<PAGE>
[Logo] M F S(R)
INVESTMENT MANAGEMENT
We invented the mutual Fund(R)
MFS(R) GOVERNMENT
LIMITED MATURITY FUND
SEMIANNUAL REPORT O JUNE 30, 1998
[Graphic]
MFS(R) Government Limited Maturity Fund
10th
ANNIVERSARY
1988-1998
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 3
Performance Summary ....................................................... 7
Portfolio of Investments .................................................. 10
Financial Statements ...................................................... 11
Notes to Financial Statements ............................................. 19
Trustees and Officers ..................................................... 25
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HIGHLIGHTS
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o FOR THE SIX MONTHS ENDED JUNE 30, 1998, CLASS A SHARES OF THE FUND
PROVIDED A TOTAL RETURN AT NET ASSET VALUE OF 2.66%, CLASS B SHARES 2.15%,
CLASS C SHARES 2.13%, AND CLASS I SHARES 2.74%. (SEE PERFORMANCE SUMMARY
FOR MORE INFORMATION. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.)
o THE FUND'S ALLOCATION TO MORTGAGE- BACKED SECURITIES HAS BEEN INCREASED IN
THE PAST FEW MONTHS BECAUSE WE THINK MANY OF THE PREPAYMENTS AND
REFINANCINGS HAVE ALREADY BEEN FACTORED INTO MARKET PRICING, WHICH HAS
CREATED SOME GOOD VALUES IN THE MORTGAGE MARKET.
o THE FUND'S DURATION, OR EXPOSURE TO CHANGES IN INTEREST RATES, IS SLIGHTLY
UNDER 1.6%. THE DURATION WAS LONGER IN THE EARLY PART OF THE YEAR, BUT AS
INTEREST RATES HAVE COME DOWN WE HAVE SHORTENED IT.
o WE HAVE FOUND GOOD VALUE IN 15-YEAR MORTGAGES, WHICH AT CURRENT INTEREST
RATES APPEAR LESS LIKELY TO BE REFINANCED OUT OF THE PORTFOLIO IN FUTURE
YEARS.
o ON SEPTEMBER 26, 1998, THE FUND MARKS ITS 10TH ANNIVERSARY.
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
<PAGE>
LETTER FROM THE CHAIRMAN
- ----------------------------
[Photo of Jeffrey L. Shames]
- ----------------------------
Jeffrey L. Shames
Dear Shareholders:
With the U.S. stock market well into its fourth year of record-breaking
advances, it is necessary to take a cautious outlook. By most commonly accepted
measures, equity valuations appear to have risen to a point at which the stock
market has become more vulnerable to changes in the investment environment such
as rising inflation and interest rates or a slowing economy. As a result, while
we continue to hold a favorable long-term outlook for the equity markets, we
also believe that a significant market correction is possible and that such a
correction would be a healthy near-term event.
Currently, equity investors seem to be primarily focused on interest rates,
which have been relatively stable for several months as inflation has remained
low. In an environment of low interest rates, stocks become more attractive
than most fixed-income investments, while low inflation helps control
companies' costs, such as for raw materials, wages, and benefits. The near-
term outlook for a continuation of this environment appears relatively
favorable. However, this year has seen a marked slowdown in corporate
earnings. This means that as equity prices continue to rise, price-to-earnings
(P/E) ratios, or the amount an investor pays for a stock in relation to the
company's earnings per share, also go up. A year ago, the average P/E ratio
for stocks in the unmanaged Standard & Poor's 500 Composite Index stood at
approximately 22; this summer, the average P/E ratio was 32% higher,
at about 29. In some cases, such as with some of the newer companies
associated with the Internet, P/E ratios have soared to levels that are
unlikely to be sustained.
As long as interest rates remain low and the economy continues to grow,
it is possible that some of these valuations can be supported. We expect
corporate earnings to grow 4% to 6% this year. However, just as no one can
predict market cycles, so too no one can predict economic cycles -- except to
say that these cycles do exist and that an economic slowdown at some point is
inevitable.
Given this reality, we believe it is prudent to remind investors of the need to
take a long-term view and to diversify their investments across a range of asset
classes. This includes mutual funds that focus on bonds and international
investments as well as on the U.S. stock market. The likelihood of an eventual
market correction also makes it important for us to use original, bottom-up
research to find companies that we think can keep growing or gain market share
in the face of the occasional downturn. To help achieve this, and to provide the
broadest possible coverage of industry sectors and individual companies, MFS
continues to increase its number of full-time research analysts. These analysts
thoroughly investigate each company's earnings potential and position in its
industry as well as the overall prospects for that industry.
MFS also uses active portfolio management on the fixed-income side, taking
advantage of our extensive research and credit analysis to help reduce the
potential for price declines and enhance the opportunity for appreciation.
Every year, both fixed-income and equity managers meet with thousands of
credit issuers and companies. They also attend many presentations, closely
follow sources of industry research, and keep track of competitors.
We believe that applying this discipline of thorough, bottom-up research
to both the equity and fixed-income markets is the best way to provide
favorable long-term performance for our shareholders -- regardless of changes
in the overall market environment.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS(R) Investment Management(SM)
July 13, 1998
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
- ---------------------------
[Photo of D. Richard Smith]
- ---------------------------
D. Richard Smith
For the six months ended June 30, 1998, Class A shares of the Fund provided a
total return of 2.66%, Class B shares 2.15%, Class C shares 2.13%, and Class I
shares 2.74%. These returns assume the reinvestment of distributions but exclude
the effects of any sales charges and compare to a 3.03% return for the Lehman
Brothers One- to Three-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 three years). The return of the Fund's Class A shares also
compares to the 2.64% 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. THE FUND'S WEIGHTING IN MORTGAGE-BACKED SECURITIES CAME DOWN QUITE A
BIT EARLIER THIS YEAR. WHY IS THIS?
A. Last year, the Fund benefited from its high weighting in mortgages, which
not only delivered a good yield but also an additional principal return.
This year, as interest rates have declined, we have seen a new wave of
refinancings, so we lowered the allocation to mortgages. We think 75% of
assets is a good long-term weighting for mortgages, but this year we went as
low as 25% when we saw the rate of prepayments start to pick up. Now,
however, the Fund's mortgage allocation is back up to between 50% and 60%
because we think a lot of the prepayments and refinancings have already been
factored into market pricing, which has created some good values in the
mortgage market.
Q. HOW WOULD YOU DESCRIBE THE FIXED-INCOME ENVIRONMENT OF THE PAST
SIX MONTHS?
A. The overriding theme has been the weakening global economies as opposed to
the domestic economy. The dollar has continued to be strong and, while it
appeared we would see a slowdown because of Asia in the first quarter, it
didn't happen until the second quarter, when we saw imports and
manufacturing affected. While we think the Asian turmoil is serious, we also
believe that the domestic economy ultimately will determine the direction of
the U.S. bond market.
Q. AND WHAT DIRECTION DO YOU ANTICIPATE?
A. We think short-term interest rates will eventually move down into the 4%
area while longer-term rates go to the lower 5% range. That would be
supported by the low supply of U.S. government securities and the slower,
noninflationary growth that we expect to see over time. In the short run the
wiggles and waggles in the U.S. bond market will be determined by the global
economy, but the long-term trend of interest rates will be determined by the
domestic economy. Right now, we haven't seen enough of a slowdown in the
domestic economy to position the Fund for lower rates.
Q. WHAT ABOUT THE FUND'S DURATION, OR EXPOSURE TO CHANGES IN INTEREST RATES?
A. We try to stay in a range of 1.1% to 2.2%, with an average duration of 1.6%.
Right now, we're slightly under that. The Fund's duration was longer in the
early part of the year, but as interest rates have come down we have
shortened it. Duration is important, but we also think in terms of how much
yield we can add versus three-month U.S. Treasuries.
Q. COULD YOU DISCUSS THE FUND'S INVESTMENT PHILOSOPHY AND STRATEGY?
A. We see this Fund as a stable net asset value (NAV) investment that delivers
comparable returns compared to three-month Treasury bills and two-year
Treasuries. (Principal value and interest on Treasury securities are
guaranteed by the U.S. government if held to maturity.) So we see this as an
investment for someone who's moving money out of cash, wants a portfolio
that's professionally managed, and is seeking superior returns with a stable
-- not fixed -- NAV. The Fund's distribution rate is approximately 6%, and
if we can keep the NAV as stable as possible and distribute 6% in an
environment in which three-month Treasury bills are paying 5%, we feel like
we're adding a lot of value for our investor. The higher yield comes from
the core position in short-term, stable-value mortgage securities. In the
past six months, the NAV has ranged from $8.35 to $8.45, a variation of just
10 cents, or 1%.
Q. HAVE THERE BEEN ANY PARTICULARLY INTERESTING DEVELOPMENTS IN YOUR MARKETS
IN THE PAST SIX MONTHS?
A. We're very selective about where we look for value in the mortgage market,
but one place where we've found value is in 15-year securities. People
taking out 15-year mortgages today were typically in 30-year mortgages, then
went to 15-year ones as their incomes rose to a point at which they could
afford the higher monthly payments. Even if interest rates come down a
little, these people probably won't refinance into new 15-year loans because
when they add up the extra interest costs of extending their mortgages, they
will probably prefer to get their current mortgages paid off. So we're
selectively buying these mortgages, which are currently yielding about 6.25%
and adding between 60 and 80 basis points (0.60% and 0.80%) of yield to the
portfolio this year.
Q. LOOKING AHEAD, WHAT CHANGES DO YOU SEE IN THE GENERAL ECONOMIC ENVIRONMENT
OR IN YOUR MARKET, AND HOW MIGHT THEY BE REFLECTED IN
THE FUND?
A. We think the critical things to watch are the employment statistics, the
stock market, corporate earnings, wage pressures, and the growth of the
service sector versus the manufacturing sector. If the economy remains
strong, interest rates could move back up and the market will begin to
anticipate a tightening by the Federal Reserve Board (the Fed). We think the
Fed would rather raise rates a little bit now, when the economy is strong,
rather than wait until the economy is weakening but inflation is already
building. Overall, though, we think we've gone through the majority of the
rally for this quarter in our market and that we're in a period of
stability. Also, the government is probably going to run a $50 billion to
$60 billion budget surplus this year, so the supply of Treasury securities
will be less than it's been in quite a while, which should help the demand
side of this market, resulting in stable to lower rates. Given this
scenario, we expect to maintain the Fund's conservative stance but would
look to increase its interest-rate sensitivity if the yield curve steepens
and we can put some money to work at higher yields.
/s/ D. Richard Smith
D. Richard Smith
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and
are only through the end of the period of the report as stated on the cover.
The manager's views are subject to change at any time based on market and
other conditions, and no forecasts can be guaranteed.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S PROFILE
- --------------------------------------------------------------------------------
D. RICHARD SMITH IS A VICE PRESIDENT -- INVESTMENTS AT MFS(R) INVESTMENT
MANAGEMENT(SM) AND PORTFOLIO MANAGER OF THE MFS(R) GOVERNMENT MORTGAGE
FUND AND THE MFS(R) GOVERNMENT MORTGAGE SERIES, OFFERED THROUGH MFS(R)/SUN
LIFE ANNUITY PRODUCTS. HE ALSO MANAGES MFS(R) GOVERNMENT LIMITED MATURITY
FUND.
MR. SMITH JOINED MFS IN 1993. FROM 1986 TO 1993 HE WORKED IN RESEARCH
AND INSTITUTIONAL SALES ON WALL STREET. HE IS A GRADUATE OF VASSAR
COLLEGE AND HAS AN M.B.A. FROM VANDERBILT UNIVERSITY.
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. A prospectus containing more information,
including the exchange privilege and all charges and expenses, for any other MFS
product is available from your financial adviser, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
<PAGE>
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FUND FACTS
- --------------------------------------------------------------------------------
OBJECTIVE: SEEKS TO PRESERVE CAPITAL AND PROVIDE HIGH CURRENT
INCOME (COMPARED TO A PORTFOLIO INVESTED ENTIRELY 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: $253.6 MILLION NET ASSETS AS OF JUNE 30, 1998
PERFORMANCE SUMMARY
Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for
the applicable time periods. Investment results reflect the percentage change
in net asset value, including reinvestment of dividends.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
THROUGH JUNE 30, 1998
<TABLE>
CLASS A
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years/Life*
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return +2.66% +6.11% +17.52% +24.62% +77.29%
- --------------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +6.11% + 5.53% + 4.50% + 6.04%
- --------------------------------------------------------------------------------------------------------------------
SEC Results -- +3.46% + 4.64% + 3.97% + 5.77%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
CLASS B
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years/Life*
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return +2.15% +5.28% +14.64% +19.46% +70.24%
- --------------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +5.28% + 4.66% + 3.62% + 5.60%
- --------------------------------------------------------------------------------------------------------------------
SEC Results -- +1.29% + 3.77% + 3.26% + 5.60%
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* For the period from the commencement of the Fund's investment operations, September 26, 1988, through June 30, 1998.
</TABLE>
<TABLE>
CLASS C
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years/Life*
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return +2.13% +5.25% +14.51% +20.44% +71.35%
- --------------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +5.25% + 4.62% + 3.79% + 5.67%
- --------------------------------------------------------------------------------------------------------------------
SEC Results -- +4.25% + 4.62% + 3.79% + 5.67%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
CLASS I
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years/Life*
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return +2.74% +6.27% +17.79% +24.86% +77.79%
- --------------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +6.27% + 5.61% + 4.54% + 6.07%
- --------------------------------------------------------------------------------------------------------------------
* For the period from the commencement of the Fund's investment operations, September 26, 1988, through June 30, 1998.
</TABLE>
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 within 12 months. Class I shares ("I") 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, with
out which the results would have been less favorable. Subsidies and waivers may
be rescinded at any time. See the prospectus for details. 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.
Government guarantees apply to individual securities only and not to
prices and yields of shares in a managed portfolio.
PORTFOLIO CONCENTRATION AS OF JUNE 30, 1998
PORTFOLIO STRUCTURE
U.S. Government 49.5%
Mortgage Backed 41.3%
Cash 9.2%
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) -- June 30, 1998
Bonds - 87.9%
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Federal Agencies - 31.7%
Federal Home Loan Mortgage Corp., 6.288s, 2027 $21,692 $ 21,895,623
Federal Home Loan Mortgage Corp., 8s, 2011 - 2012 10,690 11,079,574
Federal Home Loan Mortgage Corp., 9s, 2005 2,299 2,380,377
Federal Home Loan Mortgage Corp., 9.25s, 2019 2,064 2,279,977
Federal National Mortgage Assn., 6.5s, 2010 - 2012 14,095 14,174,602
Federal National Mortgage Assn., 7s, 2002 3,873 3,937,521
Federal National Mortgage Assn., 7.5s, 2000 - 2012 17,104 17,529,932
Federal National Mortgage Assn., 10s, 2025 6,347 7,019,110
------------
$ 80,296,716
- ----------------------------------------------------------------------------------------------------------
U.S. Government Guaranteed - 56.2%
Government National Mortgage Association - 8.5%
GNMA, 8s, 2023 - 2027 $13,556 $ 14,086,103
GNMA, 8.5s, 2001 - 2010 2,603 2,753,891
GNMA, 9s, 2001 - 2007 4,435 4,723,616
------------
$ 21,563,610
- ----------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 47.7%
U.S. Treasury Notes, 7.75s, 1999 $15,000 $ 15,473,400
U.S. Treasury Notes, 9.125s, 1999 15,500 15,969,805
U.S. Treasury Notes, 5.5s, 2000 10,000 9,996,900
U.S. Treasury Notes, 7.875s, 2001 32,000 34,099,840
U.S. Treasury Notes, 8s, 2001 23,750 25,286,388
U.S. Treasury Notes, 6.625s, 2002 19,500 20,197,710
------------
$121,024,043
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Total U.S. Government Guaranteed $142,587,653
- ----------------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $222,835,915) $222,884,369
- ----------------------------------------------------------------------------------------------------------
Repurchase Agreement - 8.9%
- ----------------------------------------------------------------------------------------------------------
Goldman Sachs, dated 6/30/98, due 7/01/98,
total to be received $22,693,593 (secured
by various U.S. Treasury and Federal
Agency obligations in a jointly traded
account), at Cost $22,690 $ 22,690,000
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Total Investments (Identified Cost, $245,525,915) $245,574,369
- ----------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 3.2% 8,031,441
- ----------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $253,605,810
- ----------------------------------------------------------------------------------------------------------
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- --------------------------------------------------------------------------------
JUNE 30, 1998
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $245,525,915) $245,574,369
Cash 688
Receivable for Fund shares sold 6,201,283
Receivable for investments sold 1,450,312
Interest receivable 2,516,162
Other assets 1,723
------------
Total assets $255,744,537
------------
Liabilities:
Distributions payable $ 389,353
Payable for Fund shares reacquired 1,631,687
Payable to affiliates -
Management fee 8,175
Shareholder servicing agent fee 2,299
Distribution and service fee 23,665
Administrative fee 307
Accrued expenses and other liabilities 83,241
------------
Total liabilities $ 2,138,727
------------
Net assets $253,605,810
============
Net assets consist of:
Paid-in capital $278,181,015
Unrealized appreciation on investments 48,454
Accumulated net realized loss on investments (24,134,865)
Accumulated distributions in excess of net investment
income (488,794)
------------
Total $253,605,810
============
Shares of beneficial interest outstanding 30,319,189
==========
Class A shares:
Net asset value per share
(net assets of $195,334,150 / 23,337,176 shares of
beneficial interest outstanding) $8.37
=====
Offering price per share (100 / 97.5) $8.58
=====
Class B shares:
Net asset value and offering price per share
(net assets of $38,207,031 / 4,574,605 shares of
beneficial interest outstanding) $8.35
=====
Class C shares:
Net asset value and offering price per share
(net assets of $18,527,020 / 2,223,747 shares of
beneficial interest outstanding) $8.33
=====
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets of $1,537,609 / 183,661 shares of
beneficial interest outstanding) $8.37
=====
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 (Unaudited)
- ------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1998
- ------------------------------------------------------------------------------
Net investment income:
Interest income $ 8,315,304
-----------
Expenses -
Management fee $ 479,894
Trustees' compensation 19,540
Shareholder servicing agent fee 134,954
Distribution and service fee (Class A) 139,186
Distribution and service fee (Class B) 168,607
Distribution and service fee (Class C) 90,766
Administrative fee 17,933
Custodian fee 40,074
Printing 24,055
Postage 15,949
Auditing fees 17,715
Legal fees 1,299
Miscellaneous 57,516
-----------
Total expenses $ 1,207,488
Fees paid indirectly (36,981)
-----------
Net expenses $ 1,170,507
-----------
Net investment income $ 7,144,797
-----------
Realized and unrealized gain (loss) on investments:
Realized loss (identified cost basis) on investments $ (133,333)
Change in unrealized appreciation on investments (952,901)
-----------
Net realized and unrealized loss on investments $(1,086,234)
-----------
Increase in net assets from operations $ 6,058,563
===========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Statement of Changes in Net Assets
<CAPTION>
- --------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 7,144,797 $15,684,380
Net realized loss on investments (133,333) (3,540,264)
Net unrealized gain (loss) on investments (952,901) 3,219,384
------------ -----------
Increase in net assets from operations $ 6,058,563 $15,363,500
------------ -----------
Distributions declared to shareholders -
From net investment income (Class A) $ (5,586,317) $(12,733,885)
From net investment income (Class B) (935,052) (1,844,464)
From net investment income (Class C) (473,911) (1,062,463)
From net investment income (Class I) (19,679) (9,589)
------------ -----------
Total distributions declared to shareholders $ (7,014,959) $(15,650,401)
------------ -----------
Net increase (decrease) in net assets from Fund share
transactions $ 11,305,838 $(40,291,031)
------------ -----------
Total increase (decrease) in net assets $ 10,349,442 $(40,577,932)
Net assets:
At beginning of period 243,256,368 283,834,300
------------ -----------
At end of period (including accumulated distributions
in excess of net investment income of $488,794 and
$618,632, respectively) $253,605,810 $243,256,368
============ ============
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED -------------------------------------------------------------------------
JUNE 30, 1998 1997 1996 1995 1994 1993
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of
period $ 8.40 $ 8.41 $ 8.68 $ 8.42 $ 8.99 $ 8.98
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.26 $ 0.53 $ 0.56 $ 0.59 $ 0.54 $ 0.52
Net realized and unrealized
gain (loss) on investments (0.04) (0.02) (0.30) 0.25 (0.61) 0.10
------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.22 $ 0.51 $ 0.26 $ 0.84 $(0.07) $ 0.62
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $(0.25) $(0.52) $(0.53) $(0.58) $(0.50) $(0.51)
From net realized gain on
investments -- -- -- -- -- (0.10)
------ ------ ------ ------ ------ ------
Total distributions
declared to shareholders $(0.25) $(0.52) $(0.53) $(0.58) $(0.50) $(0.61)
------ ------ ------ ------ ------ ------
Net asset value - end of period $ 8.37 $ 8.40 $ 8.41 $ 8.68 $ 8.42 $ 8.99
====== ====== ====== ====== ====== ======
Total return(+) 2.66%++ 6.30% 2.98% 10.36% (0.76)% 7.00%
Ratios (to average net assets)/
Supplemental data:
Expenses## 0.82%+ 0.84% 0.84% 0.88% 0.89% 1.14%
Net investment income 6.13%+ 6.27% 6.55% 6.91% 6.28% 5.62%
Portfolio turnover 182% 266% 301% 447% 328% 247%
Net assets at end of period
(000 omitted) $195,334 $190,039 $226,976 $248,955 $257,154 $345,597
+ Annualized.
++ Not 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.
(+) 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.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights - continued
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
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 shares 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>
Financial Highlights - continued
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED ---------------------------------------------------------------------
JUNE 30, 1998 1997 1996 1995 1994 1993**
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $ 8.39 $ 8.39 $ 8.67 $ 8.41 $ 8.98 $ 9.17
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.22 $ 0.46 $ 0.47 $ 0.51 $ 0.47 $ 0.12
Net realized and unrealized gain
(loss) on investments (0.04) -- (0.30) 0.25 (0.62) (0.17)
------ ------ ------ ------ ------ ------
Total from investment operations $ 0.18 $ 0.46 $ 0.17 $ 0.76 $(0.15) $(0.05)
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.22) $(0.46) $(0.45) $(0.50) $(0.42) $(0.11)
From net realized gain on investments -- -- -- -- -- (0.03)
------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.22) $(0.46) $(0.45) $(0.50) $(0.42) $(0.14)
------ ------ ------ ------ ------ ------
Net asset value - end of period $ 8.35 $ 8.39 $ 8.39 $ 8.67 $ 8.41 $ 8.98
====== ====== ====== ====== ====== ======
Total return 2.15%++ 5.61% 2.08% 9.31% (1.65)% (1.54)%+
Ratios (to average net assets)/Supplemental data:
Expenses## 1.62%+ 1.63% 1.72% 1.74% 1.79% 1.83%+
Net investment income 5.36%+ 5.48% 5.67% 6.02% 5.42% 4.58%+
Portfolio turnover 182% 266% 301% 447% 328% 247%
Net assets at end of period
(000 omitted) $38,207 $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.
++ Not 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>
Financial Highlights - continued
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED -----------------------------------------------------
JUNE 30, 1998 1997 1996 1995 1994***
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------
CLASS C
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $ 8.37 $ 8.37 $ 8.65 $ 8.39 $ 8.62
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.22 $ 0.45 $ 0.48 $ 0.51 $ 0.17
Net realized and unrealized gain (loss) on
investments (0.04) -- (0.30) 0.25 (0.20)
------ ------ ------ ------ ------
Total from investment operations $ 0.18 $ 0.45 $ 0.18 $ 0.76 $(0.03)
------ ------ ------ ------ ------
Less distributions declared to shareholders from
net investment income $(0.22) $(0.45) $(0.46) $(0.50) $(0.20)
------ ------ ------ ------ ------
Net asset value - end of period $ 8.33 $ 8.37 $ 8.37 $ 8.65 $ 8.39
====== ====== ====== ====== ======
Total return 2.13%++ 5.56% 2.12% 9.33% (0.33)%++
Ratios (to average net assets)/Supplemental data:
Expenses## 1.67%+ 1.69% 1.69% 1.73% 1.62%+
Net investment income 5.31%+ 5.42% 5.68% 5.87% 6.10%+
Portfolio turnover 182% 266% 301% 447% 328%
Net assets at end of period (000 omitted) $18,527 $18,192 $22,215 $17,365 $3,403
*** For the period from the inception of Class C, August 1, 1994, through December 31, 1994.
+ 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>
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights - continued
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997****
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------
CLASS I
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 8.40 $ 8.40
------ ------
Income from investment operations# -
Net investment income $ 0.22 $ 0.53
Net realized and unrealized gain on investments 0.01 --
------ ------
Total from investment operations $ 0.23 $ 0.53
------ ------
Less distributions declared to shareholders from net investment
income $(0.26) $(0.53)
------ ------
Net asset value - end of period $ 8.37 $ 8.40
====== ======
Total return 2.74%++ 6.55%++
Ratios (to average net assets)/Supplemental data:
Expenses## 0.67%+ 0.69%+
Net investment income 6.33%+ 6.42%+
Portfolio turnover 182% 266%
Net assets at end of period (000 omitted) $1,538 $ 182
**** 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.
## The Fund's expenses are calculated without reduction for fees paid indirectly.
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS Government Limited Maturity Fund (the Fund) is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company.
(2) Significant Accounting Policies
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 collateral 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 collateral to ensure its value,
including accrued interest, 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 month end 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 net realized gains.
At December 31, 1997, the Fund, for federal income tax purposes, had a capital
loss carryforward of $24,032,557 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, ($3,064,412).
Multiple Classes of Shares of Beneficial Interest - The Fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the Fund based on the value
of 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. Class B shares will
convert to Class A shares approximately eight years after purchase.
(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 an
annual rate of 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 investment income.
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 $5,756
for the period ended June 30, 1998.
Administrator - 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:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$8,148 for the period ended June 30, 1998, 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 paid 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 and 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. Payment
of the 0.10% per annum Class A distribution fee will commence on such date as
the Trustees of the Fund may determine. MFD retains the service fee for accounts
not attributable to a securities dealer, which amounted to $15,614 for the
period ended June 30, 1998. Fees incurred under the distribution plan during the
period ended June 30, 1998, were 0.15% of average daily net assets attributable
to Class A shares on an annualized basis.
The Fund's distribution plan provides 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 consideration
for services rendered by the dealer with respect to Class B and Class C shares.
MFD retains the service fee for accounts not attributable to a securities
dealer, which amounted to $1,199 and $79 for Class B and Class C shares,
respectively, for the period ended June 30, 1998. Fees incurred under the
distribution plan during the period ended June 30, 1998, were 0.95% and 1.00% of
average daily net assets attributable to Class B and Class C shares on an
annualized basis, respectively.
Certain Class A shares and Class C shares are subject to a contingent deferred
sales charge in the event of a shareholder redemption within 12 months following
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 period ended June 30, 1998,
were $1,188, $49,984, and $2,640 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
0.1125%.
(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 $423,663,370 $396,637,625
----------- -----------
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 $245,525,915
------------
Gross unrealized appreciation $ 644,454
Gross unrealized depreciation (596,000)
------------
Net unrealized appreciation $ 48,454
============
(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
SIX MONTHS ENDED JUNE 30, 1998 YEAR ENDED DECEMBER 31, 1997
------------------------------ -------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Share sold 10,437,166 $ 87,484,085 10,108,169 $ 84,893,500
Shares issued to shareholders
in reinvestment of
distributions 439,821 3,685,489 941,826 7,902,273
Transfer to Class I -- -- (18,266) (153,434)
Shares reacquired (10,151,859) (85,131,852) (15,409,294) (129,355,674)
----------- ------------ ----------- ------------
Net increase (decrease) 725,128 $ 6,037,722 (4,377,565) $(36,713,335)
=========== ============ =========== ============
<CAPTION>
Class B Shares
SIX MONTHS ENDED JUNE 30, 1998 YEAR ENDED DECEMBER 31, 1997
------------------------------ -------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,555,391 $ 21,377,268 2,799,236 $ 23,450,174
Shares issued to shareholders
in reinvestment of
distributions 70,942 593,394 136,154 1,140,244
Shares reacquired (2,206,340) (18,465,199) (2,908,472) (24,358,371)
----------- ------------ ----------- ------------
Net increase 419,993 $ 3,505,463 26,918 $ 232,047
=========== ============ =========== ============
<CAPTION>
Class C Shares
SIX MONTHS ENDED JUNE 30, 1998 YEAR ENDED DECEMBER 31, 1997
------------------------------ -------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 590,324 $ 4,922,634 741,477 $ 6,196,341
Shares issued to shareholders
in reinvestment of
distributions 35,862 299,268 84,275 703,994
Shares reacquired (576,900) (4,812,307) (1,304,089) (10,891,877)
----------- ------------ ----------- ------------
Net increase (decrease) 49,286 $ 409,595 (478,337) $ (3,991,542)
=========== ============ =========== ============
<CAPTION>
Class I Shares
SIX MONTHS ENDED JUNE 30, 1998 PERIOD ENDED DECEMBER 31, 1997*
------------------------------ -------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 160,060 $ 1,337,459 5,857 $ 49,185
Shares issued to shareholders
in reinvestment of
distributions 2,349 18,758 1,145 9,607
Transfer from Class A -- -- 18,266 153,434
Shares reacquired (376) (3,159) (3,640) (30,427)
----------- ------------ ----------- ------------
Net increase 162,033 $ 1,353,058 21,628 $ 181,799
=========== ============ =========== ============
* For the period from the inception of Class I, January 2, 1997, through December 31, 1997.
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in a $805 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
period ended June 30, 1998, was $572.
<PAGE>
MFS(R) GOVERNMENT LIMITED MATURITY FUND
<TABLE>
<S> <C>
Trustees Secretary
Richard B. Bailey* - Private Investor; Former Stephen E. Cavan*
Chairman and Director (until 1991), MFS
Investment Management Assistant Secretary
James R. Bordewick, Jr.*
Marshall N. Cohan - Private Investor
Custodian
Lawrence H. Cohn, M.D. - Chief of Cardiac State Street Bank and Trust Company
Surgery, Brigham and Women's Hospital;
Professor of Surgery, Harvard Medical School Investor Information
The Hon. Sir J. David Gibbons, KBE - Chief For MFS stock and bond market outlooks, call
Executive Officer, Edmund Gibbons Ltd.; toll free: 1-800-637-4458 anytime from a
Chairman, Colonial Insurance Company, Ltd. touch-tone telephone.
Abby M. O'Neill - Private Investor For information on MFS mutual funds, call your
financial adviser or, for an information kit,
Walter E. Robb, III - President and Treasurer, call toll free: 1-800-637-2929 any business
Benchmark Advisors, Inc. (corporate financial day from 9 a.m. to 5 p.m. Eastern time (or
consultants); President, Benchmark Consulting leave a message anytime).
Group, Inc. (office services)
Investor Service
Arnold D. Scott* - Senior Executive MFS Service Center, Inc.
Vice President, Director, and Secretary, P.O. Box 2281
MFS Investment Management Boston, MA 02107-9906
Jeffrey L. Shames* - Chairman, Chief For general information, call toll free:
Executive Officer, and Director, 1-800-225-2606 any business day from
MFS Investment Management 8 a.m. to 8 p.m. Eastern time.
J. Dale Sherratt - President, Insight For service to speech- or hearing-impaired,
Resources, Inc. (acquisition planning call toll free: 1-800-637-6576 any business
specialists) day from 9 a.m. to 5 p.m. Eastern time. (To
use this service, your phone must be equipped
Ward Smith - Former Chairman (until 1994), with a Telecommunications Device for the
NACCO Industries (holding company) Deaf.)
Investment Adviser For share prices, account balances, and
Massachusetts Financial Services Company exchanges, call toll free: 1-800-MFS-TALK
500 Boylston Street (1-800-637-8255) anytime from a touch-tone
Boston, MA 02116-3741 telephone.
Distributor World Wide Web
MFS Fund Distributors, Inc. www.mfs.com
500 Boylston Street
Boston, MA 02116-3741 For the fourth year in a row,
MFS earned a #1 ranking in the
Portfolio Manager [Dalbar Logo] DALBAR, Inc. Broker/Dealer
D. Richard Smith* Survey, Main Office Operations
Service Quality Category. The
Treasurer firm achieved a 3.42 overall score on a scale of
W. Thomas London* 1 to 4 in the 1997 survey. A total of 111 firms
responded, offering input on the quality of
Assistant Treasurers service they received from 29 mutual fund
Mark E. Bradley* companies nationwide. The survey contained
Ellen Moynihan* questions about service quality in 11
James O. Yost* categories, including "knowledge of operations
contact," "keeping you informed," and "ease of
doing business" with the firm.
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
-----------------
MFS(R) GOVERNMENT Bulk Rate
LIMITED MATURITY FUND U.S. Postage
Paid
[Logo] M F S(R) MFS
INVESTMENT MANAGEMENT -----------------
We invented the mutual fund(R)
500 Boylston Street
Boston, MA 02116-3741
[DALBAR LOGO]
(C)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MGL-3 8/98 19M 28/228/328/828
