%+
Net investment income 6.69%+ 6.30% 6.03% 6.75% 7.07%+
* For the period from the inception of Class I shares, 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.
</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 diversified, 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.
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 August 31, 2000, the value of securities loaned was $51,565,583. These loans
were collateralized by cash of $52,617,493, which was invested in the following
short-term obligation:
IDENTIFIED COST
ISSUER SHARES AND VALUE
-------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio 52,617,493 $52,617,493
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 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 total 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 net 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 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 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 that 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 total 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 $6,899 for the six months ended August 31, 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 incurs MFS an administrative fee
at the following annual percentages of the fund's average daily net assets:
First $2 billion 0.0175%
Next $2.5 billion 0.0130%
Next $2.5 billion 0.0005%
In excess of $7 billion 0.0000%
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$39,914 for the six months ended August 31, 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 $31,382 for the six months ended August 31,
2000. Fees incurred under the distribution plan during the six months ended
August 31, 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 $7,100, and $130 for Class B and Class C shares, respectively, for
the six months ended August 31, 2000. Fees incurred under the distribution plan
during the six months ended August 31, 2000, were 1.00% of average daily net
assets attributable to Class B and Class C shares, respectively, 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,
2000, were $30,081, $226,269, and $12,320 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%.
(4) Portfolio Securities
Purchases and sales of investments, other than short-term obligations,
aggregated $107,430,525 and $144,466,997, 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, areas
follows:
Aggregate cost $532,744,599
------------
Gross unrealized depreciation $(13,332,162)
Gross unrealized appreciation 3,658,454
------------
Net depreciation $ (9,673,708)
============
(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, 2000 YEAR ENDED FEBRUARY 29, 2000
--------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 23,630,431 $ 216,676,075 39,616,965 $ 371,462,737
Shares issued to shareholders
in reinvestment of
distributions 853,828 7,831,421 1,585,223 14,755,887
Shares reacquired (24,408,527) (223,806,870) (40,006,876) (374,290,526)
------------- ------------- ------------- -------------
Net increase 75,732 $ 700,626 1,195,312 $ 11,928,098
============= ============= ============= =============
<CAPTION>
Class B shares
SIX MONTHS ENDED AUGUST 31, 2000 YEAR ENDED FEBRUARY 29, 2000
--------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,481,099 $ 22,796,091 9,138,245 $ 85,845,299
Shares issued to shareholders
in reinvestment of
distributions 333,034 3,053,066 704,676 6,558,116
Shares reacquired (4,148,759) (38,017,751) (10,657,927) (98,914,468)
------------- ------------- ------------- -------------
Net decrease (1,334,626) $ (12,168,594) (815,006) $ (6,511,053)
============= ============= ============= =============
<CAPTION>
Class C shares
SIX MONTHS ENDED AUGUST 31, 2000 YEAR ENDED FEBRUARY 29, 2000
--------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 3,470,843 $ 32,052,161 4,365,724 $ 41,212,042
Shares issued to shareholders
in reinvestment of
distributions 86,246 794,397 144,298 1,347,863
Shares reacquired (2,603,891) (23,798,054) (4,686,351) (43,805,185)
------------- ------------- ------------- -------------
Net increase (decrease) 953,198 $ 9,048,504 (176,329) $ (1,245,280)
============= ============= ============= =============
<CAPTION>
Class I shares
SIX MONTHS ENDED AUGUST 31, 2000 YEAR ENDED FEBRUARY 29, 2000
--------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 60,372 $ 559,907 22,849 $ 218,949
Shares issued to shareholders
in reinvestment of
distributions 19,839 182,002 41,446 386,275
Shares reacquired (131,643) (1,217,316) (139,645) (1,291,758)
------------- ------------- ------------- -------------
Net decrease (51,432) $ (475,407) (75,350) $ (686,534)
============= ============= ============= =============
</TABLE>
(6) Line of Credit
The fund and other affiliated funds participate in a $1.1 billion unsecured line
of credit provided by a syndication of banks under a line of credit agreement.
Borrowings may be made for temporary financing needs. 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, 2000, was $1,795. The fund had no borrowings during the period.
<PAGE>
MFS(R) GOVERNMENT SECURITIES FUND
<TABLE>
<S> <C>
TRUSTEES SECRETARY
Stephen E. Cavan*
J. Atwood Ives + - Chairman and Chief Executive
Officer, Eastern Enterprises (diversified services ASSISTANT SECRETARY
company) James R. Bordewick, Jr.*
Lawrence T. Perera + - Partner, Hemenway & Barnes CUSTODIAN
(attorneys) State Street Bank and Trust Company
William J. Poorvu + - Adjunct Professor, Harvard INVESTOR INFORMATION
University Graduate School of Business For information on MFS mutual funds, call your
Administration investment professional or, for an information
kit, call toll free: 1-800-637-2929 any business
Charles W. Schmidt + - Private Investor day from 9 a.m. to 5 p.m. Eastern time (or leave a
message anytime).
Arnold D. Scott* - Senior Executive Vice
President, Director, and Secretary, MFS Investment INVESTOR SERVICE
Management MFS Service Center, Inc.
P.O. Box 2281
Jeffrey L. Shames* - Chairman and Chief Executive Boston, MA 02107-9906
Officer, 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, North American
Management Corp. (investment adviser) For service to speech- or hearing-impaired, call
toll free: 1-800-637-6576 any business day from 9
INVESTMENT ADVISER a.m. to 5 p.m. Eastern time. (To use this service,
Massachusetts Financial Services Company your phone must be equipped with a
500 Boylston Street Telecommunications Device for the Deaf.)
Boston, MA 02116-3741
For share prices, account balances, exchanges, or
DISTRIBUTOR stock and bond outlooks, call toll free:
MFS Fund Distributors, Inc. 1-800-MFS-TALK (1-800-637-8255) anytime from a
500 Boylston Street touch-tone telephone.
Boston, MA 02116-3741
WORLD WIDE WEB
CHAIRMAN AND PRESIDENT www.mfs.com
Jeffrey L. Shames*
PORTFOLIO MANAGER
Steven E. Nothern*
TREASURER
James O. Yost*
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
+ Independent Trustee
*MFS Investment Management
</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)2000 MFS Investment Management(R).
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116
MGS-3 10/00 45M 26/226/326/826
