<PAGE>
[LOGO] MFS
THE FIRST NAME IN MUTUAL FUNDS
SEMIANNUAL REPORT
JUNE 30, 1996
MFS(RM) GOVERNMENT LIMITED MATURITY FUND
[graphic omitted; two men sitting in front of a window]
<PAGE>
TABLE OF CONTENTS
Letter From the Chairman ................................................... 1
Fund Manager's Overview .................................................... 3
Fund Manager Profile ....................................................... 4
Performance Summary ........................................................ 5
Fund Facts ................................................................. 6
Portfolio of Investments ................................................... 7
Financial Statements ........................................................8
Notes to Financial Statements ..............................................14
It's Easy to Contact Us ....................................................19
MFS Family of Funds(R) .....................................................20
Trustees and Officers ......................................................21
HIGHLIGHTS
* The first six months of 1996 saw a pickup in economic growth, compared
with 1995, which contributed to a rise in yields of short-term Treasury
securities.
* In this environment, Class A shares of the Fund provided a total return
of +0.08%, Class B shares -0.36%, and Class C shares -0.23% for the six
months ended June 30, 1996.
* Currently, the Fund is positioned for stable to rising yields in the
near term, and is 25% less sensitive to bond-price movements than the
Lehman Index.
* One-third of the portfolio is currently allocated to the government
mortgage pass-through sector, which we believe to be attractive, as
yield spreads are somewhat above historical averages, patterns of
issuance remain light, and prepayment volatility is muted.
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Shareholders:
[Graphic omitted: picture of Brodkin]
Real (inflation-adjusted) economic growth in the first quarter of 1996 was 2.3%
on an annualized basis, and it appears that second-quarter growth could be even
stronger. Thus, real growth in gross domestic product has started the year at a
rate exceeding our expectations. While we continue to believe that growth from
quarter to quarter will be uneven, it is now our expectation that growth for all
of 1996 could exceed 2.5%. Although individual consumers appear to be carrying
an excessive debt load, the consumer sector itself, which represents two-thirds
of the economy, continues to be impressive as the auto and housing markets
remain resilient. Consumer spending has also been positively impacted by
widespread job growth. At the same time, however, the economies of Europe and
Japan continue to be in the doldrums, weakening U.S. export markets while
subduing the capital spending plans of American corporations. Finally, due to
the pickup in economic activity and increasing job growth, it appears that
inflation may accelerate slightly this year, and the Federal Reserve Board is
expected to continue its diligent anti inflationary stance.
In the bond markets, persistent signs of economic weakness led to decreases
in short-term interest rates by the Federal Reserve in late 1995 and early 1996.
However, should signs of economic growth and, particularly, of higher inflation
continue, we would expect the Fed to maintain its anti-inflationary stance. In
the beginning of the year, bond markets were trading in a narrow range, as
investors shifted between concern about the lack of a budget resolution in
Washington and hopes that sluggish economic reports and low inflation might lead
to lower interest rates. Later, fixed-income markets began reacting to
conflicting signals regarding the strength of the economy with more-volatile
trading patterns marked by an upward bias in interest rates. Interest rates may
move even higher over the coming months, but we believe the current rise in bond
yields is reaching a point where fixed-income markets are becoming attractively
valued.
Finally, as you may have noticed, this report to shareholders incorporates
a number of changes which we believe will make it more informative and useful to
you.
Following the letter from the Fund Manager you will find new information on
the Fund's holdings, including charts illustrating the portfolio's concentration
in the different types of investments that meet its criteria. Near the back of
the report, you will find a list of phone numbers and addresses in case you need
to contact MFS. We hope to hear from you.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
/s/ A. Keith Brodkin
- --------------------------------
A. Keith Brodkin
Chairman and President
July 10, 1996
<PAGE>
FUND MANAGER'S OVERVIEW
[Graphic omitted: picture of Nothern]
Dear Shareholders:
The first six months of 1996 brought a sharp reversal of the below-trend
economic growth which characterized the U.S. economy for much of 1995. Fears
of inflation had subsided in 1995 as the economy weakened, but reappeared in
1996 with the rebound in growth. However, the dramatic rise in short-term
coupon yields - with rates on two-year Treasury notes moving from well below
the federal fund's rate to 100 basis points (1.00%) above, and bond yields
rising approximately 75 basis points (0.75%) - suggests that much of the
interest rate increase has also been driven by the acceleration in real
(inflation-adjusted) growth. This has led the fixed-income market to shift its
expectations on the potential direction of the Federal Reserve's changes in
interest rates, and expectations of continued monetary easing have been
replaced by expectations for substantial increases in the federal fund's rate.
This reversal in economic momentum and expectations regarding monetary policy
have led to a sharp rise in interest rates, particularly in short-maturity
Treasury notes. Two-year Treasury yields, which stood at 5.17% on December 29,
1995, rose to 6.12% by June 28, 1996, while yields on five-year Treasuries
rose from 5.38% to 6.47% over the same period. An investment in two-year
Treasuries during this period would have produced a total return of 1.15%, and
an investment in five-year Treasuries would have produced a total return of
- -1.76%. While U.S. Treasury securities fluctuate in value, they are guaranteed
as to the timely payment of interest and, if held to maturity, provide a
guaranteed return of principal.
In this environment, Class A shares of the Fund provided a total return of
0.08%, Class B shares -0.36%, and Class C shares -0.23% for the six months ended
June 30, 1996. These returns assume the reinvestment of distributions but
exclude the effects of any sales charges. During this same period, the Lehman
Brothers One- to Five-Year Government Bond Index (the Lehman Index), a
market-weighted index comprised of debt issued by the U.S. government and its
agencies with remaining maturities of one to five years, returned 0.76%.
The Fund is a short-maturity (securities with remaining maturities of five
years or less) government and government-only fund that limits its overall
interest rate sensitivity to approximately that of a three-year Treasury
security. The portfolio is currently positioned for stable to rising yields in
the near term, is 20% to 25% less sensitive to market price movements than the
Lehman Index, and is focused on securities which we believe will add incremental
yield. In order to help protect principal in a rising interest rate environment,
we will continue to maintain above-average cash positions.
The portfolio currently has a 33% allocation to the government mortgage-
backed pass-through sector, which we believe to be an attractive sector given
yield spreads somewhat above historical averages, light issuance patterns, and
muted prepayment volatility given the low level of mortgage refinancing.
Unfortunately, given the current yield levels of the bond market, it is
difficult to find securities which are attractively priced and which fit the
current orientation of the portfolio. Issues held in the portfolio have price
sensitivities comparable to two-to four-year Treasuries, with an overweighting
in the shorter issues. Given the greater price sensitivities of 30 year
passthroughs, we have allocated only a small (5%) portion of the portfolio in
this sector. Longer-term pass-throughs generally provide yields 1.25% greater
than those of Treasuries. The largest part of the portfolio, 28%, is held in
15-year and balloon pass-throughs. These issues have less price sensitivity and
yield approximately 0.75% more than comparable U.S. Treasury issues.
Our ability to invest in both Treasury and mortgage-backed securities
within a range of maturities has proven helpful in this rapidly changing
environment. The Fund will, however, continue to adhere to its policy of
avoiding any exposure to futures, option contracts, or the more volatile
mortgage-derivative securities.
As always, we will continue to maintain our commitment to providing
competitive and consistent returns over the long term.
Respectfully,
/s/ Steven E. Nothern
- -------------------------------
Steven E. Nothern
Portfolio Manager
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.
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
<TABLE>
<CAPTION>
CLASS A INVESTMENT RESULTS
(net asset value change including reinvested distributions)
<S> <C> <C> <C> <C>
9/26/88-
6 Months 1 Year 5 Years 6/30/96
- -----------------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return +0.08% +4.65% +31.88% +197.39%
- -----------------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +4.65% + 5.69% + 15.07%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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-year and 5-
year periods ended March 31, 1996 and for the period from September 26, 1988
to June 30, 1996, were +2.04%, +5.15% and +5.71%, respectively.
<TABLE>
<CAPTION>
CLASS B INVESTMENT RESULTS
(net asset value change including reinvested distributions)
<S> <C> <C> <C> <C>
9/26/88-
6 Months 1 Year 5 Years 6/30/96
- -----------------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return -0.36% +3.74% +28.42% +53.79%
- -----------------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +3.74% + 5.13% + 5.70%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 contingent deferred sales charge (CDSC) of 4%
for the 1-year period ended June 30, 1996, and 3% for the period from
September 7, 1993 to June 30, 1996, were -0.18%, +4.82% and +5.70%,
respectively.
<TABLE>
<CAPTION>
CLASS C INVESTMENT RESULTS
(net asset value change including reinvested distributions)
<S> <C> <C> <C> <C>
9/26/88-
6 Months 1 Year 5 Years 6/30/96
- -----------------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return -0.23% +3.78% +29.40% +54.92%
- -----------------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +3.78% + 5.29% + 5.80%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 for the 1-year period ended June 30, 1996 and for the period August
1, 1994 to June 30, 1996, were +2.80%, +5.29% and +5.80%, respectively.
Class B and Class C share performance includes the performance of the Fund's
Class A shares for periods prior to the commencement of offering of Class B
shares September 7, 1993 and of Class C shares August 1, 1994. Sales charges
and operating expenses for Class A, Class B, and Class C shares differ. The
Class A share performance which is included within the Class B and Class C
share performance has been adjusted to reflect the CDSC generally applicable
to Class B and Class C shares rather than the initial sales charge generally
applicable to Class A shares. Class B and Class C share performance has not
been adjusted, however, to reflect differences in operating expenses (e.g.,
Rule 12b-1 fees), which generally are lower for Class A shares.
All results represent past performance and are not 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.
FUND FACTS
STRATEGY: THE FUND'S INVESTMENT OBJECTIVE IS TO
PRESERVE CAPITAL AND PROVIDE HIGH
CURRENT INCOME (COMPARED TO A PORTFOLIO
ENTIRELY INVESTED IN MONEY MARKET
INSTRUMENTS).
COMMENCEMENT OF
INVESTMENT OPERATIONS: SEPTEMBER 26, 1988
SIZE: $296.3 MILLION AS OF JUNE 30, 1996
LARGEST SECTORS
(AS OF JUNE 30, 1996)
Treasuries 54%
Cash 13%
Mortgage Backed 33%
<PAGE>
PORTFOLIO OF INVESTMENTS (Unaudited) - June 30, 1996
Bonds - 86.3%
- -----------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------
U.S. Federal Agencies - 28.0%
Federal Home Loan Mortgage Corp.,
7s, 2001 $25,250 $ 25,352,515
Federal Home Loan Mortgage Corp.,
8.5s, 2025 14,154 14,533,832
Federal National Mortgage Assn.,
8.5s, 2009 6,572 6,791,807
Federal National Mortgage Assn., 7s, 2010 25 24,176
Federal National Mortgage Assn.,
7.5s, 2010 36,038 36,195,651
------------
$ 82,897,981
- -----------------------------------------------------------------------------
U.S. Government Guaranteed - 58.3%
Government National Mortgage Association - 4.6%
GNMA, 7.5s, 2009 $ 28 $ 27,929
GNMA, 8.5s, 2010 - 2025 4,782 4,958,753
GNMA, 9s, 2007 8,260 8,616,509
------------
$ 13,603,191
- -----------------------------------------------------------------------------
U.S. Treasury Obligations - 53.7%
U.S. Treasury Notes, 7.375s, 1997 $58,000 $ 59,032,980
U.S. Treasury Notes, 8.5s, 1997 25,000 25,652,250
U.S. Treasury Notes, 8.75s, 1997 40,000 41,374,800
U.S. Treasury Notes, 9.125s, 1999 30,900 33,145,194
------------
$159,205,224
- -----------------------------------------------------------------------------
Total U.S. Government Guaranteed $172,808,415
- -----------------------------------------------------------------------------
Total Bonds (Identified Cost, $257,768,725) $255,706,396
- -----------------------------------------------------------------------------
Short-Term Obligation - 8.2%
- -----------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.,
due 7/05/96, at Amortized Cost $24,175 $ 24,160,844
- -----------------------------------------------------------------------------
Repurchase Agreement - 4.5%
- -----------------------------------------------------------------------------
Goldman Sachs, dated 6/28/96, due 7/
01/96, total to be received
$13,366,068 (secured by various U.S.
Treasury and Federal Agency
obligations in a jointly traded
account), at Cost $13,360 $ 13,360,000
- -----------------------------------------------------------------------------
Total Investments (Identified Cost, $295,289,569) $293,227,240
Other Assets, Less Liabilities - 1.0% 3,048,235
- -----------------------------------------------------------------------------
Net Assets - 100.0% $296,275,475
- -----------------------------------------------------------------------------
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- ------------------------------------------------------------------------------
June 30, 1996
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost,
$295,289,569) $293,227,240
Cash 179
Receivable for Fund shares sold 682,288
Interest receivable 3,242,315
Other assets 3,329
------------
Total assets $297,155,351
------------
Liabilities:
Payable for Fund shares reacquired $ 122,090
Distributions payable 500,017
Payable to affiliates -
Distribution fee 114,915
Management fee 9,662
Shareholder servicing agent fee 3,811
Accrued expenses and other liabilities 129,381
------------
Total liabilities $ 879,876
------------
Net assets $296,275,475
============
Net assets consist of:
Paid-in capital $318,949,180
Unrealized depreciation on investments (2,062,329)
Accumulated net realized
loss on investments (20,771,392)
Accumulated undistributed net investment income 160,016
------------
Total $296,275,475
============
Shares of beneficial interest outstanding 35,165,929
============
Class A shares:
Net asset value and redemption price per share
(net assets of $242,892,856 / 28,815,636 shares of
beneficial interest outstanding) $8.43
=====
Offering price per share
(100/97.5 of net asset value per share) $8.65
=====
Class B shares:
Net asset value and offering price per share
(net assets of $32,944,116 / 3,915,804
shares of beneficial interest outstanding) $8.41
=====
Class C shares:
Net asset value, offering price and redemption
price per share
(net assets of $20,438,503 / 2,434,489 shares
of beneficial interest outstanding) $8.40
=====
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, Class B and Class C shares.
See notes to financial statements
<PAGE>
Statement of Operations (Unaudited)
- ------------------------------------------------------------------------------
Six Months Ended June 30, 1996
- ------------------------------------------------------------------------------
Net investment income:
Interest income $11,030,463
-----------
Expenses -
Management fee $ 602,409
Trustees' compensation 16,935
Shareholder servicing agent fee (Class A) 185,882
Shareholder servicing agent fee (Class B) 36,194
Shareholder servicing agent fee (Class C) 15,344
Distribution and service fee (Class A) 185,882
Distribution and service fee (Class B) 157,865
Distribution and service fee (Class C) 102,296
Custodian fee 60,997
Postage 20,049
Auditing fees 16,855
Registration fees 1,300
Legal fees 685
Printing 274
Miscellaneous 82,123
-----------
Total expenses $ 1,485,090
Fees paid indirectly (20,990)
-----------
Net expenses $ 1,464,100
-----------
Net investment income $ 9,566,363
-----------
Realized and unrealized loss on investments:
Realized loss (identified cost basis) $(3,633,380)
Change in unrealized depreciation (5,908,484)
-----------
Net realized and unrealized loss on investments $(9,541,864)
-----------
Increase in net assets from operations $ 24,499
===========
See notes to financial statements
<PAGE>
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 1996 December 31,
(Unaudited) 1995
- ------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment income $ 9,566,363 $ 19,387,987
Net realized loss on investments (3,633,380) (3,334,299)
Net unrealized gain (loss) on investments (5,908,484) 11,705,046
----------- ------------
Increase in net assets from operations $ 24,499 $ 27,758,734
------------ ------------
Distributions declared to shareholders -
From net investment income (Class A) $ (7,751,955) $(16,740,225)
From net investment income (Class B) (886,005) (1,710,513)
From net investment income (Class C) (554,594) (459,749)
------------ ------------
Total distributions declared to
shareholders $ (9,192,554) $(18,910,487)
------------ ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 53,181,567 $ 98,891,174
Net asset value of shares issued to
shareholders in reinvestment of
distributions 6,047,040 12,202,052
Cost of shares reacquired (53,863,529) (104,337,806)
------------ ------------
Increase in net assets from Fund share
transactions $ 5,365,078 $ 6,755,420
------------ ------------
Total increase (decrease) in net assets $ (3,802,977) $ 15,603,667
Net assets:
At beginning of period 300,078,452 284,474,785
------------ ------------
At end of period (including accumulated
undistributed net investment income
(distributions in excess of net
investment income) of $160,016 and
$(213,793), respectively) $296,275,475 $300,078,452
============ ============
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
- -------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
June 30, 1996 -----------------------------------------------------------------------
(Unaudited) 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------
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 $ 8.68 $ 8.42 $ 8.99 $ 8.98 $ 9.06 $ 9.09
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.28 $ 0.59 $ 0.54 $ 0.52 $ 0.49 $ 0.52
Net realized and unrealized gain
(loss) on investments (0.26) 0.25 (0.61) 0.10 0.07 0.21
------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.02 $ 0.84 $(0.07) $ 0.62 $ 0.56 $ 0.73
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.27) $(0.58) $(0.50) $(0.51) $(0.45) $(0.49)
From net realized gain on
investments -- -- -- (0.10) (0.14) --
From paid-in capital -- -- -- -- (0.05) (0.27)
------ ------ ------ ------ ------ ------
Total distributions
declared to shareholders $(0.27) $(0.58) $(0.50) $(0.61) $(0.64) $(0.76)
------ ------ ------ ------ ------ ------
Net asset value - end of period $ 8.43 $ 8.68 $ 8.42 $ 8.99 $ 8.98 $ 9.06
====== ====== ====== ====== ====== ======
Total return+++ 0.08%++ 10.36% (0.76)% 7.00% 6.51% 8.44%
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.82%+ 0.88% 0.89% 1.14% 1.38% 1.33%
Net investment income 6.49%+ 6.91% 6.28% 5.62% 5.50% 5.89%
Portfolio turnover 201% 447% 328% 247% 391% 1,256%
Net assets at end of period
(000 omitted) $242,893 $248,955 $257,154 $345,597 $296,788 $365,644
+ Annualized.
++ Not annualized.
+++Total returns for Class A shares do not include the sales charge. If the charge had been included, the results would
have been lower.
#Per share data for the periods subsequent to December 31, 1993 is based on average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid indirectly.
(S)The investment adviser and/or the distributor did not impose a portion of their management fee and/or 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 $ -- $ 0.58 $ 0.53 $ 0.50 $ -- $ --
Ratios (to average net assets):
Expenses## -- 0.98% 1.04% 1.34% -- --
Net investment income -- 6.81% 6.13% 5.42% -- --
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended Six Months
December 31, February 28, Ended Year Ended
------------ -------------------------- June 30, 1996 December 31,
1990* 1990 1989** (Unaudited) 1995
- ------------------------------------------------------------------------------------------------------------------
Class A Class B
- ------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $ 9.33 $ 9.51 $ 9.63 $ 8.67 $ 8.41
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.53 $ 0.69 $ 0.23 $ 0.23 $ 0.51
------ ------ ------ ------ ------
Net realized and unrealized gain
(loss) on investments -- 0.10 (0.11) (0.26) 0.25
------ ------ ------ ------ ------
Total from investment
operations $ 0.53 $ 0.79 $ 0.12 $(0.03) $ 0.76
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.48) $(0.67) $(0.17) $(0.23) $(0.50)
From net realized gain on
investments -- (0.14) (0.02) -- --
From paid-in capital (0.29) (0.16) (0.05) -- --
------ ------ ------ ------ ------
Total distributions
declared to shareholders $(0.77) $(0.97) $(0.24) $(0.23) $(0.50)
------ ------ ------ ------ ------
Net asset value - end of period $ 9.09 $ 9.33 $ 9.51 $8.41 $ 8.67
====== ====== ====== ===== ======
Total return+++ 7.39%+ 8.43% 3.02%+ (0.36)%++ 9.31%
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.40%+ 1.43% 1.41%+ 1.69%+ 1.74%
Net investment income 7.01%+ 7.16% 6.97%+ 5.61%+ 6.02%
Portfolio turnover 845% 615% 170% 201% 447%
Net assets at end of period
(000 omitted) $427,849 $350,011 $117,584 $32,944 $33,759
*For the ten months ended December 31, 1990.
**For the period from the commencement of investment operations, September 26, 1988 to
February 28, 1989.
+Annualized.
++Not annualized.
+++Total returns for Class A shares do not include the sales charge. If the charge had been
included, the results would have been lower.
#Per share data for the periods subsequent to December 31, 1993 is based on average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid indirectly.
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
- -----------------------------------------------------------------------------------------------------
Year Ended Six Months
December 31, Ended Year Ended December 31,
----------------- June 30, 1996 -----------------------
1994 1993** (Unaudited) 1995 1994***
- -----------------------------------------------------------------------------------------------------
Class B Class C
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 8.98 $ 9.17 $ 8.65 $ 8.39 $ 8.62
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.47 $ 0.12 $ 0.24 $ 0.51 $ 0.17
Net realized and unrealized
gain (loss) on investments (0.62) (0.17) (0.26) 0.25 (0.20)
------ ------ ------ ------ ------
Total from investment
operations $(0.15) $(0.05) $(0.02) $ 0.76 $(0.03)
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.42) $(0.11) $(0.23) $(0.50) $(0.20)
From net realized gain on
investments -- (0.03) -- -- --
------ ------ ------ ------ ------
Total distributions
declared to shareholders $(0.42) $(0.14) $(0.23) $(0.50) $(0.20)
------ ------ ------ ------ ------
Net asset value - end of period $ 8.41 $ 8.98 $ 8.40 $ 8.65 $ 8.39
====== ====== ====== ====== ======
Total return (1.65)% (1.54)%+ (0.23)%++ 9.33% (0.33)%
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.79% 1.83%+ 1.67% 1.73% 1.62%
Net investment income 5.42% 4.58%+ 5.65% 5.87% 6.10%
Portfolio turnover 328% 247% 201% 447% 328%
Net assets at end of period
(000 omitted) $23,918 $11,268 $20,439 $17,365 $3,403
**For the period from the commencement of offering of Class B shares, September 7, 1993 to December 31, 1993.
***For the period from the commencement of offering of Class C shares, August 1, 1994 to December 31, 1994.
+Annualized.
++Not annualized.
#Per share data for the periods subsequent to December 31, 1993 is based on average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid indirectly.
(S)The investment adviser and/or the distributor did not impose a portion of their management fee and/or 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%+ -- -- --
Net investment income 5.39% 3.82%+ -- -- --
</TABLE>
See notes to financial statements
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
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. 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. The Fund, along with other affiliated entities of
Massachusetts Financial Services Company (MFS), may utilize a joint trading
account for the purpose of entering into one or more repurchase agreements.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All 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.
Fees Paid Indirectly - The Fund's custodian bank calculates its fee based on
the Fund's average daily net assets. The fee is reduced according to a fee
arrangement, which provides for custody fees to be reduced based on a formula
developed to measure the value of cash deposited with the custodian by the
Fund. This amount is shown as a reduction of expenses on the Statement of
Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its 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.
At December 31, 1995, the Fund, for federal income tax purposes, had a capital
loss carryforward of $16,683,634, 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 ($14,381,215) and December 31, 2003
($2,302,419).
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.
The Fund did not have any net periodic pension expense for the six months
ended June 30, 1996.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$15,030 for the six months ended June 30, 1996, 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 $23,435 for
the six months ended June 30, 1996. 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, 1996 were 0.15% 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 monthly 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 currently being reduced to 0.15% 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 $2,746 and $31 for Class B and Class C shares, respectively, for
the six months ended June 30, 1996. Fees incurred under the distribution plans
during the six months ended June 30, 1996 were 0.97% of average daily net
assets attributable to Class B and Class C shares on an annualized basis.
Purchases over $1 million of Class A shares and certain purchases into
retirement plans are subject to a contingent deferred sales charge in the
event of a shareholder redemption within 12 months following such 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, 1996 were
$73, $58,924 and $45 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 average daily net assets of each class of shares at an
effective 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 $568,322,573 $593,047,069
============ ============
The cost and unrealized depreciation in value of the investments owned by the
Fund, as computed on federal income tax basis, are as follows:
Aggregate cost $295,289,569
============
Gross unrealized depreciation $ (2,079,403)
Gross unrealized appreciation $ 17,074
------------
Net unrealized depreciation $ (2,062,329)
============
(5) Shares of Beneficial Interest
The Fund's Declaration of Trusts 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 Year Ended
June 30, 1996 December 31, 1995
---------------------------- ----------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------
Shares sold 3,411,445 $ 29,274,863 6,429,099 $ 55,071,853
Shares issued to
shareholders in
reinvestment of
distributions 588,076 5,012,258 1,254,515 10,748,996
Shares reacquired (3,848,873) (32,820,028) (9,556,148) (81,707,574)
----------- ------------- ----------- ------------
Net increase
(decrease) 150,648 $ 1,467,093 (1,872,534) $(15,886,725)
=========== ============= =========== ============
Class B Shares
Six Months Ended Year Ended
June 30, 1996 December 31, 1995
---------------------------- ----------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,167,377 $ 9,953,271 2,787,579 $ 23,805,586
Shares issued to
shareholders in
reinvestment of
distributions 66,608 566,479 123,565 1,057,296
Shares reacquired (1,211,970) (10,346,133) (1,862,226) (15,909,193)
----------- ------------- ----------- -------------
Net increase 22,015 $ 173,617 1,048,918 $ 8,953,689
=========== ============= =========== =============
Class C Shares
Six Months Ended Year Ended
June 30, 1996 December 31, 1995
---------------------------- ----------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,629,795 $ 13,953,433 2,341,030 $ 20,013,735
Shares issued to
shareholders in
reinvestment of
distributions 55,110 468,303 46,197 395,760
Shares reacquired (1,257,509) (10,697,368) (785,621) (6,721,039)
----------- ------------- ----------- -------------
Net increase 427,396 $ 3,724,368 1,601,606 $ 13,688,456
=========== ============= =========== =============
(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 $350 million, collectively.
Borrowings may be made to temporarily finance the acquisition 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, 1996 was $1,732.
---------------------------------------------
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>
MFS(R) GOVERNMENT LIMITED MATURITY FUND
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TRUSTEES SECRETARY
A. Keith Brodkin* - Chairman and President Stephen E. Cavan*
Richard B. Bailey* - Private Investor;
Former Chairman and Director (until 1991), ASSISTANT SECRETARY
Massachusetts Financial Services Company; James R. Bordewick, Jr.*
Director, Cambridge Bancorp;
Director, Cambridge Trust Company CUSTODIAN
Marshall N. Cohan - Private Investor State Street Bank and Trust Company
Lawrence H. Cohn, M.D. - Chief of Cardiac
Surgery, Brigham and Women's Hospital; INVESTOR INFORMATION
Professor of Surgery, Harvard Medical School For MFS stock and bond market outlooks,
The Hon. Sir J. David Gibbons, KBE - Chief call toll free: 1-800-637-4458 anytime from
Executive Officer, Edmund Gibbons Ltd.; a touch-tone telephone.
Chairman, Bank of N.T. Butterfield & Son Ltd.
Abby M. O'Neill - Private Investor; For information on MFS mutual funds,
Director, Rockefeller Financial Services, Inc. call your financial adviser or, for an
(investment advisers) information kit, call toll free:
Walter E. Robb, III - President and Treasurer, 1-800-637-2929 any business day from
Benchmark Advisors, Inc. President, 9 a.m. to 5 p.m. Eastern time (or leave
Benchmark Consulting Group, Inc. a message anytime).
(office services); Trustee, Landmark Funds
(mutual funds) (corporate financial consultants) INVESTOR SERVICE
Arnold D. Scott* - Senior Executive Vice MFS Service Center, Inc.
President, Director and Secretary, P.O. Box 2281
Massachusetts Financial Services Company Boston, MA 02107-9906
Jeffrey L. Shames* - President and Director,
Massachusetts Financial Services Company For general information, call toll free:
J. Dale Sherratt - President, 1-800-225-2606 any business day from
Insight Resources, Inc. 8 a.m. to 8 p.m. Eastern time.
(acquisition planning specialists)
Ward Smith - Former Chairman (until 1994), For service to speech- or hearing-impaired,
NACCO Industries; Director, Sundstrand call toll free: 1-800-637-6576 any business
Corporation day from 9 a.m. to 5 p.m. Eastern time.
(To use this service, your phone must be equipped
INVESTMENT ADVISER with a Telecommunications Device for the Deaf.)
Massachusetts Financial Services Company
500 Boylston Street For share prices, account balances and
Boston, MA 02116-3741 exchanges, call toll free: 1-800-MFS-TALK
(1-800-637-8255) anytime from a touch-tone
DISTRIBUTOR telephone.
MFS Fund Distributors, Inc.
500 Boylston Street WEB SITE:
Boston, MA 02116-3741 http://www.mfs.com
PORTFOLIO MANAGER TOP-RATED SERVICE
Steven E. Nothern* For the second year in a row,
[DALBAR MFS earned a #1 ranking in
TREASURER LOGO] DALBAR, Inc.'s Broker/Dealer
W. Thomas London* Survey, Main Office Operations
Service Quality category. The
ASSISTANT TREASURER firm achieved a 3.49 overall score - on a
James O. Yost* scale of 1 to 4 - in the 1995 survey. A total
of 71 firms responded, offering input on the
quality of service they receive from 36
mutual fund companies nationwide. The survey
contained questions about service quality in
17 categories, including "knowledge of phone
service contracts," "accuracy of transaction
processing," and "overall ease of doing
business with the firm."
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MFS(R) GOVERNMENT -------------
LIMITED MATURITY [DALBAR BULK RATE
FUND LOGO] U.S. POSTAGE
TOP-RATED SERVICE P A I D
PERMIT #55638
500 Boylston Street BOSTON, MA
Boston, MA 02116 -------------
[LOGO]
THE FIRST NAME IN MUTUAL FUNDS
MGlL-3 96 16.5M 28/228/328
