<PAGE>
[LOGO: M F S SEMIANNUAL REPORT
THE FIRST NAME IN MUTUAL FUNDS] JUNE 30, 1995
MFS(R) GOVERNMENT LIMITED MATURITY FUND
[GRAPHIC OMITTED: art work:
Silhouette of two men talking in front of a large window.]
<PAGE>
MFS(R) GOVERNMENT LIMITED MATURITY FUND
<TABLE>
<S> <C>
TRUSTEES CUSTODIAN
A. Keith Brodkin* - Chairman and President State Street Bank and Trust Company
Richard B. Bailey* - Private Investor; INVESTOR INFORMATION
Former Chairman and Director (until 1991), For MFS stock and bond market outlooks,
Massachusetts Financial Services Company call toll free: 1-800-637-4458 anytime from
a touch-tone telephone.
Marshall N. Cohan - Private Investor
For information on MFS mutual funds,
Lawrence H. Cohn, M.D. - Chief of Cardiac Surgery, call your financial adviser or, for an
Brigham and Women's Hospital; Professor of information kit, call toll free:
Surgery, Harvard Medical School 1-800-637-2929 any business day from
9 a.m. to 5 p.m. Eastern time (or leave
The Hon. Sir J. David Gibbons, KBE - Chief a message anytime).
Executive Officer, Edmund Gibbons Ltd.;
Chairman, Bank of N.T. Butterfield & Son Ltd. INVESTOR SERVICE
MFS Service Center, Inc.
Abby M. O'Neill - Private Investor; P.O. Box 2281
Director, Rockefeller Financial Services, Inc. Boston, MA 02107-9906
(Investment Advisers)
For general information, call toll free:
Walter E. Robb, III - President and Treasurer, 1-800-225-2606 any business day from
Benchmark Advisors, Inc. (Corporate Financial 8 a.m. to 8 p.m. Eastern time.
Consultants)
For service to speech- or hearing-impaired,
Arnold D. Scott* - Senior Executive Vice President call toll free: 1-800-637-6576 any business
and Secretary, Massachusetts Financial Services day from 9 a.m. to 5 p.m. Eastern time.
Company (To use this service, your phone must be
equipped with a Telecommunications
Jeffrey L. Shames* - President, Massachusetts Device for the Deaf.)
Financial Services Company
For share prices, account balances and
J. Dale Sherratt - President, Insight Resources, Inc. exchanges, call toll free: 1-800-MFS-TALK
(Acquisition Planning Specialists) (1-800-637-8255) anytime from a touch-tone
telephone.
Ward Smith - Former Chairman (until 1994),
NACCO Industries; Director, Sundstrand
Corporation
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116-3741
DISTRIBUTOR -------------------------------------------
MFS Fund Distributors, Inc. TOP-RATED SERVICE
500 Boylston Street [SEAL] MFS was rated first when securities
Boston, Massachusetts 02116-3741 firms evaluated the quality of
service they receive from 40
PORTFOLIO MANAGER mutual fund companies. MFS got
Steven E. Nothern* high marks for answering calls
quickly, processing transactions
TREASURER accurately and sending statements
W. Thomas London* out on time.
(Source: 1994 DALBAR Survey)
ASSISTANT TREASURER -------------------------------------------
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
The decline in interest rates during the first six months of this year
reversed much of the sharp decline in fixed-income markets which occurred in
1994. The Fund was able to benefit from opportunities in capital appreciation
as prices of Treasury, agency and mortgage securities advanced. During this
period, Class A shares of the Fund experienced a total return of +5.54%, Class
B shares +4.98%, and Class C shares +5.11%. These returns assume the
reinvestment of distributions but exclude the effects of any sales charges. A
discussion of these results and our outlook for the Fund may be found in the
Portfolio Performance and Strategy section of this letter.
Economic Environment
In response to increasing evidence of economic weakness during the second
quarter, the Federal Reserve Board has reversed policy by lowering the federal
funds rate 0.25%. This marks the first time in three years that this rate has
been lowered, and brings to at least a temporary conclusion the Federal
Reserve's 18-month monetary-tightening initiative. Although inflation at the
consumer level has been trending higher this year at a 3 1/2% annualized rate,
recent evidence suggests that these pressures are beginning to moderate,
allowing the Federal Reserve to shift its policy focus toward sustaining
economic growth. Despite the economy's apparent lackluster performance in the
second quarter, we do not anticipate that the economy will lapse into recession.
Rather, we believe it will continue to expand at a more moderate, sustainable
pace, supported by lower prevailing interest rates and a healthy export sector.
Interest Rates
As the economy's ability to create jobs has diminished along with its usage of
available productive capacity, fixed-income markets have become increasingly
convinced that inflationary pressures will remain subdued. As a result, long-
term U.S. Treasury bond yields have declined to 6.50% from their 7.85% level at
the beginning of the year. Interest rates on two-year U.S. Treasury securities,
which began the year at 7.73%, declined more dramatically, to 5.79% on June 30,
1995. As bond yields continued to decline, it became apparent that the markets
were anticipating an easing of the Federal Reserve's policy. With the
realization of that expectation, we believe that, in the near term, prevailing
rates may consolidate near present levels. Longer term, we feel that continuing
moderate growth should result in interest rates trending near to, and possibly
somewhat lower than, present levels over the balance of this year.
Portfolio Performance and Strategy
We spent much of the past year structuring the portfolio defensively, choosing
to sacrifice some of the opportunities for greater price appreciation in
exchange for protecting against the risk that the Federal Reserve might
further need to increase short-term interest rates. More recently, as it
appeared that risk had subsided, we began to shift away from our defensive
structure. The overall interest rate sensitivity of the portfolio will vary
over time between that of a two- and a three-year Treasury. (Principal value
and interest on Treasury securities are guaranteed by the U.S. government if
held to maturity.) Currently, our overall interest rate exposure approximates
that of a 2 1/2-year Treasury.
Approximately 6.6% of the Fund's total net assets is invested in U.S.
Treasury securities with maturities of less than one year, significantly down
from 58% six months ago. Overall, about 47% of the Fund's assets is invested
in Treasuries, 9% in agency securities and the remaining 44% in mortgage-
backed investments. The mortgage portion of the portfolio has very low price
sensitivity and should be viewed more for its yield characteristics than its
potential for price appreciation. We believe our holdings in this sector
should not be overly sensitive to volatile prepayments if we continue to see
interest rates decline to 1993 levels.
In order for the Fund to remain an eligible investment for federal credit
unions and national banks, we continue to avoid investments in options and
futures and the more volatile mortgage-derivative securities.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
- -------------------------- ------------------------
[A 1 1/2" x 1 5/8" photo [A 1 1/2" x 1 5/8" photo
of A. Keith Brodkin, of Steven E. Nothern,
Chairman and President] Portfolio Manager]
- -------------------------- ------------------------
/s/ A. Keith Brodkin /s/ Steven E. Nothern
A. Keith Brodkin Steven E. Nothern
Chairman and President Portfolio Manager
July 18, 1995
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's Graduate School of
Management, he was named Assistant Vice President in 1987, Vice President in
1989 and Senior Vice President in 1993. In 1992, he became Portfolio Manager
of MFS Government Limited Maturity Fund. Mr. Nothern is a Chartered Financial
Analyst.
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.
PERFORMANCE SUMMARY
Because mutual funds like MFS Government Limited Maturity Fund are designed
for investors with long-term goals, we have provided cumulative results as
well as the average annual total returns for Class A, Class B and Class C
shares for the applicable time periods.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
Class A Investment Results
(net asset value change including reinvested distributions)
9/26/88+ -
6 Months 1 Year 5 Years 6/30/95
- -------------------------------------------------------------------------------
Cumulative Total Return* +5.54% +6.50% +35.45% +50.88%
- -------------------------------------------------------------------------------
Average Annual Total Return* -- +6.50% + 6.26% + 6.27%
- -------------------------------------------------------------------------------
The average annual total returns, calculated for the period ended as of the most
recent calendar quarter as required by the Securities and Exchange Commission
(the SEC), with all distributions reinvested and reflecting the maximum sales
charge of 2.50% on the initial investment for the 1- and 5-year periods ended
June 30, 1995 and for the period from September 26, 1988+ to June 30, 1995, were
+3.83%, +5.72% and +5.87%, respectively.
Class B Investment Results
(net asset value change including reinvested distributions)
9/07/93+ -
6 Months 1 Year 6/30/95
- -------------------------------------------------------------------------------
Cumulative Total Return++ +4.98% +5.45% +2.75%
- -------------------------------------------------------------------------------
Average Annual Total Return++ -- +5.45% +1.51%
- -------------------------------------------------------------------------------
The average annual total returns, calculated for the period ended as of the most
recent calendar quarter as required by the SEC, with all distributions
reinvested and reflecting the current maximum contingent deferred sales charge
(CDSC) of 4% for the 1-year period ended June 30, 1995 and for the period from
September 7, 1993+ to June 30, 1995, were +1.46% and -0.55%, respectively.
Class C Investment Results
(net asset value change including reinvested distributions)
8/01/94+ -
6 Months 6/30/95
- -------------------------------------------------------------------------------
Cumulative Total Return(S) +5.11% +4.76%
- -------------------------------------------------------------------------------
The aggregate total return, calculated for the period ended as of the most
recent calendar quarter as required by the SEC, with all distributions
reinvested for the period from August 1, 1994+ to June 30, 1995, was +4.76%.
All results represent past performance and are not necessarily an indication of
future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost. 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 by MFS at
any time.
* These results do not include the sales charge. If the charge had been
included, the results would have been lower.
+ Commencement of offering of this class of shares.
++ These results do not include any CDSC. If the charge had been included, the
results would have been lower.
(S) Class C shares have no initial sales charge or CDSC but, along with Class B
shares, have higher annual fees and expenses than Class A shares.
<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED) - June 30, 1995
Bonds - 97.2%
- -------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -------------------------------------------------------------------------------
U.S. Federal Agencies - 42.0%
Federal Home Loan Mortgage Corp., 7.54s, 1996 $25,000 $ 25,250,000
Federal Home Loan Mortgage Corp., 7s, 1999 10,218 10,319,682
Federal Home Loan Mortgage Corp., 6.5s, 2000 7,248 7,200,199
Federal Home Loan Mortgage Corp., 7.645s, 2020 2,517 2,530,242
Federal National Mortgage Assn., 8.5s, 2001 - 2009 22,069 22,861,720
Federal National Mortgage Assn., 9s, 2003 - 2007 5,639 5,887,806
Federal National Mortgage Assn., 9.5s, 2008 - 2025 44,133 46,339,908
------------
$120,389,557
- -------------------------------------------------------------------------------
U.S. Government Guaranteed - 55.2%
Government National Mortgage Association - 11.2%
GNMA, 7.5s, 2009 $ 36 $ 37,028
GNMA, 8s, 2004 - 2009 145 150,124
GNMA, 9s, 2001 - 2007 10,855 11,370,648
GNMA, 10.5s, 2020 9,317 10,263,390
GNMA, 11s, 2021 9,298 10,323,184
------------
$ 32,144,374
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U.S. Treasury Obligations - 44.0%
U.S. Treasury Notes, 9.375s, 1996 $15,000 $ 15,414,900
U.S. Treasury Notes, 8.25s, 1998 31,000 32,985,860
U.S. Treasury Notes, 7.5s, 1999 20,000 21,121,800
U.S. Treasury Notes, 9.125s, 1999 15,000 16,603,050
U.S. Treasury Notes, 5.875s, 2000 15,000 14,934,300
U.S. Treasury Notes, 6.25s, 2000 25,000 25,265,500
------------
$126,325,410
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Total U.S. Government Guaranteed $158,469,784
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Total Bonds (Identified Cost, $278,150,225) $278,859,341
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Repurchase Agreement - 1.2%
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Lehman Brothers, dated 6/30/95, due 7/03/95,
total to be received $3,435,769 (secured by
$3,185,000 U.S. Treasury Notes, 8s, 5/15/01,
market value $3,506,486), at Cost $ 3,434 $ 3,434,000
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Total Investments (Identified Cost, $281,584,225) $282,293,341
Other Assets, Less Liabilities - 1.6% 4,606,303
- -------------------------------------------------------------------------------
Net Assets - 100.0% $286,899,644
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See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- ------------------------------------------------------------------------------
June 30, 1995
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $281,584,225) $282,293,341
Cash 90
Receivable for Fund shares sold 2,214,285
Interest receivable 3,576,226
Other assets 3,917
------------
Total assets $288,087,859
------------
Liabilities:
Payable for Fund shares reacquired $ 368,937
Distributions payable 587,672
Payable to affiliates -
Distribution fee 106,834
Management fee 3,142
Shareholder servicing agent fee 1,236
Accrued expenses and other liabilities 120,394
------------
Total liabilities $ 1,188,215
------------
Net assets $286,899,644
------------
Net assets consist of:
Paid-in capital $303,686,006
Unrealized appreciation on investments 709,116
Accumulated net realized loss on investments (17,811,017)
Accumulated undistributed net investment income 315,539
------------
Total $286,899,644
------------
Shares of beneficial interest outstanding 33,410,825
------------
Class A shares:
Net asset value and redemption price per share
(net assets of $250,609,829 / 29,177,482 shares of
beneficial interest outstanding) $8.59
-----
Offering price per share (100/97.5) $8.81
-----
Class B shares:
Net asset value and offering price per share
(net assets of $30,191,078 / 3,520,858 shares of beneficial
interest outstanding) $8.57
-----
Class C shares:
Net asset value, offering price, and redemption price per share
(net assets of $6,098,737 / 712,485 shares of beneficial
interest outstanding) $8.56
-----
On sales of $50,000 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 (Unaudited)
- ------------------------------------------------------------------------------
Six Months Ended June 30, 1995
- ------------------------------------------------------------------------------
Net investment income:
Interest income $11,140,210
-----------
Expenses -
Management fee $ 559,889
Trustees' compensation 20,717
Shareholder servicing agent fee (Class A) 186,477
Shareholder servicing agent fee (Class B) 29,894
Shareholder servicing agent fee (Class C) 3,098
Distribution and service fee (Class A) 310,489
Distribution and service fee (Class B) 125,649
Distribution and service fee (Class C) 20,655
Custodian fee 34,154
Printing 29,507
Postage 21,839
Legal fees 12,871
Auditing fees 10,500
Miscellaneous 87,715
-----------
Total expenses $ 1,453,454
Reduction of expenses by distributor (Class A) (124,012)
-----------
Net expenses $ 1,329,442
-----------
Net investment income $ 9,810,768
-----------
Realized and unrealized gain (loss) on investments:
Realized loss (identified cost basis) $(3,357,715)
Change in unrealized appreciation 8,568,007
-----------
Net realized and unrealized gain on investments $ 5,210,292
-----------
Increase in net assets from operations $15,021,060
-----------
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------
Six Months Ended
June 30, 1995 Year Ended
(Unaudited) December 31, 1994
- ------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment income $ 9,810,768 $ 19,591,055
Net realized loss on investments (3,357,715) (16,449,820)
Net unrealized gain (loss) on
investments 8,568,007 (6,309,503)
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Increase (decrease) in net assets
from operations $ 15,021,060 $ (3,168,268)
------------- -------------
Distributions declared to shareholders -
From net investment income (Class A) $ (8,515,499) $ (16,948,072)
From net investment income (Class B) (817,906) (1,023,255)
From net investment income (Class C) (123,537) (49,519)
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Total distributions declared to
shareholders $ (9,456,942) $ (18,020,846)
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Fund share (principal) transactions -
Net proceeds from sale of shares $ 41,565,519 $ 88,499,662
Net asset value of shares issued to
shareholders in reinvestment of
distributions 6,001,085 11,313,407
Cost of shares reacquired (50,705,863) (151,014,206)
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Decrease in net assets from Fund
share transactions $ (3,139,259) $ (51,201,137)
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Total increase (decrease) in net
assets $ 2,424,859 $ (72,390,251)
Net assets:
At beginning of period 284,474,785 356,865,036
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At end of period (including
accumulated undistributed net
investment income (distributions in
excess of net investment income) of
$315,539 and $(38,287),
respectively) $ 286,899,644 $ 284,474,785
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See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
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Six Months
Ended
June 30, Year Ended December 31,
1995 --------------------------------------------------------
(Unaudited) 1994 1993 1992 1991 1990<F1>
- ---------------------------------------------------------------------------------------------------------------------------------
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 $ 8.42 $ 8.99 $ 8.98 $ 9.06 $ 9.09 $ 9.33
------ ------ ------ ------ ------ ------
Income from investment operations<F5> -
Net investment income<F6> $ 0.30 $ 0.54 $ 0.52 $ 0.49 $ 0.52 $ 0.53
Net realized and unrealized gain (loss) on investments 0.16 (0.61) 0.10 0.07 0.21 --
------ ------ ------ ------ ------ ------
Total from investment operations $ 0.46 $(0.07) $ 0.62 $ 0.56 $ 0.73 $ 0.53
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.29) $(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 $(0.29) $(0.50) $(0.61) $(0.64) $(0.76) $(0.77)
------ ------ ------ ------ ------ ------
Net asset value - end of period $ 8.59 $ 8.42 $ 8.99 $ 8.98 $ 9.06 $ 9.09
====== ====== ====== ====== ====== ======
Total return<F4> 5.54%<F3> (0.76)% 7.00% 6.51% 8.44% 7.39%<F2>
Ratios (to average net assets)/Supplemental data<F6>:
Expenses 0.86%<F2> 0.89% 1.14% 1.38% 1.33% 1.40%<F2>
Net investment income 7.12%<F2> 6.28% 5.62% 5.50% 5.89% 7.01%<F2>
Portfolio turnover 267% 328% 247% 391% 1,256% 845%
Net assets at end of period (000 omitted) $250,610 $257,154 $345,597 $296,788 $365,644 $427,849
<FN>
<F1> For the ten months ended December 31, 1990.
<F2> Annualized.
<F3> Not annualized.
<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> Per share data for the periods subsequent to December 31, 1993 is based on average shares outstanding.
<F6> 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 $ 0.30 $ 0.53 $ 0.50 -- -- --
Ratios (to average net assets):
Expenses 0.96%<F2> 1.04% 1.34% -- -- --
Net investment income 7.02%<F2> 6.13% 5.42% -- -- --
</FN>
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ----------------------------------------------------------------------------------------------------------------------------------
Six Months Six Months
Year Ended Ended Year Ended Ended
February 28, June 30, December 31, June 30, Year Ended
------------------ 1995 ------------------- 1995 December 31,
1990 1989<F1> (Unaudited) 1994 1993<F2> (Unaudited) 1994<F3>
- ----------------------------------------------------------------------------------------------------------------------------------
Class A Class B Class C
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 9.51 $ 9.63 $ 8.41 $ 8.98 $ 9.17 $ 8.39 $ 8.62
------ ------ ------ ------ ------ ------ ------
Income from investment operations<F7> -
Net investment income<F8> $ 0.69 $ 0.23 $ 0.26 $ 0.47 $ 0.12 $ 0.26 $ 0.17
Net realized and unrealized gain (loss)
on investments 0.10 (0.11) 0.15 (0.62) (0.17) 0.16 (0.20)
------ ------ ------ ------ ------ ------ ------
Total from investment operations $ 0.79 $ 0.12 $ 0.41 $(0.15) $(0.05) $ 0.42 $(0.03)
------ ------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.67) $(0.17) $(0.25) $(0.42) $(0.11) $(0.25) $(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) $(0.25) $(0.42) $(0.14) $(0.25) $(0.20)
------ ------ ------ ------ ------ ------ ------
Net asset value - end of period $ 9.33 $ 9.51 $ 8.57 $ 8.41 $ 8.98 $ 8.56 $ 8.39
====== ====== ====== ====== ====== ====== ======
Total return<F6> 8.43% 3.02%<F4> 4.98%<F5> (1.65)% (1.54)%<F4> 5.11%<F5> (0.33)%<F5>
Ratios (to average net assets)/Supplemental data<F8>:
Expenses 1.43% 1.41%<F4> 1.71%<F4> 1.79% 1.83%<F4> 1.71%<F4> 1.62%<F4>
Net investment income 7.16% 6.97%<F4> 6.28%<F4> 5.42% 4.58%<F4> 6.22%<F4> 6.10%<F4>
Portfolio turnover 615% 170% 267% 328% 247% 267% 328%
Net assets at end of period (000 omitted) $350,011 $117,584 $30,191 $23,918 $11,268 $6,099 $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 December 31, 1993.
<F3> For the period from the commencement of offering of Class C shares, August 1, 1994 to December 31, 1994.
<F4> Annualized.
<F5> Not annualized.
<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> Per share data for the periods subsequent to December 31, 1993 is based on average shares outstanding.
<F8> 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 -- -- -- $ 0.46 $ 0.11 -- --
Ratios (to average net assets):
Expenses -- -- -- 1.82% 2.60%<F4> -- --
Net investment income -- -- -- 5.39% 3.82%<F4> -- --
</FN>
See notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(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 bears 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 June 30, 1995, 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 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.
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.
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.
Multiple Classes of Shares of Beneficial Interest - The Fund offers Class A,
Class B and Class C shares. The three classes of shares differ in their
respective shareholder servicing agent, distribution and service fees. 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.
(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. The
management fee is computed daily and paid monthly at an effective annual rate
of 0.40% of average daily net assets.
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 Fund Distributors, Inc. (MFD) and
MFS Service Center, Inc. (MFSC). The Fund has an unfunded defined benefit plan
for all its independent Trustees and Mr. Bailey. Included in Trustees'
compensation is a net periodic pension expense of $4,017 for the six months
ended June 30, 1995.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$13,799 for the six months ended June 30, 1995, as its portion of the sales
charge on sales of Class A shares of the Fund. 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%
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
to each securities dealer that enters into a sales agreement with MFD of up to
0.25% per annum (reduced to a maximum of 0.15% per annum for an indefinite
period) 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 retains the service fee for accounts not
attributable to a securities dealer, which amounted to $17,713 for the six
months ended June 30, 1995. MFD is not imposing the 0.10% distribution fee for
an indefinite period. Fees incurred under the distribution plan during the six
months ended June 30, 1995 were 0.25% of average daily net assets attributable
to Class A shares on an annualized basis.
The Class B and Class C distribution plans provide 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. The service fee is not charged on Class B shares held over one
year. 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. MFD retains the service fee for accounts not attributable to a
securities dealer, which amounted to $1,038 and $7 for Class B and Class C
shares, respectively, for the six months ended June 30, 1995. Fees incurred
under the distribution plans during the six months ended June 30, 1995 were
1.00% of average daily net assets attributable to Class B and Class C shares
on an annualized basis.
A contingent deferred sales charge is imposed on shareholder redemptions of
Class A shares, on purchases of $1 million or more, in the event of a
shareholder redemption within 12 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 six months ended June 30, 1995 were
$12,412 and $67,482 for Class A and Class B 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 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 $745,268,643 $748,694,219
============ ============
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax basis, are
as follows:
Aggregate cost $281,584,225
============
Gross unrealized appreciation $ 1,565,425
Gross unrealized depreciation (856,309)
------------
Net unrealized appreciation $ 709,116
============
(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:
Class A Shares Six Months Ended June 30, 1995 Year Ended December 31, 1994
----------------------------- ------------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------
Shares sold 2,907,721 $ 24,791,635 6,636,068 $ 57,795,004
Shares issued to
shareholders in
reinvestment
of distributions 631,194 5,384,236 1,230,897 10,641,877
Shares reacquired (4,898,955) (41,684,854) (15,759,146) (137,039,970)
---------- ------------ ----------- ------------
Net decrease (1,360,040) $(11,508,983) (7,892,181) $(68,603,089)
========== ============ =========== ============
Class B Shares Six Months Ended June 30, 1995 Year Ended December 31, 1994
----------------------------- ------------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------
Shares sold 1,477,548 $ 12,562,556 3,133,094 $ 27,198,600
Shares issued to
shareholders in
reinvestment
of distributions 59,387 505,953 72,495 622,590
Shares reacquired (860,948) (7,321,428) (1,615,742) (13,879,579)
-------- ------------ ---------- ------------
Net increase 675,987 $ 5,747,081 1,589,847 $ 13,941,611
======== ============ ========== ============
Class C Shares Period Ended December 31,
Six Months Ended June 30, 1995 1994*
----------------------------- ------------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------
Shares sold 494,946 $ 4,211,328 410,854 $ 3,506,058
Shares issued to
shareholders in
reinvestment
of distributions 13,031 110,896 5,799 48,940
Shares reacquired (200,979) (1,699,581) (11,166) (94,657)
-------- ------------ ------- ------------
Net increase 306,998 $ 2,622,643 405,487 $ 3,640,341
======== ============ ======= ============
*For the period from the commencement of offering of Class C shares, August 1,
1994 to December 31, 1994.
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS in an unsecured line of credit with a bank which permits
borrowings up to $350 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 six months ended
June 30, 1995 was $2,089.
---------------------------------------------
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>
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MFS(R) GOVERNMENT [LOGO: NUMBER 1 DALBAR VALUE BULK RATE
LIMITED MATURITY TOP RATED SERVICE] U.S. POSTAGE
FUND PAID
PERMIT #55638
500 Boylston Street BOSTON, MA
Boston, MA 02116 -------------
[LOGO: M F S
THE FIRST NAME IN MUTUAL FUNDS]
MGL-3 8/95 17.5M 28/228/328
