<PAGE>
Front Cover: A 6-1/4" by 8-1/4" photo of a house. Annual Report for
Year Ended
[Logo] December 31, 1994
THE FIRST NAME IN MUTUAL FUNDS
MFS(R) GOVERNMENT LIMITED MATURITY FUND
<TABLE>
<CAPTION>
MFS(R) GOVERNMENT
LIMITED MATURITY FUND
<S> <C>
TRUSTEES CUSTODIAN
A. Keith Brodkin* - Chairman and President State Street Bank and Trust Company
Richard B. Bailey* - Private Investor; INDEPENDENT AUDITORS
Former Chairman and Director (until 1991), Ernst & Young LLP
Massachusetts Financial Services Company
INVESTOR INFORMATION
Marshall N. Cohan - Private Investor; For MFS stock and bond market outlooks,
Former President and Treasurer (until 1989), call toll-free: 1-800-637-4458 anytime from
Skane Knit, Inc. a touch-tone telephone.
Lawrence H. Cohn, M.D. - Chief of Cardiac Surgery, For information on MFS mutual funds
Brigham and Women's Hospital; Professor of call your financial adviser or,for an
Surgery, Harvard Medical School information kit, call toll-free:
1-800-637-2929 any business day from
The Hon. Sir J. David Gibbons, KBE - Chairman, 9 a.m. to 5 p.m. Eastern time (or, leave
Bank of N.T. Butterfield & Son Ltd., a message anytime).
Hamilton, Bermuda
INVESTOR SERVICE
Abby M. O'Neill - Private Investor; MFS Service Center, Inc.
Director, Rockefeller Financial Services, Inc. P.O. Box 2281
(Investment Advisers) Boston, MA 02107-9906
Walter E. Robb, III - President and Treasurer, For general information, call toll free:
Benchmark Advisors, Inc. (Financial Consultants) 1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
Arnold D. Scott* - Senior Executive Vice President,
Massachusetts Financial Services Company For service to speech- or hearing-impaired,
call toll free: 1-800-637-6576 any business
Jeffrey L. Shames* - President and Chief Equity day from 9 a.m. to 5 p.m. Eastern time.
Officer, Massachusetts Financial Services Company (To use this service, your phone must be
equipped with a Telecommunications
J. Dale Sherratt - Former Chairman and Chief Device for the Deaf.)
Executive Officer (until 1989),
The Kendall Company; For share prices, account balances and
President, Insight Resources, Inc. exchanges, call toll free: 1-800-MFS-TALK
(1-800-637-8255) anytime from a touch-tone
Ward Smith - Former Chairman (until 1994), telephone.
NACCO Industries; Director, Sundstrand
Corporation
--------------------------------
INVESTMENT ADVISER TOP-RATED SERVICE
Massachusetts Financial Services Company MFS was rated first when
500 Boylston Street securities firms evaluated the
Boston, Massachusetts 02116-3741 quality of service they receive
from 40 mutual fund companies.
PORTFOLIO MANAGER MFS got high marks for answering
Steven E. Nothern* calls quickly, processing
transactions accurately and
TREASURER sending statements out on time.
W. Thomas London* (Source: 1994 DALBAR Survey)
ASSISTANT TREASURER
James O. Yost*
--------------------------------
SECRETARY Cover photo: Through their wide
Stephen E. Cavan* range of investments, MFS mutual
funds help you share in
ASSISTANT SECRETARY America's growth.
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
During the 12 months ended December 31, 1994, Class A shares of the Fund
provided a total return of -0.76%, while Class B shares had a total return of
- -1.65%. Class C shares of the Fund just became available on August 1, 1994 and
had a cumulative total return of -0.33% for the period through December 31,
1994. All of these returns assume the reinvestment of distributions but exclude
the effects of any sales charges. During the same 12-month period, the return of
the Lehman Brothers One- to Five-Year Government Bond Index, a market-value
weighted index comprised of debt issued by the U.S. government and its agencies
with remaining maturities of one to five years, was -0.77%. A discussion of the
Fund's performance during the fiscal year ended December 31, 1994 may be found
in the Portfolio Performance and Strategy section of this letter. Complete
performance data may be found on pages three and four of this report.
Economic Outlook
The economic expansion, about to enter its fifth year, has gained firmer
underpinnings as employers have been stepping up hiring levels. Increased
employment, stronger capital spending by businesses, and strengthening overseas
economies resulted in 4% real (adjusted for inflation) gross domestic product
growth in 1994. Interest rates rose significantly in 1994, which should help
restrain, but not curtail, the economic expansion. Based on improving economic
fundamentals both here and abroad, we expect the business expansion to continue
well into 1995.
Interest Rates
Despite a stronger economy, inflation at the consumer level has remained
relatively benign at 2.7% in 1994, the fourth straight year of 3% or less. Due
to a prolonged period of below-trend-line growth and continued pressure on
corporations to emphasize effective cost controls, wage growth and unit labor
costs have remained subdued. However, as the economy has exhibited continuing
strength, various industrial commodity prices have been rising substantially
faster than consumer prices. Nevertheless, businesses have had difficulty
passing these price increases on to the consumer. With the economy continuing to
expand, we expect to see some upward movement in inflation from below 3% to the
3 1/2% range. The Federal Reserve Board has shown a willingness to raise
short-term rates to slow the economy and dampen inflationary pressures. The
Federal Reserve most recently raised the federal funds rate 75 basis points
(0.75%) on November 15, and we expect the Federal Reserve to raise short-term
rates again in the coming months if it believes that current efforts have not
been sufficient to dampen inflationary expectations. Although we believe
fundamentals are favorable for lower long-term rates sometime in 1995, this
likely will not occur until the Federal Reserve is comfortable that its policy
toward slowing the economic expansion has been successful. Thus, we believe that
long-term yields will move moderately higher in the near term.
Portfolio Performance and Strategy
As mentioned earlier, Class A shares of the Fund provided a total return of
- -0.76% during the fiscal year ended December 31, 1994, as compared to a return
of -0.77% for the Lehman Brothers One- to Five-Year Government Bond Index. Class
A shares also outperformed the -1.65% average return for other short-term U.S.
government funds as determined by Lipper Analytical Services, Inc., an
independent firm that reports mutual fund performance.
Our focus during the past 12 months has been on preservation of principal,
and it remains our primary focus entering 1995. Currently, the portfolio is
structured defensively in anticipation of further increases in short-term
interest rates by the Federal Reserve. Considerable momentum in the expansion of
economic activity has carried unemployment to within one-tenth of a percent of
the previous business-cycle low. Additionally, business capacity utilization
rates are close to levels that historically have led to supply bottlenecks and
inflationary pressures. We believe the Federal Reserve will need to see evidence
that this economic momentum has been significantly blunted before signaling that
the current cycle of rising interest rates is complete.
Approximately 48% of the Fund's total net assets is invested in U.S.
Treasury securities with maturities of eight months or less. As we approach the
end of the credit tightening cycle, and we see indications that the Federal
Reserve's increase in interest rates is impacting economic growth, we expect to
invest these short-term holdings in the three- to five-year sector of the
Treasury market. By re-deploying these short-term holdings, we expect to be able
to lock in attractive yields and to position the portfolio to benefit from
opportunities for capital appreciation.
During 1995, we will look to further increase portfolio allocations to
government agency and mortgage-backed pass-through securities. Our current
mortgage holdings are primarily balloon and 15-year pass-through securities.
With declining mortgage refinancing activity and an anticipated slowdown in
housing activity, these securities should continue to benefit from very
favorable supply and demand technicals, limited extension risk and attractive
incremental yields relative to Treasuries (although it is important to remember
that principal value and interest on Treasury securities are guaranteed by the
U.S. government if held to maturity).
In order for the Fund to remain an eligible investment for Federal Credit
Unions and national banks, the Fund will continue not to invest in options or
futures and the more volatile mortgage-derivative securities. With our
relatively large holdings of cash and very short-term Treasury and mortgage
securities, we believe the portfolio is well-positioned to benefit from the
higher yields that may become available later in 1995.
We appreciate your support and welcome any questions or comments you may
have.
Page 2
A 1 1/2" by 1 5/8" photo of A. Keith Brodkin, Chairman and President
A 1 1/2" by 1 5/8" photo of Steven E. Nothern, Portfolio Manager
Respectfully,
/s/A. Keith Brodkin /s/Steven E. Nothern
Chairman and President Portfolio Manager
January 20, 1995
<PAGE>
PORTFOLIO MANAGER PROFILE
Steven Nothern began his career at MFS in 1986 in the Fixed Income Department. A
graduate of Middlebury College and Boston University, he was named Assistant
Vice President in 1987, Vice President in 1989 and Senior Vice President in July
of 1993. In 1992, he became Portfolio Manager of MFS Government Premium Fund,
now called MFS Government Limited Maturity Fund. Mr. Nothern is a Chartered
Financial Analyst (C.F.A.).
OBJECTIVE AND POLICIES
The Fund's investment objective is to preserve capital and provide high current
income (compared to a portfolio entirely invested in money market instruments).
The Fund seeks to achieve its objective by investing in obligations issued or
guaranteed by the U.S. government, its agencies, authorities or
instrumentalities, including mortgage-related securities*. Under normal market
conditions, substantially all of the securities in the Fund's portfolio will
have remaining maturities of five years or less.
*The government guarantee does not apply to shares of the Fund, which will
fluctuate with changes in market conditions.
TAX FORM SUMMARY
In January 1995, shareholders will be mailed a Tax Form Summary reporting the
federal tax status of all distributions paid during the calendar year 1994.
PERFORMANCE
The information on the following page illustrates the historical performance of
MFS Government Limited Maturity Fund Class A shares in comparison to various
market indicators. Fund results reflect the deduction of the 2.50% maximum sales
charge; benchmark comparisons are unmanaged and do not reflect any fees or
expenses. You cannot invest in an index. All results reflect the reinvestment of
all dividends and capital gains.
Class B shares were offered effective September 7, 1993. Information on Class B
share performance appears on the next page.
Please note that effective August 1, 1994, Class C shares were offered.
Information on Class C share performance appears on the next page.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the Period from October 1, 1988 to December 31, 1994)
Page 4
Line graph representing the growth of a $10,000 investment for the life-of-class
period ended December 31, 1994. The graph is scaled from $8,000 to $18,000 in
$2,000 segments. The years are marked from 1988 to 1994. There are three lines
drawn to scale. One is a solid line representing MFS Government Limited Maturity
Fund Class A, a second line of short dashes represents the Lehman Brothers 1-5
Year Government Bond Index, and a third line of long dashes represents the
Consumer Price Index.
MFS Government Limited
Maturity Fund Class A $13,934
Lehman Brothers 1-5 Year
Government Bond Index $15,796
Consumer Price Index $12,496
AVERAGE ANNUAL TOTAL RETURNS
Life of Class
through
1 Year 3 Years 5 Years 12/31/94+++
- ------------------------------------------------------------------------------
MFS Government Limited Maturity
Fund (Class A)
including 2.50% sales charge -3.23% +3.31% +4.62% +5.44%*
- ------------------------------------------------------------------------------
MFS Government Limited Maturity
Fund (Class A)
at net asset value -0.76% +4.19% +5.15% +5.87%*
- ------------------------------------------------------------------------------
MFS Government Limited Maturity
Fund (Class B) with CDSC+ -5.40% -- -- -4.44%**
- ------------------------------------------------------------------------------
MFS Government Limited Maturity
Fund (Class B) without CDSC -1.65% -- -- -1.62%**
- ------------------------------------------------------------------------------
MFS Government Limited Maturity
Fund (Class C) -- -- -- -0.33%#
- ------------------------------------------------------------------------------
Average short-term U.S.
government fund -1.65% +3.30% +6.06% +6.72%++
- ------------------------------------------------------------------------------
Lehman Brothers One- to Five-
Year Government Bond Index -0.77% +4.20% +7.03% +7.59%++
- ------------------------------------------------------------------------------
Consumer Price Index(S) +2.67% +2.78% +3.49% +3.63%++
- ------------------------------------------------------------------------------
In the above table, we have included the average annual total returns of all
short-term U.S. government funds (including the Fund) tracked by Lipper
Analytical Services, Inc. for the applicable time periods (108, 47, 33 and 27
funds for the 1-, 3- and 5-year periods ended December 31, 1994, and for the
period from October 1, 1988 through December 31, 1994, respectively). Because
these returns do not reflect any applicable sales charges, we have also included
the Fund's results at net asset value (no sales charge) for comparison.
All results are historical and, therefore, are not an indication of future
results. The principal value and income return of an investment in a mutual fund
will vary with changes in market conditions, and shares, when redeemed, may be
worth more or less than their original cost. Class C shares have no initial
sales charge or contingent deferred sales charge (CDSC), but along with Class B
shares, have higher annual fees and expenses than Class A shares.
All Class A share results reflect the applicable expense subsidy which is
explained in the Notes to Financial Statements. Had the subsidy not been in
effect, the results would have been less favorable. The subsidy may be rescinded
at any time.
*For the period from the commencement of offering of Class A shares, September
26, 1988 to December 31, 1994.
**For the period from the commencement of offering of Class B shares, September
7, 1993 to December 31, 1994.
+These returns reflect the current maximum Class B CDSC of 4%.
#Aggregate total return from August 1, 1994 (commencement of offering of Class
C shares).
++Benchmark comparisons begin on October 1, 1988.
(S)The Consumer Price Index is a popular measure of change in prices.
+++The Fund's policy of investing in U.S. government securities with average
lives of five years or less did not take effect until May 1, 1993.
PORTFOLIO OF INVESTMENTS - December 31, 1994
Bonds - 97.3%
- --------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
U.S. Federal Agencies - 25.4%
Federal Home Loan Mortgage Corp., 7s, 1999 $19,245 $ 18,595,379
Federal Home Loan Mortgage Corp., 7.5s, 1999 21,122 20,705,961
Federal National Mortgage Assn., 8.5s,2001 - 2009 24,108 24,069,686
Federal National Mortgage Assn., 9s, 2003 - 2007 6,25 6,338,475
Federal National Mortgage Assn., 1993 -
M1, "A", 7.653s, 2020 2,596 2,541,949
-------------
$ 72,251,450
- --------------------------------------------------------------------------------
U.S. Government Guaranteed - 71.9%
Government National Mortgage Association - 4.1%
GNMA, 7.5s, 2009 $ 38 $ 36,329
GNMA, 8s, 2004 - 2009 11,871 11,607,424
-------------
$ 11,643,753
- --------------------------------------------------------------------------------
U.S. Treasury Obligations - 67.8%
U.S. Treasury Notes, 8.5s, 1995 $61,000 $ 61,552,660
U.S. Treasury Notes, 8.875s, 1995 73,500 74,292,330
U.S. Treasury Notes, 7.25s, 1996 30,000 29,765,700
U.S. Treasury Notes, 7.375s, 1997 27,50 27,207,675
-------------
$192,818,365
- --------------------------------------------------------------------------------
Total U.S. Government Guaranteed $204,462,118
- --------------------------------------------------------------------------------
Total Bonds (Identified Cost, $284,572,459) $276,713,568
- --------------------------------------------------------------------------------
Repurchase Agreement - 1.0%
- --------------------------------------------------------------------------------
Lehman Brothers, dated 12/30/94, due 1/ 03/95, total to be received
$2,808,825 (secured by $2,105,000 U.S. Treasury Bonds, 11.25s, due 2/
15/15, market value $2,866,370), at
Cost $ 2,807 $ 2,807,000
- --------------------------------------------------------------------------------
Total Investments (Identified Cost, $287,379,459) $279,520,568
Other Assets, Less Liabilities - 1.7% 4,954,217
- --------------------------------------------------------------------------------
Net Assets - 100.0% $284,474,785
- --------------------------------------------------------------------------------
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
December 31, 1994
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $287,379,459) $279,520,568
Cash 672
Receivable for Fund shares sold 202,580
Interest receivable 6,073,510
Other assets 4,825
------------
Total assets $285,802,155
------------
Liabilities:
Payable for Fund shares reacquired $ 554,347
Distributions payable 553,062
Payable to affiliates -
Distribution fee 102,498
Management fee 6,236
Shareholder servicing agent fee 2,431
Accrued expenses and other liabilities 108,796
------------
Total liabilities $ 1,327,370
------------
Net assets $284,474,785
------------
Net assets consist of:
Paid-in capital $306,825,265
Unrealized depreciation on investments (7,858,891)
Accumulated net realized loss on investments (14,453,302)
Accumulated distributions in excess of net investment income (38,287)
-------------
Total $284,474,785
------------
Shares of beneficial interest outstanding 33,787,880
------------
Class A shares:
Net asset value and redemption price per share
(net assets of $257,153,776 / 30,537,522 shares of
beneficial interest outstanding) $8.42
----
Offering price per share (100/97.5 of net asset value per
share) $8.64
----
Class B shares:
Net asset value, offering price and redemption price per share
(net assets of $23,917,728 / 2,844,871 shares of beneficial
interest outstanding) $8.41
----
Class C shares:
Net asset value, offering price and redemption price per share
(net assets of $3,403,281 / 405,487 shares of beneficial
interest outstanding) $8.39
----
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 and
Class B shares.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- --------------------------------------------------------------------------------
Year Ended December 31, 1994
- --------------------------------------------------------------------------------
Net investment income:
Interest income $ 22,577,275
------------
Expenses -
Management fee $ 1,561,767
Trustees' compensation 40,877
Shareholder servicing agent fee (Class A) 442,495
Shareholder servicing agent fee (Class B) 45,549
Shareholder servicing agent fee (Class C) 1,257
Distribution and service fee (Class A) 735,827
Distribution and service fee (Class B) 207,041
Distribution and service fee (Class C) 8,380
Custodian fee 98,706
Postage 40,877
Auditing fees 33,287
Printing 24,856
Legal fees 8,130
Miscellaneous 191,040
------------
Total expenses $ 3,440,089
Reduction of expenses by investment adviser and distributor (453,869)
------------
Net expenses $ 2,986,220
------------
Net investment income $ 19,591,055
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) $(16,449,820)
Change in unrealized appreciation (depreciation) (6,309,503)
------------
Net realized and unrealized loss on investments $(22,759,323)
------------
Net decrease in net assets from operations $ (3,168,268)
------------
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Year Ended December 31, 1994 1993
- --------------------------------------------------------------------------------
Increase (decrease) in net
assets:
From operations -
Net investment income $ 19,591,055 $ 17,072,328
Net realized gain (loss) on
investments (16,449,820) 4,172,622
Net unrealized loss on
investments (6,309,503) (1,868,631)
----------- -----------
Increase (decrease) in net
assets from operations $ (3,168,268) $ 19,376,319
----------- -----------
Distributions declared to
shareholders -
From net investment income (Class A) $(16,948,072) $(16,882,753)
From net investment income (Class B) (1,023,255) (65,605)
From net investment income (Class C) (49,519) --
From net realized gain on
investments (Class A) -- (3,219,959)
From net realized gain on
investments (Class B) -- (27,163)
----------- -----------
Total distributions declared
to shareholders $(18,020,846) $(20,195,480)
----------- -----------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 88,499,662 $175,118,644
Net asset value of shares
issued to shareholders in
reinvestment of distributions 11,313,407 12,865,498
Cost of shares reacquired (151,014,206) (127,087,569)
----------- -----------
Increase (decrease) in net
assets from Fund share
transactions $(51,201,137) $ 60,896,573
----------- -----------
Total increase (decrease)
in net assets $(72,390,251) $ 60,077,412
Net assets:
At beginning of period 356,865,036 296,787,624
----------- -----------
At end of period (including
undistributed (distributions
in excess of) net investment
income of $(38,287) and
$106,594, respectively) $284,474,785 $356,865,036
----------- -----------
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------
Year Ended December 31, 1994 1993 1992 1991 1990<F1>
- -----------------------------------------------------------------------------------------------
Class A
- -----------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C>
Net asset value -
beginning of period $ 8.99 $ 8.98 $ 9.06 $ 9.09 $ 9.33
----- ----- ----- ----- -----
Income from investment
operations<F3> -
Net investment income<F5> $ 0.54 $ 0.52 $ 0.49 $ 0.52 $ 0.53
Net realized and unrealized
gain (loss) on investments (0.61) 0.10 0.07 0.21 --
----- ----- ----- ----- -----
Total from investment
operations $(0.07) $ 0.62 $ 0.56 $ 0.73 $ 0.53
----- ----- ----- ----- -----
Less distributions declared
to shareholders -
From net investment income $(0.50) $(0.51) $(0.45) $(0.49) $(0.48)
From net realized gain on
investments -- (0.10) (0.14) -- --
From paid-in capital -- -- (0.05) (0.27) (0.29)
----- ---- ---- ---- ----
Total distributions
declared to
shareholders $(0.50) $(0.61) $(0.64) $(0.76) $(0.77)
----- ----- ----- ----- -----
Net asset value -
end of period $ 8.42 $ 8.99 $ 8.98 $ 9.06 $ 9.09
===== ===== ===== ===== =====
Total return<F4> (0.76)% 7.00% 6.51% 8.44% 7.39%<F2>
Ratios (to average net assets)/Supplemental data<F5>:
Expenses 0.89% 1.14% 1.38% 1.33% 1.40%<F2>
Net investment income 6.28% 5.62% 5.50% 5.89% 7.01%<F2>
Portfolio turnover 328% 247% 391% 1,256% 845%
Net assets at end of period
(000 omitted) $257,154 $345,597 $296,788 $365,644 $427,849
<FN>
<F1>For the ten months ended December 31, 1990.
<F2>Annualized.
<F3>Per share data for the year ended December 31, 1994 is based on average shares outstanding.
<F4>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.
<F5>The investment adviser and the distributor did not impose a portion of
their management fee and distribution fee, respectively, for the periods
indicated. If these fees had been incurred by the Fund, the net investment
income per share and the ratios would have been:
Net investment income $ 0.53 $ 0.50 -- -- --
Ratios (to average
net assets):
Expenses 1.04% 1.34% -- -- --
Net investment income 6.13% 5.42% -- -- --
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
<CAPTION>
Financial Highlights - continued
- --------------------------------------------------------------------------------------------------------------
Year Ended February 28, Year Ended December 31,
----------------------- ----------------------------------
1990 1989<F1> 1994 1993<F2> 1994<F3>
- --------------------------------------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C>
Net asset value - beginning
of period $ 9.51 $ 9.63 $ 8.98 $ 9.17 $ 8.62
------ ------ ------ ------ ------
Income from investment operations<F5> -
Net investment income<F7> $ 0.69 $ 0.23 $ 0.47 $ 0.12 $ 0.17
Net realized and unrealized gain (loss)
on investments 0.10 (0.11) (0.62) (0.17) (0.20)
------ ------ ------ ------ ------
Total from investment operations $ 0.79 $ 0.12 $(0.15) $(0.05) $(0.03)
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.67) $(0.17) $(0.42) $(0.11) $(0.20)
From net realized gain on investments (0.14) (0.02) -- (0.03) --
From paid-in capital (0.16) (0.05) -- -- --
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.97) $(0.24) $(0.42) $(0.14) $(0.20)
------ ------ ------ ------ ------
Net asset value - end of period $ 9.33 $ 9.51 $ 8.41 $ 8.98 $ 8.39
====== ====== ====== ====== ======
Total return<F6> 8.43%<F4> 3.02%<F4> (1.65)% (1.54)%<F4> (0.33)%
Ratios (to average net assets)/Supplemental data(S):
Expenses 1.43% 1.41%<F4> 1.79% 1.83%<F4> 1.62%<F4>
Net investment income 7.16%<F4> 6.97%<F4> 5.42% 4.58%<F4> 6.10%<F4>
Portfolio turnover 615% 170% 328% 247% 328%
Net assets at end of period
(000 omitted) $350,011 $117,584 $23,918 $11,268 $3,403
<FN>
<F1>For the period from the commencement of investment operations, September 26, 1988 to February 28, 1989.
<F2>For the period from the commencement of offering of Class B shares, September 7, 1993 to
<F3>For the period from the commencement of offering of Class C shares, August 1, 1994 to December
<F4>Annualized.
<F5>Per share data for the year ended December 31, 1994 is based on average shares outstanding.
<F6>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.
<F7>The investment adviser and the distributor did not impose a portion of their management fee and
distribution fee, respectively, for the period indicated. If these fees had been incurred by the Fund, the
net investment income per share and the ratios would have been:
Net investment income -- -- $ 0.46 $ 0.11 --
Ratios (to average net assets):
Expenses -- -- 1.82% 2.60%<F4> --
Net investment income -- -- 5.39% 3.82%<F4> --
See notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Government Limited Maturity 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
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. Securities
for which there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Trustees.
Repurchase Agreements - The Fund may enter into repurchase agreements with
institutions that the Fund's investment adviser has determined are creditworthy.
Each repurchase agreement is recorded at cost. The Fund requires that the
securities purchased in a repurchase transaction be transferred to the custodian
in a manner sufficient to enable the Fund to obtain those securities in the
event of a default under the repurchase agreement. The Fund monitors, on a daily
basis, the value of the securities transferred to ensure that the value,
including accrued interest, of the securities under each repurchase agreement is
greater than amounts owed to the Fund under each such repurchase agreement.
Security Loans - The Fund may lend its securities to member banks of the Federal
Reserve System and to member firms of the New York Stock Exchange or
subsidiaries thereof. The loans are collateralized at all times by cash or
securities with a market value at least equal to the market value of securities
loaned. As with other extensions of credit, the Fund may bear the risk of delay
in recovery or even loss of rights in the collateral should the borrower of the
securities fail financially. The Fund receives compensation for lending its
securities in the form of fees or from all or a portion of the income from
investment of the collateral. The Fund would also continue to earn income on the
securities loaned. At December 31, 1994, the Fund had no securities on loan.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
original issue discount are amortized or accreted for both 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 government 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.
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.
The Fund files a tax return annually using tax accounting methods required under
provisions of the Code which may differ from generally accepted accounting
principles, the basis on which these financial statements are prepared.
Accordingly, the amount of net investment income and net realized gain reported
on these financial statements may differ from that reported on the Fund's tax
return and, consequently, the character of distributions to shareholders
reported in the financial highlights may differ from that reported to
shareholders on Form 1099-DIV. Distributions to shareholders are recorded on the
ex-dividend date.
The Fund distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a return of
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains. During the year ended December 31, 1994, $1,715,090 was reclassified from
accumulated distributions in excess of 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.
Multiple Classes of Shares of Beneficial Interest - The Fund offers Class A,
Class B and Class C shares. Class B and Class C shares were first offered to the
public on September 7, 1993 and August 1, 1994, respectively. The three classes
of shares differ in their respective shareholder servicing agent, distribution
and service fees. Shareholders of each class also bear certain expenses that
pertain only to that particular class. All shareholders bear the common expenses
of the Fund pro rata based on the average daily net assets of each class,
without distinction between share classes. Dividends are declared separately for
each class. No class has preferential dividend rights; differences in per share
dividend rates are generally due to differences in separate class expenses,
including distribution and shareholder service fees.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. Prior to
April 1, 1994, the management fee was computed daily and paid monthly at an
effective annual rate of 0.38% of average daily net assets and 5.36% of gross
income. Subsequent to April 1, 1994, the management fee was computed daily and
paid monthly at the lesser of 0.40% of average daily net assets or 0.38% of
average daily net assets and 5.36% of gross income. This amounted to $1,561,767
for the year ended December 31, 1994. The investment adviser did not impose a
portion of its fee ($160,537), which is reflected as a reduction of expenses in
the statement of operations.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive remuneration
for their services to the Fund from MFS. Certain of the officers and Trustees of
the Fund are officers or directors of MFS, MFS Financial Services, Inc. (FSI)
and MFS Service Center, Inc. (MFSC). The Fund has an unfunded defined benefit
plan for all its independent Trustees. Included in Trustees' compensation is a
net periodic pension expense of $9,052 for the year ended December 31, 1994.
Distributor - FSI, a wholly owned subsidiary of MFS, as distributor, received
$43,591 as its portion of the sales charge on sales of Class A shares of the
Fund. Effective January 1, 1995, FSI became MFS Fund Distributors, Inc. (MFD).
The Trustees have adopted separate distribution plans for Class A, Class B and
Class C shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as
follows:
The Class A Distribution Plan provides that the Fund will pay MFD up to 0.35% of
its average daily net assets attributable to Class A shares annually in order
that MFD may pay expenses on behalf of the Fund related to the distribution and
servicing of its shares. These expenses include a service fee to each securities
dealer that enters into a sales agreement with MFD of up to 0.25% per annum of
the Fund's average daily net assets attributable to Class A shares which are
attributable to that securities dealer, a distribution fee to MFD of up to 0.10%
per annum of the Fund's average daily net assets attributable to Class A shares,
commissions to dealers and payments to MFD wholesalers for sales at or above a
certain dollar level, and other such distribution-related expenses that are
approved by the Fund. MFD is currently waiving the 0.10% distribution fee which
amounted to $293,332 for the year ended December 31, 1994. Fees incurred under
the distribution plan during the year ended December 31, 1994 were 0.15% of
average daily net assets attributable to Class A shares on an annualized basis,
net of waiver, and amounted to $442,495 (of which MFD retained $39,041).
The Class B and Class C Distribution Plans provide that the Fund will pay MFD a
monthly distribution fee, equal to 0.75% per annum, and a quarterly service fee
of up to 0.25% per annum, of the Fund's average daily net assets attributable to
Class B and Class C shares. MFD will pay to securities dealers that enter into a
sales agreement with MFD, all or a portion of the service fee attributable to
Class B and Class C shares, and will pay to such securities dealers all of the
distribution fee attributable to Class C shares. The service fee is intended to
be additional consideration for services rendered by the dealer with respect to
Class B and Class C shares. Fees incurred under the distribution plans for the
year ended December 31, 1994 were 1.00% of average daily net assets attributable
to Class B and Class C shares on an annualized basis and amounted to $207,041
and $8,380, respectively (of which MFD retained $1,721 and $5 for Class B and
Class C shares, respectively).
A contingent deferred sales charge is imposed on shareholder redemption of Class
A shares, on purchases of $1 million or more, in the event of a share redemption
within twelve months following the share 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 December 31, 1994 were $238,743 and $192,283 for Class A and Class B
shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earned
$442,495, $45,549 and $1,257 for Class A, Class B and Class C shares,
respectively, for its services as shareholder servicing agent. The fee is
calculated as a percentage of the average daily net assets of each class of
shares at an effective annual rate of up to 0.15%, up to 0.22% and up to 0.15%
attributable to Class A, Class B and Class C shares, respectively.
(4) Portfolio Securities
Purchases and sales of investments, other than short-term obligations, were as
follows:
Purchases Sales
- ------------------------------------------------------------------------------
U.S. government securities $975,629,391 $1,025,810,465
------------ --------------
The cost and unrealized depreciation in value of the investments owned by the
Fund, as computed on a federal income tax basis, are as follows:
Aggregate cost $ 287,732,975
--------------
Gross and net unrealized depreciation $ 8,212,407
--------------
At December 31, 1994, the Fund, for federal income tax purposes, had a capital
loss carryforward of $14,381,215, which may be applied against any net taxable
realized gains of each succeeding year until the earlier of its utilization or
expiration on December 31, 2002.
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
1994 1993
Class A Shares --------------------------- -------------------------
Year Ended December 31, Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 6,636,068 $ 57,795,004 17,800,353 $163,422,799
Shares issued to shareholders in
reinvestment of distributions 1,230,897 10,641,877 1,424,842 12,810,329
Shares reacquired (15,759,146) (137,039,970) (13,851,921) (126,694,108)
----------- ------------- ----------- ------------
Net increase (decrease) (7,892,181) $ (68,603,089) 5,373,274 $ 49,539,020
=========== ============= =========== ============
1994 1993<F1>
Class B Shares --------------------------- -------------------------
Year Ended December 31, Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------
Shares sold 3,133,094 $ 27,198,600 1,292,601 $ 11,695,845
Shares issued to shareholders in
reinvestment of distributions 72,495 622,590 6,127 55,169
Shares reacquired (1,615,742) (13,879,579) (43,704) (393,461)
---------- ------------- --------- ------------
Net increase 1,589,847 $ 13,941,611 1,255,024 $ 11,357,553
========== ============= ========= ============
1994<F2>
Class C Shares ---------------------------
Year Ended December 31, Shares Amount
- --------------------------------------------------------------------
Shares sold 410,854 $ 3,506,058
Shares issued to shareholders in
reinvestment of distributions 5,799 48,940
Shares reacquired (11,166) (94,657)
---------- -------------
Net increase 405,487 $ 3,460,341
========== =============
<F1>For the period from the commencement of offering of Class B shares,
September 7, 1993 to December 31, 1993.
<F2>For the period from the commencement of offering of Class C shares, August
1, 1994 to December 31, 1994.
</TABLE>
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS, or an affiliate of MFS, in an unsecured line of credit
with a bank which permits borrowings up to $300 million, collectively.
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 December 31, 1994 was $4,753.
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees and Shareholders of MFS Government Limited Maturity Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Government Limited Maturity Fund, including the schedule of portfolio
investments, as of December 31, 1994, and the related statements of operations
and changes in net assets for the year then ended and the financial highlights
for the year then ended for Class A and Class B shares, and for the period from
August 1, 1994 (commencement of offering) to December 31, 1994 for Class C
shares. 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
audit. The financial statements of MFS Government Limited Maturity Fund for the
year ended December 31, 1993 and the financial highlights for each of the three
years in the period ended December 31, 1993, for the ten months ended December
31, 1990, for the year ended February 28, 1990, for the period from September
26, 1988 (commencement of operations) to February 28, 1989, for Class A shares,
and for the period from September 7, 1993 (commencement of operations) to
December 31, 1993 for Class B shares, were audited by other auditors whose
report dated January 19, 1994 expressed an unqualified opinion on those
statements and financial highlights.
We conducted our audit 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 December 31, 1994, by
correspondence with the custodian and brokers, or other appropriate auditing
procedures where replies from brokers were not received. 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 audit provides 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 Limited Maturity Fund as of December 31, 1994, and the results of its
operations, the changes in its net assets, and financial highlights for the year
then ended for Class A shares and Class B shares, and for the period August 1,
1994 to December 31, 1994 for Class C shares, in conformity with generally
accepted accounting principles.
/s/Ernst & Young LLP
Boston, Massachusetts
February 9, 1995
---------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
<PAGE>
<TABLE>
THE MFS FAMILY OF FUNDS(r)
America's Oldest Mutual Fund Group
The members of the MFS Family of Funds are grouped below according to the types of
securities in their portfolios. For free prospectuses containing more complete
information, including the exchange privilege and all charges and expenses, please
contact your financial adviser or call the MFS Service Center at 1-800-225-2606 any
business day from 8 a.m. to 8 p.m. Eastern time. This material should be read carefully
before investing or sending money.
<CAPTION>
STOCK LIMITED MATURITY BOND
<S> <C>
Massachusetts Investors Trust MFS(r) Government Limited Maturity Fund
Massachusetts Investors Growth Stock Fund MFS(r) Limited Maturity Fund
MFS(r) Capital Growth Fund MFS(r) Municipal Limited Maturity Fund
MFS(r) Emerging Growth Fund WORLD
MFS(r) Gold & Natural Resources Fund MFS(r) World Asset Allocation Fund
MFS(r) Growth Opportunities Fund MFS(r) World Equity Fund
MFS(r) Managed Sectors Fund MFS(r) World Governments Fund
MFS(r) OTC Fund MFS(r) World Growth Fund
MFS(r) Research Fund MFS(r) World Total Return Fund
MFS(r) Value Fund NATIONAL TAX-FREE BOND
STOCK AND BOND MFS(r) Municipal Bond Fund
MFS(r) Total Return Fund MFS(r) Municipal High Income Fund
MFS(r) Utilities Fund (closed to new investors)
BOND MFS(r) Municipal Income Fund
MFS(r) Bond Fund STATE TAX-FREE BOND
MFS(r) Government Mortgage Fund Alabama, Arkansas, California, Florida,
MFS(r) Government Securities Fund Georgia, Louisiana, Maryland, Massachusetts,
MFS(r) High Income Fund Mississippi, New York, North Carolina,
MFS(r) Intermediate Income Fund Pennsylvania, South Carolina Tennessee, Texas,
MFS(r) Strategic Income Fund Virginia, Washington, West Virginia
(formerly MFS(r) Income & Opportunity Fund) MONEY MARKET
MFS(r) Cash Reserve Fund
MFS(r) Government Money Market Fund
MFS(r) Money Market Fund
</TABLE>
<PAGE>
MFS(R)
GOVERNMENT BULK RATE
LIMITED U.S. POSTAGE
MATURITY P A I D
FUND PERMIT #55638
BOSTON, MA
500 Boylston Street
Boston, MA 02116
[Logo]
THE FIRST NAME IN MUTUAL FUNDS
MGL-2 2/95 18M 28/228/328
