<PAGE>
[logo]
THE FIRST NAME IN MUTUAL FUNDS
Annual Report for
Year Ended
December 31, 1995
MFS(R) GOVERNMENT LIMITED MATURITY FUND
A photo of a columned building
<PAGE>
MFS(R) GOVERNMENT LIMITED MATURITY FUND
<TABLE>
<S> <C>
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; AUDITORS
Professor of Surgery, Harvard Medical School Ernst & Young LLP
The Hon. Sir J. David Gibbons, KBE - Chief
Executive Officer, Edmund Gibbons Ltd.; INVESTOR INFORMATION
Chairman, Bank of N.T. Butterfield & Son Ltd. For MFS stock and bond market outlooks,
Abby M. O'Neill - Private Investor; call toll free: 1-800-637-4458 anytime from
Director, Rockefeller Financial Services, Inc. a touch-tone telephone.
(investment adviser) For information on MFS mutual funds,
Walter E. Robb, III - President and Treasurer, call your financial adviser or, for an
Benchmark Advisors, Inc. (corporate financial information kit, call toll free:
consultants); President, Benchmark Consulting Group, Inc. 1-800-637-2929 any business day from
(office services); Trustee, 9 a.m. to 5 p.m. Eastern time (or leave
Landmark Funds (mutual funds) a message anytime).
Arnold D. Scott* - Senior Executive Vice
President, Director and Secretary, INVESTOR SERVICE
Massachusetts Financial Services Company MFS Service Center, Inc.
Jeffrey L. Shames* - President and Director, P.O. Box 2281
Massachusetts Financial Services Company Boston, MA 02107-9906
J. Dale Sherratt - President, Insight Resources, Inc. For general information, call toll free:
(acquisition planning specialists) 1-800-225-2606 any business day from
Ward Smith - Former Chairman (until 1994), 8 a.m. to 8 p.m. Eastern time.
NACCO Industries; Director, Sundstrand For service to speech- or hearing-impaired,
Corporation call toll free: 1-800-637-6576 any business
day from 9 a.m. to 5 p.m. Eastern time.
INVESTMENT ADVISER (To use this service, your phone must be equipped with a
Massachusetts Financial Services Company Telecommunications Device for the Deaf.)
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 telephone.
DISTRIBUTOR
MFS Fund Distributors, Inc. TOP-RATED SERVICE
500 Boylston Street DALBAR For the second year in a row, MFS earned a #1
Boston, MA 02116-3741 MFS #1 MFS ranking in DALBAR, Inc.'s Broker/Dealer
DALBAR Survey, Main Office Operations Service Quality
PORTFOLIO MANAGER category. The firm achieved a 3.49 overall score
Steven E. Nothern* -- on a scale of 1 to 4 -- in the 1995 survey. A total of 71 firms
responded, offering input on the quality of service they receive
TREASURER from 36 mutual fund companies nationwide. The survey contained
W. Thomas London* questions about service quality in 17 categories, including
"knowledge of phone service contacts," "accuracy of transaction
ASSISTANT TREASURER processing," and "overall ease of doing business with the firm."
James O. Yost*
</TABLE>
*Affiliated with the Investment Adviser
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
The past 12 months have been a good period for fixed-income markets, bringing
strong investment returns to the Fund. The Federal Reserve Board ended its
year-long string of tightening steps this past February and left interest
rates unchanged through the spring. The Fed subsequently lowered the federal
funds' target by 25 basis points (0.25%) to 5.75% on July 6, and by an
additional 25 basis points, to 5.50%, on December 19, citing the reduced
threat of higher inflation. The fixed-income markets responded positively to
this, as well as to signs of an economic slowdown and of inflation pressures
remaining moderate. Two-year Treasury yields, which were at 7.69% on December
31, 1994, declined to 5.17% by year-end 1995, while yields on 10-year
Treasuries declined from 7.83% to 5.38%. The Fund, which seeks to preserve
capital and provide current income, was an active participant in this rally.
During this period, Class A shares of the Fund experienced a total return of
+10.36%, Class B shares +9.31%, and Class C shares +9.33%. 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, 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 +12.54%. 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 Outlook
Moderate but sustainable growth was the hallmark of the economic expansion's
fifth year, although some signs of sluggishness were evident late in the year.
Recent retail sales, for example, have been disappointing, in part because of
rising levels of consumer debt. Growth is not expected to get much help from
the manufacturing sector, either, as order flows from manufacturers have
moderated. Export activity, meanwhile, is also expected to remain modest as
continued weakness abroad limits demand for many U.S. goods. However, the
Federal Reserve's consistent and, so far, successful efforts to fight
inflation seem to be giving consumers and businesses enough longer-term
confidence to help maintain modest growth in real (adjusted for inflation)
gross domestic product into 1996.
Interest Rates
Given the recent signs of economic weakness, we believe that prospects for the
Fed's further decreasing short-term interest rates are good. Long-term rates,
meanwhile, have moved noticeably downward in recent months in anticipation of
more modest fourth-quarter growth with continued low inflation. While there
were some increases in commodity prices early in the year, companies found it
difficult to pass these on at the consumer level as they continue to fight for
market share. Additionally, unit labor costs remain under control and seem to
be growing at a pace that is near or below the ongoing inflation rate. Thus,
with long-term government bonds yielding approximately 6% in an environment of
2% to 3% inflation, real rates of return in the fixed-income markets remain
relatively attractive.
Portfolio Performance and Strategy
The Fund is a short maturity (substantially all securities with remaining
maturities of five years or less) government and government agency - only fund
that limits its overall interest rate sensitivity to approximately that of a
three-year Treasury (although principal value and interest on Treasury
securities are guaranteed by the U.S. government if held to maturity). The
Fund's performance over the last 12 months was aided by the sharp decline in
U.S. interest rates. We maintained approximately 53% of portfolio assets in
the U.S. Treasury sector, and positioned these holdings to benefit from
opportunities for capital appreciation as the U.S. Treasury market rallied.
The average duration of the portfolio is currently 2.3 years, approximately
equivalent to that of a 2.5-year Treasury.
The Fund has maintained a substantial position in government-sponsored
debentures and mortgage-backed pass-through securities. We believe we have
been able to add attractive incremental yield to the portfolio in this sector.
The Fund's mortgage exposure is currently about equivalent to the weighting of
mortgages in the Lehman Brothers Government/Mortgage Index, an unmanaged index
comprised of Treasuries, agencies, and all agency mortgages (FNMA, Freddie Mac
and GNMA). Given the current level of interest rates, mortgage securities have
a much lower price sensitivity than that witnessed last year. We believe that
these securities still have favorable yield characteristics and have used them
for the shortest maturity issues in the portfolio. Representative issues are
GNMA 30-year 8.5% pass-throughs (at +1.25% over the three-year Treasury) and
FNMA 15-year 7.5% pass-throughs (at +1.20% over the two-year Treasury). The
mortgage market has been an attractive segment recently, given the wide yield
spreads and the low levels of issuance, and we will likely increase exposure
to this sector in the next few months.
Our ability to invest in both Treasuries 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 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. We appreciate your
support and welcome any questions or comments you may have.
Respectfully,
[A photo of A. Keith [A photo of Steven E. Nothern, Portfolio
Brodkin, Chairman and Manager.]
President.]
/s/ A. Keith Brodkin /s/ Steven E. Nothern
A. Keith Brodkin Steven E. Nothern
Chairman and President Portfolio Manager
January 12, 1996
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 (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 1996, shareholders will be mailed a Tax Form Summary reporting the
federal tax status of all distributions paid during the calendar year 1995.
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 in the graph 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.
In the table on the next page, 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. (an independent firm which rates mutual
fund performance) for the applicable time periods. 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 investment return and principal value 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. 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.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the Period from October 1, 1988 to December 31, 1995. The performance of
other classes will be greater than or less than the line shown, based on the
differences in loads and fees paid by shareholders investing in the different
classes.)
Line graph representing the growth of a $10,000 investment for the life-of-fund
period ended December 31, 1995. The graph is scaled from $8,000 to $18,000 in
$2,000 segments. The years are marked from 1988 to 1995. There are three lines
drawn to scale. One is a solid line representing 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.
Government Limited Maturity Fund (Class A) $15,378
Lehman Brothers 1-5 Year Government Bond Index $17,774
Consumer Price Index $12,813
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
Life of
Class
through
1 Year 3 Years 5 Years 12/31/95
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS Government Limited Maturity Fund (Class A) including 2.50% sales charge + 7.60% +4.55% +5.70% +6.10%<F1>
- -------------------------------------------------------------------------------------------------------------------------
MFS Government Limited Maturity Fund (Class A) at net asset value +10.36% +5.43% +6.24% +6.48%<F1>
- -------------------------------------------------------------------------------------------------------------------------
MFS Government Limited Maturity Fund (Class B) with CDSC<F2> + 5.31% -- -- +1.77%<F3>
- -------------------------------------------------------------------------------------------------------------------------
MFS Government Limited Maturity Fund (Class B) without CDSC + 9.31% -- -- +2.96%
- -------------------------------------------------------------------------------------------------------------------------
MFS Government Limited Maturity Fund (Class C) + 9.33% -- -- +6.25%<F4>
- -------------------------------------------------------------------------------------------------------------------------
Average short-term U.S. government fund +11.25% +5.17% +6.61% +7.40%<F5>
- -------------------------------------------------------------------------------------------------------------------------
Lehman Brothers One- to Five-Year Government Bond Index +12.54% +6.07% +7.54% +8.26%<F6>
- -------------------------------------------------------------------------------------------------------------------------
Consumer Price Index<F7> + 2.54% +2.65% +2.79% +3.46%<F5>
- -------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> For the period from the commencement of offering of Class A shares, September 26, 1988 to December 31, 1995.
<F2> These returns reflect the current Class B contingent deferred sales charge (CDSC) of 4% for the 1-year period and 3% for the
period commencing September 7, 1993.
<F3> For the period from the commencement of offering of Class B shares, September 7, 1993 to December 31, 1995.
<F4> #For the period from the commencement of offering of Class C shares, August 1, 1994 to December 31, 1995. 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.
<F5> Benchmark comparisons begin on October 1, 1988. Source: Lipper Analytical Services, Inc.
<F6> Benchmark comparisons begin on October 1, 1988. Source: Asset Investment Management software.
<F7> The Consumer Price Index is a popular measure of change in prices.
</TABLE>
<PAGE>
PORTFOLIO OF INVESTMENTS - December 31, 1995
Bonds - 98.4%
- -----------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------
U.S. Federal Agencies - 29.1%
Federal Home Loan Mortgage Corp., 9s, 2025 $ 9,723,169 $ 10,230,524
Federal Home Loan Mortgage Corp., 9.5s,
2025 18,443,851 19,659,854
Federal National Mortgage Assn., 7.5s, 2010 39,680,828 40,808,954
Federal National Mortgage Assn., 7.645s,
2020 2,323,964 2,366,794
Federal National Mortgage Assn., 8.5s, 2004
- 2005 7,689,719 8,023,683
Federal National Mortgage Assn., 9s, 2007 4,833,722 5,088,990
Federal National Mortgage Assn., 9.5s, 2025 959,299 1,021,951
------------
$ 87,200,750
- -----------------------------------------------------------------------------
U.S. Government Guaranteed - 69.3%
Government National Mortgage Association - 17.9%
GNMA, 7.5s, 2009 $ 34,305 $ 35,473
GNMA, 8.5s, 2010 - 2023 23,233,735 24,395,422
GNMA, 9s, 2002 - 2024 18,891,762 20,016,373
GNMA, 10.5s, 2020 8,260,033 9,246,033
------------
$ 53,693,301
- -----------------------------------------------------------------------------
U.S. Treasury Obligations - 51.4%
Principal Stripped-Interest Payments, 0s,
1999 $ 34,200 $ 29,063,844
U.S. Treasury Notes, 6.5s, 1999 5,400 5,597,424
U.S. Treasury Notes, 7.5s, 1999 35,000 37,575,650
U.S. Treasury Notes, 9.125s, 1999 37,900 42,294,126
U.S. Treasury Notes, 5.5s, 2000 25,000 25,074,219
U.S. Treasury Notes, 6.875s, 2000 14,000 14,789,740
------------
$154,395,003
- -----------------------------------------------------------------------------
Total U.S. Government Guaranteed $208,088,304
- -----------------------------------------------------------------------------
Total Bonds (Identified Cost, $291,442,899) $295,289,054
- -----------------------------------------------------------------------------
Repurchase Agreement - 1.5%
- -----------------------------------------------------------------------------
Lehman Brothers, dated 12/29/95, due 1/02/ 96,
total to be received $4,412,867
(secured by $4,220,000 U.S. Treasury
Notes, 6.25s, 2/15/03, market value
$4,498,801), at Cost $ 4,410 $ 4,410,000
- ------------------------------------------------------------------------------
Total Investments (Identified Cost,
$295,852,899) $299,699,054
Other Assets, Less Liabilities - 0.1% 379,398
- -----------------------------------------------------------------------------
Net Assets - 100.0% $300,078,452
- -----------------------------------------------------------------------------
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
December 31, 1995
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $295,852,899) $299,699,054
Cash 235
Receivable for investments sold 33,434,688
Receivable for Fund shares sold 3,484,320
Interest receivable 2,191,974
Other assets 3,917
------------
Total assets $338,814,188
------------
Liabilities:
Payable for investments purchased $ 37,361,094
Payable for Fund shares reacquired 580,507
Distributions payable 506,617
Payable to affiliates -
Distribution fee 113,234
Management fee 9,751
Shareholder servicing agent fee 3,849
Accrued expenses and other liabilities 160,684
------------
Total liabilities $ 38,735,736
------------
Net assets $300,078,452
============
Net assets consist of:
Paid-in capital $313,584,102
Unrealized appreciation on investments 3,846,155
Accumulated net realized loss on investments (17,138,012)
Accumulated distributions in excess of net investment
income (213,793)
------------
Total $300,078,452
============
Shares of beneficial interest outstanding 34,565,870
============
Class A shares:
Net asset value and redemption price per share
(net assets of $248,954,680 / 28,664,988 shares of
beneficial interest outstanding) $8.68
=====
Offering price per share (100/97.5 of net asset value per
share) $8.91
=====
Class B shares:
Net asset value and offering price per share
(net assets of $33,758,614 / 3,893,789 shares of
beneficial interest outstanding) $8.67
=====
Class C shares:
Net asset value, offering price and redemption price per share
(net assets of $17,365,158 / 2,007,093 shares of
beneficial interest outstanding) $8.65
----
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
- ------------------------------------------------------------------------------
Year Ended December 31, 1995
- ------------------------------------------------------------------------------
Net investment income:
Interest income $22,157,600
-----------
Expenses -
Management fee $ 1,145,992
Trustees' compensation 39,477
Shareholder servicing agent fee (Class A) 373,881
Shareholder servicing agent fee (Class B) 64,332
Shareholder servicing agent fee (Class C) 12,004
Distribution and service fee (Class A) 622,463
Distribution and service fee (Class B) 276,312
Distribution and service fee (Class C) 80,026
Custodian fee 137,750
Printing 82,471
Postage 39,809
Auditing fees 33,250
Legal fees 13,535
Miscellaneous 155,132
-----------
Total expenses $ 3,076,434
Fees paid indirectly (58,239)
Reduction of expenses by distributor (248,582)
-----------
Net expenses $ 2,769,613
-----------
Net investment income $19,387,987
===========
Realized and unrealized gain (loss) on investments:
Realized loss (identified cost basis) $(3,334,299)
Change in unrealized appreciation 11,705,046
-----------
Net realized and unrealized gain on investments $ 8,370,747
-----------
Increase in net assets from operations $27,758,734
===========
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
<CAPTION>
- -----------------------------------------------------------------------------------------------
Year Ended December 31, 1995 1994
- -----------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
<S> <C> <C>
Net investment income $ 19,387,987 $ 19,591,055
Net realized loss on investments (3,334,299) (16,449,820)
Net unrealized gain (loss) on investments 11,705,046 (6,309,503)
------------ ------------
Increase (decrease) in net assets from operations $ 27,758,734 $ (3,168,268)
------------ ------------
Distributions declared to shareholders -
From net investment income (Class A) $(16,740,225) $(16,948,072)
From net investment income (Class B) (1,710,513) (1,023,255)
From net investment income (Class C) (459,749) (49,519)
------------ ------------
Total distributions declared to shareholders $(18,910,487) $(18,020,846)
------------ ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 98,891,174 $ 88,499,662
Net asset value of shares issued to shareholders in
reinvestment of distributions 12,202,052 11,313,407
Cost of shares reacquired (104,337,806) (151,014,206)
------------ ------------
Increase (decrease) in net assets from Fund share
transactions $ 6,755,420 $(51,201,137)
------------ ------------
Total increase (decrease) in net assets $ 15,603,667 $(72,390,251)
Net assets:
At beginning of period 284,474,785 356,865,036
------------ ------------
At end of period (including distributions in excess of
net investment income of $213,793 and $38,287,
respectively) $300,078,452 $284,474,785
============ ============
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Financial Highlights
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1995 1994 1993 1992 1991 1990<F1>
- -----------------------------------------------------------------------------------------------------------------------------------
Class A
- -----------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C> <C>
Net asset value - beginning of period $ 8.42 $ 8.99 $ 8.98 $ 9.06 $ 9.09 $ 9.33
------ ------ ------ ------ ------ ------
Income from investment operations<F4> -
Net investment income<F6> $ 0.59 $ 0.54 $ 0.52 $ 0.49 $ 0.52 $ 0.53
Net realized and unrealized gain (loss) on investments 0.25 (0.61) 0.10 0.07 0.21 --
------ ------ ------ ------ ------ ------
Total from investment operations $ 0.84 $ (0.07) $ 0.62 $ 0.56 $ 0.73 $ 0.53
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.58) $(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 $(0.58) $(0.50) $(0.61) $(0.64) $(0.76) $(0.77)
------ ------ ------ ------ ------ ------
Net asset value - end of period $ 8.68 $ 8.42 $ 8.99 $ 8.98 $ 9.06 $ 9.09
====== ====== ====== ====== ====== ======
Total return<F3> 10.36% (0.76)% 7.00% 6.51% 8.44% 7.39%<F2>
Ratios (to average net assets)/Supplemental data<F6>:
Expenses<F5> 0.88% 0.89% 1.14% 1.38% 1.33% 1.40%<F2>
Net investment income 6.91% 6.28% 5.62% 5.50% 5.89% 7.01%<F2>
Portfolio turnover 447% 328% 247% 391% 1,256% 845%
Net assets at end of period (000 omitted) $248,955 $257,154 $345,597 $296,788 $365,644 $427,849
<FN>
<F1> For the ten months ended December 31, 1990.
<F2> Annualized.
<F3> 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.
<F4> Per share data for the periods subsequent to December 31, 1993 is based on average shares outstanding.
<F5> For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
<F6> 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<F5> 0.98% 1.04% 1.34% -- -- --
Net investment income 6.81% 6.13% 5.42% -- -- --
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended
February 28, Year Ended December 31,
------------------- ------------------------------------------------------
1990 1989<F1> 1995 1994 1993<F2> 1995 1994<F3>
- -----------------------------------------------------------------------------------------------------------------------------------
Class A Class B Class C
- -----------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C> <C> <C>
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<F9> $ 0.69 $ 0.23 $ 0.51 $ 0.47 $ 0.12 $ 0.51 $ 0.17
Net realized and unrealized gain (loss) on
investments 0.10 (0.11) 0.25 (0.62) (0.17) 0.25 (0.20)
------ ------ ------ ------ ------ ------ ------
Total from investment operations $ 0.79 $ 0.12 $ 0.76 $(0.15) $(0.05) $ 0.76 $(0.03)
------ ------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.67) $(0.17) $(0.50) $(0.42) $(0.11) $(0.50) $(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 $(0.50) $(0.42) $(0.14) $(0.50) $(0.20)
------ ------ ------ ------ ------ ------ ------
Net asset value - end of period $ 9.33 $ 9.51 $ 8.67 $ 8.41 $ 8.98 $ 8.65 $ 8.39
====== ====== ====== ====== ====== ====== ======
Total return<F5> 8.43% 3.02%<F4> 9.31% (1.65)% (1.54)%<F4> 9.33% (0.33)%<F5>
Ratios (to average net assets)/Supplemental data<F9>:
Expenses<F8> 1.43% 1.41%<F4> 1.74% 1.79% 1.83%<F4> 1.73% 1.62%<F4>
Net investment income 7.16% 6.97%<F4> 6.02% 5.42% 4.58%<F4> 5.87% 6.10%<F4>
Portfolio turnover 615% 170% 447% 328% 247% 447% 328%
Net assets at end of period (000 omitted) $350,011 $117,584 $33,759 $23,918 $11,268 $17,365 $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> For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
<F9> 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 -- -- -- $ 0.46 $ 0.11 -- --
Ratios (to average net assets):
Expenses<F8> -- -- -- 1.82% 2.60%<F4> -- --
Net investment income -- -- -- 5.39% 3.82%<F4> -- --
</TABLE>
See notes to financial statements
<PAGE>
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.
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. During the year ended December 31, 1995, accumulated
distributions in excess of net investment income were increased by $653,006,
accumulated net realized loss on investments was decreased by $649,589, and
paid-in capital was decreased by $3,417 due to differences between book and
tax accounting for mortgage-backed securities. This change had no effect on
the net assets or net asset value per share.
At 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.
Included in Trustees' compensation is a net periodic pension expense of $8,102
for the year ended December 31, 1995.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$29,605 for the year ended December 31, 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 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 $38,299 for the period ended December 31, 1995. MFD is not
imposing the 0.10% distribution fee for an indefinite period. Fees incurred
under the distribution plan during the year ended December 31, 1995 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 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 $2,513 and
$27 for Class B and Class C shares, respectively, for the year ended December
31, 1995. Fees incurred under the distribution plans during the year ended
December 31, 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 year ended December 31, 1995 were
$22,488 and $121,288 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 $1,278,810,022 $1,256,833,440
============== ==============
The cost and unrealized appreciation (depreciation) in value of the
investments owned by the Fund, as computed on a federal income tax basis, are
as follows:
Aggregate cost $296,307,277
============
Gross unrealized appreciation $ 3,667,190
Gross unrealized depreciation (275,413)
------------
Net unrealized appreciation $ 3,391,777
============
(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
1995 1994
Year Ended --------------------------- ----------------------------
December 31, Shares Amount Shares Amount
- -----------------------------------------------------------------------------
Shares sold 6,429,099 $ 55,071,853 6,636,068 $ 57,795,004
Shares issued to
shareholders in
reinvestment of
distributions 1,254,515 10,748,996 1,230,897 10,641,877
Shares reacquired (9,556,148) (81,707,574) (15,759,146) (137,039,970)
---------- ------------- ----------- -------------
Net decrease (1,872,534) $ (15,886,725) (7,892,181) $ (68,603,089)
========== ============= =========== =============
Class B Shares
1995 1994
Year Ended --------------------------- ----------------------------
December 31, Shares Amount Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,787,579 $ 23,805,586 3,133,094 $ 27,198,600
Shares issued to
shareholders in
reinvestment of
distributions 123,565 1,057,296 72,495 622,590
Shares reacquired (1,862,226) (15,909,193) (1,615,742) (13,879,579)
---------- ------------- ----------- -------------
Net increase 1,048,918 $ 8,953,689 1,589,847 $ 13,941,611
========== ============= =========== =============
Class C Shares
1995 1994*
Year Ended --------------------------- ----------------------------
December 31, Shares Amount Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,341,030 $20,013,735 410,854 $3,506,058
Shares issued to
shareholders in
reinvestment of
distributions 46,197 395,760 5,799 48,940
Shares reacquired (785,621) (6,721,039) (11,166) (94,657)
--------- ----------- ------- ----------
Net increase 1,601,606 $13,688,456 405,487 $3,460,341
========= =========== ======= ==========
*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, 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 year ended December 31, 1995 was $3,783.
<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, 1995, and the related statement of operations
for the year then ended and the statement of changes in net assets and the
financial highlights for each of the two years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The
financial highlights for the periods prior to the year ended December 31, 1994
indicated herein, were audited by other auditors whose report dated January
19, 1994 expressed an unqualified opinion on those statements and financial
highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995, 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 audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Government Limited Maturity Fund at December 31, 1995, the results of its
operations for the year then ended, and the changes in its net assets and
financial highlights for each of the two years in the period then ended, in
conformity with generally accepted accounting principles.
Boston, Massachusetts
February 2, 1996
/s/ Ernest & Young LLP
---------------------------------------------
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
[Dalbar logo]
500 Boylston Street
Boston, MA 02116
[MFS logo]
THE FIRST NAME IN MUTUAL FUNDS
BULK RATE
U.S. POSTAGE
P A I D
PERMIT # 55638
BOSTON, MA
MGL-2-2/96/15.5M 28/228/328
