<PAGE>
[GRAPHIC OMITTED] MFS(SM)
INVESTMENT MANAGEMENT
ANNUAL REPORT
FOR YEAR ENDED
DECEMBER 31, 1997
MFS(R) GOVERNMENT LIMITED MATURITY FUND
[GRAPHIC OMITTED]
THE ROTH IRA IS NOW AVAILABLE (see page 27)
<PAGE>
TABLE OF CONTENTS
Letter to Shareholders .................................................... 1
A Discussion with the Portfolio Manager ................................... 4
Portfolio Manager's Profile ............................................... 7
Fund Facts ................................................................ 8
Performance Summary ....................................................... 8
Portfolio Concentration ................................................... 10
Tax Form Summary .......................................................... 10
Portfolio of Investments .................................................. 11
Financial Statements ...................................................... 12
Notes to Financial Statements ............................................. 19
Report of Ernst & Young LLP, Independent Auditors ......................... 25
The MFS Family of Funds(R) ................................................ 26
Roth IRA .................................................................. 27
The ABCs of Investing ..................................................... 28
Trustees and Officers ..................................................... 29
HIGHLIGHTS
o FOR THE YEAR ENDED DECEMBER 31, 1997, CLASS A SHARES OF THE FUND PROVIDED
A TOTAL RETURN AT NET ASSET VALUE OF 6.30%, CLASS B SHARES 5.61%, CLASS C
SHARES 5.56%, AND CLASS I SHARES 6.55%. (SEE PERFORMANCE SUMMARY FOR MORE
INFORMATION.)
o THE FUND CONTINUED TO FOLLOW A VERY CONSERVATIVE APPROACH IN 1997, KEEPING
A HIGH POSITION IN CASH TO PROTECT PRINCIPAL AS INTEREST RATES ROSE EARLY
IN THE YEAR. THE MORTGAGE POSITION WAS BUILT UP IN THE SECOND HALF OF THE
YEAR AS INTEREST RATES STABILIZED AND THE FUND SOUGHT AN IMPROVED YIELD.
o THE STRONGER U.S. DOLLAR BENEFITED THE FUND BY CREATING MORE DEMAND FOR
SHORTER-MATURITY U.S. INVESTMENTS AND PROVIDING SUBSTANTIAL CAPITAL FLOWS.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
[Graphic Omitted] MFS Mourns Chairman's Passing
A. Keith Brodkin
It is with deep regret that we inform you of the death on
February 2, 1998, of
A. Keith Brodkin, Chairman and Chief Executive Officer of
MFS Investment Management(SM). Mr. Brodkin joined MFS in
1970 and made enormous contributions to
the organization, including helping to build the firm's
investment staff, which will continue to manage all of the
MFS investment portfolios. His leadership, friendship, and
wise counsel will be sorely missed.
more on Mr. Brodkin on page 3
LETTER TO SHAREHOLDERS
Dear Shareholders:
Thanks to a sustained period of relative stability and moderate growth, the
U.S. economy has produced thousands of new jobs, inflation has remained under
control, and the investment climate has -- for the most part -- been
favorable. The increased use of technology and other productivity
enhancements, as well as corporate restructuring and global competition, is
improving companies' balance sheets and helping control inflation. The rapid
pace of growth seen in the first quarter slowed to an annual rate of 3.3% in
the second quarter and 3.5% in the third. We believe this economic momentum
will carry well into the first quarter of 1998 as a result of lower interest
rates and continuing growth in the money supply. While U.S. economic growth
continues to be impressive, events in the Pacific Rim will somewhat offset
that and, therefore, markets are likely to continue to focus on Federal
Reserve Board (Fed) activity.
The U.S. government bond market has benefited from the deflationary events in
Asia, while the high-yield and emerging-debt markets have come under severe
pressure. Inflation remains under control, and the Fed will most likely take a
wait-and-see attitude toward raising interest rates. As a result, our near-
term outlook for high-grade markets is neutral to moderately positive. At the
same time, high-yield markets, having gone through a substantial correction,
could offer reasonable value but require careful selection. Overall, fixed-
income markets appear to be reasonably valued.
We appreciate your support and welcome any questions or comments you
may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
President, MFS Investment Management
January 12, 1998
JEFFREY L. SHAMES, A GRADUATE OF WESLEYAN UNIVERSITY AND THE MASSACHUSETTS
INSTITUTE OF TECHNOLOGY SLOAN SCHOOL OF MANAGEMENT, JOINED MFS IN 1983. AFTER
FOUR YEARS AS AN INDUSTRY ANALYST AND PORTFOLIO MANAGER, HE WAS NAMED CHIEF
EQUITY OFFICER IN 1987 AND PRESIDENT AND A MEMBER OF THE BOARD IN 1993.
<PAGE>
IN MEMORIAM
A. KEITH BRODKIN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
MFS INVESTMENT MANAGEMENT
On February 2, 1998, Keith Brodkin, a friend and leader to everyone at MFS, died
unexpectedly at age 62. His thoughtful letters to shareholders on the markets
and economy have been an integral part of MFS shareholder reports like this one
for many years.
Keith joined MFS in 1970 as the firm's first fixed-income manager, managing the
bond portion of MFS(R) Total Return Fund. He went on to manage our first pure
bond fund, MFS(R) Bond Fund, when it was introduced in 1974, and he was
considered a pioneer in the art of active bond management.
Keith was named President and Chief Investment Officer of MFS in 1987 and four
years later became Chairman and Chief Executive Officer. During his stewardship,
MFS has achieved significant growth in total assets under management, rising
from some $25 billion in 1991 to the over $70 billion today entrusted to us by
three million individual and institutional investors worldwide. Under Keith's
leadership, MFS has carefully but steadily built its domestic and international
investment capabilities through the introduction of a range of new products and
a still-growing staff that now numbers over 100 equity and fixed-income
professionals.
Throughout his career, Keith was very active in a wide range of charitable
endeavors. He is survived by his wife and three children.
His leadership, friendship, and wise counsel will be sorely missed.
<PAGE>
A DISCUSSION WITH THE PORTFOLIO MANAGER
[Photo of D. Richard Smith]
D. Richard Smith
For the year ended December 31, 1997, Class A shares of the Fund provided a
total return of 6.30%, Class B shares 5.61%, Class C shares 5.56%, and Class I
shares 6.55%. These returns assume the reinvestment of distributions but
exclude the effects of any sales charges and compare to a 7.10% return for 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). The return of the Fund's Class A
shares outperformed the 5.82% return for the average short-term government
debt fund as reported by Lipper Analytical Services, Inc., an independent firm
that reports mutual fund performance.
Q. COULD YOU DISCUSS SOME OF THE REASONS FOR THE FUND'S PERFORMANCE RELATIVE
TO ITS BENCHMARK IN 1997?
A. During 1997, we continued to follow a very conservative approach. Early in
the year, when the Fed raised interest rates, we had a high position in
cash; as rates rose, we protected principal. That was the story in the
first half of the year, protecting principal and adding incremental yield.
In the second half of the year, we built up the Fund's mortgage position.
We target about 60% of the Fund to short-term mortgage securities offering
stable prepayments and incremental yield versus both cash and U.S. Treasury
securities. (Principal value and interest on Treasury securities are
guaranteed by the U.S. government if held to maturity.)
Q. WHAT ABOUT THE FUND'S DURATION, OR EXPOSURE TO CHANGES IN INTEREST RATES?
A. The Fund's duration rate ranges from approximately 1.2% to 2.0%. Because
the U.S. economy remained strong, we stayed in the low end of the duration
range; now, it's at about 1.4%. That's slightly shorter than the 1.6%
average duration rate of similar funds tracked by Lipper. Even though rates
are coming down, we try not to extend duration unless we can pick up yield.
And with longer-term interest rates, which are below those of many money
market investments, coming down, this is not the type of environment in
which we would aggressively extend duration.
Q. COULD YOU TALK ABOUT THE FUND'S INVESTMENT PHILOSOPHY AND STRATEGY?
A. The key goal for us is to offer a conservative investment that adds
incremental yield versus a portfolio of money market instruments with the
potential for marginal principal returns. In 1997, the net asset value of
the Fund stayed within a range of five cents for the entire year, and that
includes the daily distribution. So, again, we're seeking stable net asset
value as well as incremental yield over money market investments.
Q. HOW WOULD YOU DESCRIBE THE FIXED-INCOME ENVIRONMENT OF THE PAST YEAR?
A. I think the surprise of the year was that growth was stronger, at about
3.3% versus an expectation of about 2.5%. Inflation also stayed low. As a
result, we ended up with lower interest rates at the end of the year and a
much flatter yield curve; that is, longer-term yields came down as a result
of lower inflation expectations, while short-term yields stayed about the
same. We've also seen a much stronger dollar, which has created a large
flight of foreign capital into the United States, and a much better federal
budget situation that should create a surplus fairly soon.
Q. HOW DOES THE STRONGER DOLLAR BENEFIT THE FUND?
A. It creates demand for shorter-maturity U.S. Treasury investments. Capital
flows have been quite substantial, although this trend may have begun to
reverse. Rates on very short-term instruments, such as three-month U.S.
Treasury bills, are at a higher level than they were at the beginning of
1997 by approximately 15 basis points (0.15%) because the Japanese have
sold their holdings, but one- to two-year rates are about 25 to 30 basis
points (0.25% to 0.30%) lower than they were. So this has also helped
flatten the yield curve.
Q. IS THE 75% ALLOCATION TO MORTGAGE-BACKED SECURITIES A HIGH ALLOCATION FOR
THE FUND?
A. We don't think so. We look first and foremost for good yield
characteristics in the portfolio, and we believe that a 75% allocation to
mortgage-backed securities gives the Fund a good core yield. We then put
the other 25% in Treasuries to adjust the Fund's yield-curve and overall
interest-rate exposures. So by putting that 75% in mortgages, we're adding
about 75 to 100 basis points (0.75% to 1.00%) of yield to the Fund.
Q. NOW THAT MORTGAGE RATES ARE AT THEIR LOWEST POINT IN SEVERAL YEARS, HOW
DOES THAT AFFECT THE FUND?
A. We watch the level of prepayment exposure very closely. Our mortgage
exposure is split into three different sectors. The first is floating-rate
securities. The rates on these float off a recognized benchmark, they're
not sensitive to prepayments, and we can add incremental yield by making
adjustments to the coupon. The second thing we do is to invest in 15-year
mortgage-backed securities. They have shorter durations and good yields,
and we have not seen the levels of refinancing there that we've seen in 30-
year mortgages. The third component of the strategy is to invest in
"seasoned" mortgage-backed securities. These are home loans that have been
in existence for 10 to 15 years or more, have low loan balances, and
include homeowners who have had the opportunity to refinance before but
have not elected to do it. These securities have much more stable
prepayment characteristics than newer mortgage-backed securities. We have
not been active in the adjustable-rate mortgage, or ARM, market. We think
it's a poor value and a rich sector of the market, so we've avoided it.
Q. ARE THERE ANY POSITIONS IN THE FUND THAT PERFORMED BETTER THAN YOU EXPECTED
IN 1997?
A. If you compare the Fund in 1997 to 1996, the number one difference is that
we increased the level of mortgage exposure from about 40% of the portfolio
to about 75%. The mortgage position really benefited the Fund. One wouldn't
have expected it, but in the high-grade market mortgages were the number
one performing sector, performing better than Treasuries, better than
government-agency securities, better than asset-backed securities, better
than corporates. That was a surprise in 1997 but, to be candid, we don't
expect the same level of incremental return from mortgages in 1998 as we
had last year. That's basically because we have to monitor the refinancing
risk closely.
Q. AS YOU LOOK AHEAD, WHAT CHANGES DO YOU SEE IN THE GENERAL ECONOMIC
ENVIRONMENT OR IN YOUR MARKET, AND HOW ARE YOU POSITIONING THE FUND FOR
THOSE CHANGES?
A. We look for the flight to the U.S. market to slow down and for a more
stable dollar going forward. We also look for refinancing to be an issue
for the next three to six months, with the second half of the year
presenting some really good opportunities in the mortgage market. We
believe the Fed will maintain a steady interest-rate policy until we see
the U.S. employment situation loosen up a bit. Unemployment is very low,
and confidence and income growth are high. So we would need confidence to
ebb and the jobless situation to get worse before the Fed would lower
rates. We're following a more conservative stance early in the year and
will look to increase the Fund's interest-rate sensitivity if the yield
curve gets steeper and we can put the money to work at
higher yields.
/s/D. Richard Smith
D. Richard Smith
Portfolio Manager
PORTFOLIO MANAGER'S PROFILE
D. RICHARD SMITH JOINED MFS IN 1993 AS A PORTFOLIO MANAGER AND WAS PROMOTED TO
VICE PRESIDENT -- INVESTMENTS IN 1995. A GRADUATE OF VASSAR COLLEGE, HE HOLDS AN
M.B.A. FROM VANDERBILT UNIVERSITY AND HAS MANAGED MFS() R GOVERNMENT LIMITED
MATURITY FUND SINCE FEBRUARY 1997.
<PAGE>
FUND FACTS
OBJECTIVE: THE FUND'S INVESTMENT OBJECTIVE IS TO PRESERVE CAPITAL
AND TO PROVIDE HIGH CURRENT INCOME (COMPARED TO A
PORTFOLIO ENTIRELY INVESTED IN MONEY MARKET
INSTRUMENTS).
COMMENCEMENT OF INVESTMENT OPERATIONS: SEPTEMBER 26, 1988
CLASS INCEPTION: CLASS A SEPTEMBER 26, 1988
CLASS B SEPTEMBER 7, 1993
CLASS C AUGUST 1, 1994
CLASS I JANUARY 2, 1997
SIZE: $243.3 MILLION NET ASSETS AS OF DECEMBER 31, 1997
PERFORMANCE SUMMARY
The information below illustrates the historical performance of MFS Government
Limited Maturity Fund -- Class A shares in comparison to various market
indicators. Class A share performance results reflect the deduction of the
2.50% maximum sales charge; benchmark comparisons are unmanaged and do not
reflect any fees or expenses. The performance of other share classes will be
greater than or less than the line shown, based on differences in charges and
fees paid by shareholders investing in different classes. It is not possible
to invest directly in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from October 1, 1988, through December 31, 1997)
MFS Consumer Lehman Brothers
Government Price 1-5 year
Limited Index Government
Maturity Fund - Bond
- Class A U.S. Index
- ------------------------------------------------------------------------------
10/88 $ 9,747 $10,000 $10,000
12/89 $10,841 $10,526 $11,250
12/91 $12,321 $11,511 $13,960
12/93 $14,040 $12,170 $15,920
12/95 $15,378 $12,804 $17,780
12/97 $16,834 $13,523 $19,909
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years Life of Fund*
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS Government Limited Maturity Fund (Class A)
including 2.50% sales charge (SEC results) +3.59% +5.61% +4.31% +5.78%
- ------------------------------------------------------------------------------------------------------------
MFS Government Limited Maturity Fund (Class A)
at net asset value +6.30% +6.50% +5.11% +6.07%
- ------------------------------------------------------------------------------------------------------------
MFS Government Limited Maturity Fund (Class B)
with CDSC (SEC results) +1.61% +4.72% +4.01% +5.65%
- ------------------------------------------------------------------------------------------------------------
MFS Government Limited Maturity Fund (Class B)
at net asset value +5.61% +5.62% +4.33% +5.65%
- ------------------------------------------------------------------------------------------------------------
MFS Government Limited Maturity Fund (Class C)
with CDSC (SEC results) +4.56% +5.63% +4.45% +5.72%
- ------------------------------------------------------------------------------------------------------------
MFS Government Limited Maturity Fund (Class C)
at net asset value +5.56% +5.63% +4.45% +5.72%
- ------------------------------------------------------------------------------------------------------------
MFS Government Limited Maturity Fund (Class I)
at net asset value +6.55% +6.54% +5.13% +6.08%
- ------------------------------------------------------------------------------------------------------------
Average short-term U.S. government fund** +5.82% +6.67% +5.02% +6.58%
- ------------------------------------------------------------------------------------------------------------
Lehman Brothers 1-5 Year Government
Bond Index** +7.10% +8.03% +5.98% +7.73%
- ------------------------------------------------------------------------------------------------------------
Consumer Price Index#+ +2.15% +2.67% +2.69% +3.45%
- ------------------------------------------------------------------------------------------------------------
* For the period from the commencement of the Fund's investment operations, September 26, 1988, through
December 31, 1997.
** Source: Lipper Analytical Services, Inc.
+ Source: CDA/Wiesenberger.
# The Consumer Price Index is published by the U.S. Bureau of Labor Statistics and measures the cost of
living (inflation).
</TABLE>
All results are historical and assume the reinvestment of dividends and capital
gains. Investment return and principal value will fluctuate, and shares, when
redeemed, may be worth more or less than their original cost. Past performance
is no guarantee of future results.
Class A share ("A") SEC results include the maximum 2.50% sales charge. Class B
share ("B") SEC results reflect the applicable contingent deferred sales charge
(CDSC), which declines over six years from 4% to 0%. Class C shares ("C") have
no initial sales charge but, like B, have higher annual fees and expenses than
A. C SEC results reflect the 1% CDSC applicable to shares redeemed with 12
months. Class I shares ("I"), which became available on January 2, 1997, have no
sales charge or Rule 12b-1 fees and are only available to certain institutional
investors.
B and C results include the performance and the operating expenses (e.g., Rule
12b-1 fees) of A for periods prior to the inception of B and C. Because
operating expenses of B and C are higher than those of A, B and C performance
generally would have been lower than A performance. The A performance included
in the B and C SEC performance has been adjusted to reflect the CDSC generally
applicable to B and C rather than the initial sales charge generally applicable
to A.
I results include the performance and the operating expenses (e.g., Rule 12b-1
fees) of A for periods prior to the inception of I. Because operating expenses
of A are greater than those of I, I performance generally would have been higher
than A performance. The A performance included in the I performance has been
adjusted to reflect the fact that I have no initial sales charge.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Subsidies and waivers
may be rescinded at any time. See the prospectus for details.
PORTFOLIO CONCENTRATION AS OF DECEMBER 31, 1997
LARGEST SECTORS
Mortgage Backed 60%
U.S. Treasuries 21%
Cash 19%
For a more complete breakdown, refer to the Portfolio of Investments.
TAX FORM SUMMARY
IN JANUARY 1998, SHAREHOLDERS WERE MAILED A TAX FORM SUMMARY REPORTING THE
FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE CALENDAR YEAR 1997.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS - December 31, 1997
Bonds - 80.9%
<CAPTION>
- ----------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- ----------------------------------------------------------------------------------------
U.S. Federal Agencies - 56.5%
<S> <C> <C>
Federal Home Loan Mortgage Corp., 6s, 2018 $13,062 $ 13,024,833
Federal Home Loan Mortgage Corp., 6.35s, 2027 26,115 26,400,431
Federal Home Loan Mortgage Corp., 7s, 2001 19,482 19,835,038
Federal Home Loan Mortgage Corp., 7.5s, 2002 8,645 8,851,778
Federal Home Loan Mortgage Corp., 8s, 2005 - 2020 9,149 9,246,334
Federal Home Loan Mortgage Corp., 9s, 2005 2,842 2,983,627
Federal Home Loan Mortgage Corp., 9.25s, 2019 2,499 2,741,845
Federal National Mortgage Assn., 6.5s, 2010 - 2012 14,937 14,955,288
Federal National Mortgage Assn., 7s, 2002 - 2010 4,361 4,432,489
Federal National Mortgage Assn., 7.5s, 2000 5,331 5,442,846
Federal National Mortgage Assn., 8s, 2001 - 2022 20,623 21,232,049
Federal National Mortgage Assn., 10s, 2025 7,493 8,245,446
------------
$137,392,004
- ----------------------------------------------------------------------------------------
U.S. Government Guaranteed - 24.4%
Government National Mortgage Association - 3.6%
GNMA, 8.5s, 2002 - 2010 $ 3,029 $ 3,172,719
GNMA, 9s, 2001 - 2007 5,342 5,665,570
------------
$ 8,838,289
- ----------------------------------------------------------------------------------------
U.S. Treasury Obligations - 20.8%
U.S. Treasury Notes, 8.875s, 1998 $ 5,000 $ 5,134,350
U.S. Treasury Notes, 9.125s, 1999 15,500 16,195,020
U.S. Treasury Notes, 7.875s, 2001 6,000 6,414,360
U.S. Treasury Notes, 8s, 2001 10,000 10,682,800
U.S. Treasury Notes, 6.25s, 2002 12,000 12,238,080
------------
$ 50,664,610
- ----------------------------------------------------------------------------------------
Total U.S. Government Guaranteed $ 59,502,899
- ----------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $195,893,548) $196,894,903
- ----------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 17.1%
- ----------------------------------------------------------------------------------------
Investments in repurchase agreements with Goldman
Sachs, in a joint trading account ($181,587,655),
dated 12/31/97, due 1/02/98, total to be received
$183,036,657, collateralized by U.S. Treasury
Notes (with $172,121,000 par and valued at
$179,447,703),
at cost $41,586 $ 41,586,000
- ----------------------------------------------------------------------------------------
Total Investments (Identified Cost, $237,479,548) $238,480,903
OTHER ASSETS, LESS LIABILITIES - 2.0% 4,775,465
- ----------------------------------------------------------------------------------------
Net Assets - 100.0% $243,256,368
- ----------------------------------------------------------------------------------------
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- --------------------------------------------------------------------------
DECEMBER 31, 1997
- --------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $195,893,548) $196,894,903
Repurchase agreement, at value 41,586,000
------------
Total investments at value (identified cost,
$237,479,548) $238,480,903
Cash 77,521
Receivable for Fund shares sold 1,229,764
Receivable for investments sold 3,149,124
Interest receivable 1,457,150
Other assets 2,587
------------
Total assets $244,397,049
------------
Liabilities:
Payable for Fund shares reacquired $ 520,105
Distributions payable 444,169
Payable to affiliates -
Management fee 2,645
Shareholder servicing agent fee 761
Distribution and service fee 19,324
Administrative fee 99
Accrued expenses and other liabilities 153,578
------------
Total liabilities $ 1,140,681
------------
Net assets $243,256,368
============
Net assets consist of:
Paid-in capital $266,875,177
Unrealized appreciation on investments 1,001,355
Accumulated net realized loss on investments (24,001,532)
Accumulated distributions in excess of net investment
income (618,632)
------------
Total $243,256,368
============
Shares of beneficial interest outstanding 28,962,749
==========
Class A shares:
Net asset value per share
(net assets of $190,039,305 / 22,612,048 shares of
beneficial interest outstanding) $8.40
=====
Offering price per share (100 / 97.5 of net asset value
per share) $8.62
=====
Class B shares:
Net asset value and offering price per share
(net assets of $34,843,084 / 4,154,612 shares of
beneficial interest outstanding) $8.39
=====
Class C shares:
Net asset value and offering price per share
(net assets of $18,192,230 / 2,174,461 shares of
beneficial interest outstanding) $8.37
=====
<PAGE>
Class I shares:
Net asset value, offering price, and redemption price
per share (net assets of $181,749 / 21,628 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>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997
- ------------------------------------------------------------------------------
Net investment income:
Interest income $18,198,274
------------
Expenses -
Management fee $ 1,022,868
Trustees' compensation 46,528
Shareholder servicing agent fee 332,333
Distribution and service fee (Class A) 303,865
Distribution and service fee (Class B) 317,290
Distribution and service fee (Class C) 194,299
Administrative fee 29,635
Custodian fee 104,681
Printing 40,426
Postage 36,567
Auditing fees 21,251
Legal fees 4,740
Miscellaneous 132,368
------------
Total expenses $ 2,586,851
Fees paid indirectly (72,957)
------------
Net expenses $ 2,513,894
------------
Net investment income $15,684,380
------------
Realized and unrealized gain (loss) on investments:
Realized loss (identified cost basis) on investments $ (3,540,264)
Change in unrealized appreciation on investments 3,219,384
------------
Net realized and unrealized loss on investments $ (320,880)
------------
Increase in net assets from operations $ 15,363,500
============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 15,684,380 $ 18,926,751
Net realized loss on investments (3,540,264) (4,741,975)
Net unrealized gain (loss) on investments 3,219,384 (6,064,184)
------------ ------------
Increase in net assets from operations $ 15,363,500 $ 8,120,592
------------ ------------
Distributions declared to shareholders -
From net investment income (Class A) $(12,733,885) $(15,042,192)
From net investment income (Class B) (1,844,464) (1,810,243)
From net investment income (Class C) (1,062,463) (1,094,415)
From net investment income (Class I) (9,589) --
------------ ------------
Total distributions declared to shareholders $(15,650,401) $(17,946,850)
------------ ------------
Net decrease in net assets from Fund share
transactions $(40,291,031) $ (6,417,894)
------------ ------------
Total decrease in net assets $(40,577,932) $(16,244,152)
Net assets:
At beginning of period 283,834,300 300,078,452
------------ ------------
At end of period (including distributions in excess of net
investment income of $618,632 and $90,011, respectively) $243,256,368 $283,834,300
============ ============
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
CLASS A
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 8.41 $ 8.68 $ 8.42 $ 8.99 $ 8.98
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.53 $ 0.56 $ 0.59 $ 0.54 $ 0.52
Net realized and unrealized gain (loss)
on investments (0.02) (0.30) 0.25 (0.61) 0.10
------ ------ ------ ------ ------
Total from investment operations $ 0.51 $ 0.26 $ 0.84 $(0.07) $ 0.62
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.52) $(0.53) $(0.58) $(0.50) $(0.51)
From net realized gain on investments -- -- -- -- (0.10)
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.52) $(0.53) $(0.58) $(0.50) $(0.61)
------ ------ ------ ------ ------
Net asset value - end of period $ 8.40 $ 8.41 $ 8.68 $ 8.42 $ 8.99
====== ====== ====== ====== ======
Total return(+) 6.30% 2.98% 10.36% (0.76)% 7.00%
Ratios (to average net assets)/Supplemental data:
Expenses## 0.84% 0.84% 0.88% 0.89% 1.14%
Net investment income 6.27% 6.55% 6.91% 6.28% 5.62%
Portfolio turnover 266% 301% 447% 328% 247%
Net assets at end of period (000 omitted) $190,039 $226,976 $248,955 $257,154 $345,597
# Per share data for the periods subsequent to December 31, 1993, are 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.
(+) Total returns for Class A do not include the applicable sales charge. If the charge had been included, the results would have
been lower.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED
YEAR ENDED DECEMBER 31, FEBRUARY 28,
---------------------------------------------- ------------------------------
1992 1991 1990(S) 1990 1989*
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 9.06 $ 9.09 $ 9.33 $ 9.51 $ 9.63
------ ------ ------ ------ ------
Income from investment operations -
Net investment income $ 0.49 $ 0.52 $ 0.53 $ 0.69 $ 0.23
Net realized and unrealized gain (loss)
on investments 0.07 0.21 -- 0.10 (0.11)
------ ------ ------ ------ ------
Total from investment operations $ 0.56 $ 0.73 $ 0.53 $ 0.79 $ 0.12
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.45) $(0.49) $(0.48) $(0.67) $(0.17)
From net realized gain on investments (0.14) -- -- (0.14) (0.02)
From paid in capital (0.05) (0.27) (0.29) (0.16) (0.05)
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.64) $(0.76) $(0.77) $(0.97) $(0.24)
------ ------ ------ ------ ------
Net asset value - end of period $ 8.98 $ 9.06 $ 9.09 $ 9.33 $ 9.51
====== ====== ====== ====== ======
Total return(+) 6.51% 8.44% 7.39%+ 8.43% 3.02%+
Ratios (to average net assets)/Supplemental data:
Expenses 1.38% 1.33% 1.40%+ 1.43% 1.41%+
Net investment income 5.50% 5.89% 7.01%+ 7.16% 6.97%+
Portfolio turnover 391% 1,256% 845% 615% 170%
Net assets at end of period (000 omitted) $296,788 $365,644 $427,849 $350,011 $117,584
* For the period from the commencement of the Fund's investment operations, September 26, 1988, through February 28, 1989.
+ Annualized.
(+) Total returns for Class A do not include the applicable sales charge. If the charge had been included, the results would have
been lower.
(S) For the 10 months ended December 31, 1990.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997 1996 1995 1994 1993**
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS B
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 8.39 $ 8.67 $ 8.41 $ 8.98 $ 9.17
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.46 $ 0.47 $ 0.51 $ 0.47 $ 0.12
Net realized and unrealized gain (loss) on
investments -- (0.30) 0.25 (0.62) (0.17)
------ ------ ------ ------ ------
Total from investment operations $ 0.46 $ 0.17 $ 0.76 $(0.15) $(0.05)
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.46) $(0.45) $(0.50) $(0.42) $(0.11)
From net realized gain on investments -- -- -- -- (0.03)
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.46) $(0.45) $(0.50) $(0.42) $(0.14)
------ ------ ------ ------ ------
Net asset value - end of period $ 8.39 $ 8.39 $ 8.67 $ 8.41 $ 8.98
====== ====== ====== ====== ======
Total return 5.61% 2.08% 9.31% (1.65)% (1.54)%+
Ratios (to average net assets)/Supplemental data:
Expenses## 1.63% 1.72% 1.74% 1.79% 1.83%+
Net investment income 5.48% 5.67% 6.02% 5.42% 4.58%+
Portfolio turnover 266% 301% 447% 328% 247%
Net assets at end of period (000 omitted) $34,843 $34,643 $33,759 $23,918 $11,268
** For the period from the inception of Class B, September 7, 1993, through December 31, 1993.
+ Annualized.
# Per share data for the periods subsequent to December 31, 1993, are 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.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997 1996 1995 1994*** 1997****
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS C CLASS I
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 8.37 $ 8.65 $ 8.39 $ 8.62 $ 8.40
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.45 $ 0.48 $ 0.51 $ 0.17 $ 0.53
Net realized and unrealized gain (loss) on
investments -- (0.30) 0.25 (0.20) --
------ ------ ------ ------ ------
Total from investment operations $ 0.45 $ 0.18 $ 0.76 $(0.03) $ 0.53
------ ------ ------ ------ ------
Less distributions declared to shareholders
from net investment income $(0.45) $(0.46) $(0.50) $(0.20) $(0.53)
------ ------ ------ ------ ------
Net asset value - end of period $ 8.37 $ 8.37 $ 8.65 $ 8.39 $ 8.40
====== ====== ====== ====== ======
Total return 5.56% 2.12% 9.33% (0.33)%++ 6.55%++
Ratios (to average net assets)/Supplemental data:
Expenses## 1.69% 1.69% 1.73% 1.62%+ 0.69%+
Net investment income 5.42% 5.68% 5.87% 6.10%+ 6.42%+
Portfolio turnover 266% 301% 447% 328% 266%
Net assets at end of period (000 omitted) $18,192 $22,215 $17,365 $3,403 $ 182
*** For the period from the inception of Class C, August 1, 1994, through December 31, 1994.
**** For the period from the inception of Class I, January 2, 1997, through December 31, 1997.
+ Annualized.
++ Not annualized.
# Per share data are 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.
</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
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
discount is amortized or accreted for financial statement and tax reporting
purposes as required by federal income tax regulations. Interest payments
received in additional securities are recorded on the ex-interest date in an
amount equal to the value of the security on such date. Some securities may be
purchased on a "when-issued" or "forward delivery" basis, which means that the
securities will be delivered to the Fund at a future date, usually beyond
customary settlement time.
Fees Paid Indirectly - The Fund's custody fee is calculated as a percentage of
the Fund's average daily net assets. The fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
Fund. This amount is shown as a reduction of 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 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 tax 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, 1997, $562,600 was reclassified from
accumulated distributions in excess of net investment income to accumulated net
realized loss on investments due to differences between book and tax accounting
for mortgage-backed securities. This change had no effect on the net assets or
net asset value per share.
At December 31, 1997, the Fund, for federal income tax purposes, had a capital
loss carryforward of $23,964,137 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), December 31, 2003, ($2,302,419),
December 31, 2004, ($4,284,511), and December 31, 2005, ($2,995,992).
Multiple Classes of Shares of Beneficial Interest - The Fund offers multiple
classes of shares. The classes of shares differ in their respective distribution
and service fees. All shareholders bear the common expenses of the Fund based on
the settled shares outstanding 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 MFS to
provide overall investment advisory and administrative services, and general
office facilities. The management fee is computed daily and paid monthly at the
lesser of (i) 0.40% of the average daily net assets or (ii) 0.38% of average
daily net assets and 5.36% of gross investment income.
Administrator - Effective March 1, 1997, the Fund has an administrative services
agreement with MFS to provide the Fund with certain financial, legal,
shareholder servicing, compliance, and other administrative services. As a
partial reimbursement for the cost of providing these services, the Fund pays
MFS an administrative fee at the following annual percentages of the Fund's
average daily net assets, provided that the administrative fee is not assessed
on Fund assets that exceed $3 billion:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive remuneration
for their services to the Fund from MFS. Certain officers and Trustees of the
Fund are officers or directors of MFS, MFS Fund Distributors, Inc. (MFD), and
MFS Service Center, Inc. (MFSC). The Fund has an unfunded defined benefit plan
for all of its independent Trustees and Mr. Bailey. Included in Trustees'
compensation is a net periodic pension expense of $11,554 for the year ended
December 31, 1997.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$18,543 for the year ended December 31, 1997, as its portion of the sales charge
on sales of Class A shares of the Fund. The Trustees have adopted a distribution
plan for Class A, Class B, and Class C shares pursuant to Rule 12b-1 of the
Investment Company Act of 1940 as follows:
The Fund's distribution plan provides that the Fund will pay MFD up to 0.35% per
annum of its average daily net assets attributable to Class A shares in order
that MFD may pay expenses on behalf of the Fund related to the distribution and
servicing of its shares. These expenses include a service fee 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% 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 $47,341 for the year ended December 31, 1997. Payment
of the 0.10% per annum Class A distribution fee will commence on such date as
the Trustees of the Fund may determine. Fees incurred under the distribution
plan during the year ended December 31, 1997, were 0.15% of average daily net
assets attributable to Class A shares on an annualized basis.
The Fund's distribution plan provide that the Fund will pay MFD a distribution
fee of 0.75% per annum, and a service fee of up to 0.25% per annum, of the
Fund's average daily net assets attributable to Class B and Class C shares. The
service fee is 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 $8,408 and $4,093 for Class B and Class C
shares, respectively, for the year ended December 31, 1997. Fees incurred under
the distribution plan during the year ended December 31, 1997, were 0.94% and
1.00% of average daily net assets attributable to Class B and Class C shares on
an annualized basis, respectively.
Purchases over $1 million of Class A shares and certain purchases by 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. A contingent
deferred sales charge is imposed on shareholder redemptions of Class C shares in
the event of a shareholder redemption within 12 months of purchase. MFD receives
all contingent deferred sales charges. Contingent deferred sales charges imposed
during the year ended December 31, 1997, were $13,630, $120,249, and $37,614 for
Class A, Class B, and Class C shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the Fund's average daily net assets at an effective annual rate of
0.13%.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions and
short-term obligations, were as follows:
PURCHASES SALES
- -------------------------------------------------------------------------
U.S. government securities $595,336,656 $677,365,670
------------ ------------
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax basis, are
as follows:
Aggregate cost $237,516,944
------------
Gross unrealized appreciation $ 1,254,790
Gross unrealized depreciation (290,831)
------------
Net unrealized appreciation $ 963,959
============
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares
YEAR ENDED DECEMBER 31, 1997 YEAR ENDED DECEMBER 31, 1996
----------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 10,108,169 $ 84,893,500 5,719,260 $ 48,727,419
Shares issued to shareholders
in reinvestment of
distributions 941,826 7,902,273 1,141,768 9,677,959
Transfer to Class I (18,266) (153,434) -- --
Shares reacquired (15,409,294) (129,355,674) (8,536,403) (72,327,666)
----------- -------------- ----------- ------------
Net decrease (4,377,565) $ (36,713,335) (1,675,375) $(13,922,288)
=========== ============== =========== ============
<CAPTION>
Class B Shares
YEAR ENDED DECEMBER 31, 1997 YEAR ENDED DECEMBER 31, 1996
----------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,799,236 $ 23,450,174 2,611,809 $ 22,099,165
Shares issued to shareholders
in reinvestment of
distributions 136,154 1,140,244 135,194 1,143,275
Shares reacquired (2,908,472) (24,358,371) (2,513,098) (21,287,379)
----------- -------------- ----------- ------------
Net increase 26,918 $ 232,047 233,905 $ 1,955,061
=========== ============== =========== ============
<CAPTION>
Class C Shares
YEAR ENDED DECEMBER 31, 1997 YEAR ENDED DECEMBER 31, 1996
----------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 741,477 $ 6,196,341 2,592,106 $ 22,029,403
Shares issued to shareholders
in reinvestment of
distributions 84,275 703,994 109,719 926,677
Shares reacquired (1,304,089) (10,891,877) (2,056,120) (17,406,747)
----------- -------------- ----------- ------------
Net increase (decrease) (478,337) $ (3,991,542) 645,705 $ 5,549,333
=========== ============== =========== ============
</TABLE>
Class I Shares
PERIOD ENDED DECEMBER 31, 1997*
-----------------------------------
SHARES AMOUNT
- --------------------------------------------------------------------
Shares sold 5,857 $ 49,185
Shares issued to shareholders
in reinvestment of
distributions 1,145 9,607
Transfer from Class A 18,266 153,434
Shares reacquired (3,640) (30,427)
------ --------
Net increase 21,628 $181,799
====== ========
* For the period from the inception of Class I, January 2, 1997, through
December 31, 1997.
(6) Line of Credit
The Fund and other affiliated funds participate in a $400 million unsecured line
of credit provided by a syndication of banks under a line of credit agreement.
Borrowings may be made to temporarily finance the repurchase of Fund shares.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the bank's base rate. In addition, a commitment fee, based on the average daily
unused portion of the line of credit, is allocated among the participating funds
at the end of each quarter. The commitment fee allocated to the Fund for the
year ended December 31, 1997, was $1,698.
<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 (the Fund), including the schedule of portfolio
of investments as of December 31, 1997 and the related statement of operations
for the year then ended, the statement of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
four 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
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, 1997, by correspondence with the custodian and brokers or by 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, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and financial highlights for each of the
four years in the period then ended, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
February 9, 1998
--------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
<PAGE>
<TABLE>
<CAPTION>
MFS(R) Government Limited Maturity Fund
<S> <C>
Trustees Custodian
State Street Bank and Trust Company
Richard B. Bailey* - Private Investor;
Former Chairman and Director (until 1991), Auditors
Massachusetts Financial Services Company Ernst & Young LLP
Marshall N. Cohan - Private Investor Investor Information
For MFS stock and bond market outlooks,
Lawrence H. Cohn, M.D. - Chief of Cardiac call toll free: 1-800-637-4458 anytime from a
Surgery, Brigham and Women's Hospital; touch-tone telephone.
Professor of Surgery, Harvard Medical School
For information on MFS mutual funds, call
The Hon. Sir J. David Gibbons, KBE - Chief your financial adviser or, for an information
Executive Officer, Edmund Gibbons Ltd. kit, call toll free: 1-800-637-2929 any
business day from 9 a.m. to 5 p.m. Eastern
Abby M. O'Neill - Private Investor time (or leave a message anytime).
Walter E. Robb, III - President and Treasurer, Investor Service
Benchmark Advisors, Inc. (corporate financial MFS Service Center, Inc.
consultants); President, Benchmark Consulting P.O. Box 2281
Group, Inc. (office services) Boston, MA 02107-9906
Arnold D. Scott* - Senior Executive Vice For general information, call toll free:
President, Director and Secretary, 1-800-225-2606 any business day from
Massachusetts Financial Services Company 8 a.m. to 8 p.m. Eastern time.
Jeffrey L. Shames* - Chairman, President, For service to speech- or hearing-impaired,
and Director, Massachusetts Financial call toll free: 1-800-637-6576 any business day
Services Company from 9 a.m. to 5 p.m. Eastern time. (To use
this service, your phone must be equipped with
J. Dale Sherratt - President, Insight a Telecommunications Device for the Deaf.)
Resources, Inc. (acquisition planning
specialists) For share prices, account balances, and
exchanges, call toll free: 1-800-MFS-TALK
Ward Smith - Former Chairman (until 1994), (1-800-637-8255) anytime from a touch-tone telephone.
NACCO Industries (holding company)
World Wide Web
Investment Adviser www.mfs.com
Massachusetts Financial Services Company
500 Boylston Street [Dalbar Logo] For the fourth year in a row,
Boston, MA 02116-3741 MFS earned a #1 ranking in the
Distributor DALBAR, Inc. Broker/Dealer Survey, Main Office
Operations Service Quality Category. The firm
MFS Fund Distributors, Inc. achieved a 3.42 overall score on a scale of
500 Boylston Street 1 to 4 in the 1997 survey. A total of 111
Boston, MA 02116-3741 firms responded, offering input on the quality
of service they received from 29 mutual fund
Portfolio Manager companies nationwide. The survey contained
D. Richard Smith* questions about service quality in 11
categories, including "knowledge of operations
Treasurer contact," "keeping you informed," and "ease of
W. Thomas London* doing business" with the firm.
Assistant Treasurers
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
Secretary
Stephen E. Cavan*
Assistant Secretary
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
------------
MFS(R) GOVERNMENT LIMITED MATURITY FUND BULK RATE
U.S. POSTAGE
500 Boylston Street PAID
Boston, MA 02116-3741 MFS
------------
[logo] MFS(SM)
INVESTMENT MANAGEMENT
We invented the mutual fund(TM)
(C)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA
02116-3741
MGL-2 2/98 21M 28/228/328/828
