<PAGE>
ANNUAL REPORT FOR
[LOGO] M F S (SM) YEAR ENDED
THE FIRST NAME IN MUTUAL FUNDS JULY 31, 1995
- -------------------------------------------------------------------------------
MFS (R) GOVERNMENT MORTGAGE FUND
- -------------------------------------------------------------------------------
[GRAPHIC OMITTED: A photo of a building with columns.]
<PAGE>
<TABLE>
MFS(R) GOVERNMENT MORTGAGE FUND
<C>
TRUSTEES <C>
A. Keith Brodkin* - Chairman and President CUSTODIAN
State Street Bank and Trust Company
Richard B. Bailey* - Private Investor;
Former Chairman and Director (until 1991), AUDITORS
Massachusetts Financial Services Company Deloitte & Touche LLP
Peter G. Harwood - Private Investor INVESTOR INFORMATION
For MFS stock and bond market outlooks,
J. Atwood Ives - Chairman and Chief Executive call toll free: 1-800-637-4458 anytime from
Officer, Eastern Enterprises a touch-tone telephone.
Lawrence T. Perera - Partner, For information on MFS mutual funds,
Hemenway & Barnes call your financial adviser or, for an
information kit, call toll free:
William J. Poorvu - Adjunct Professor, Harvard 1-800-637-2929 any business day from
University Graduate School of Business 9 a.m. to 5 p.m. Eastern time (or leave
Administration a message anytime).
Charles W. Schmidt - Private Investor; INVESTOR SERVICE
Former Senior Vice President and Group MFS Service Center, Inc.
Executive (until 1990), Raytheon Company P.O. Box 2281
Boston, MA 02107-9906
Arnold D. Scott* - Senior Executive Vice
President and Secretary, Massachusetts For general information, call toll free:
Financial Services Company 1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
Jeffrey L. Shames* - President, Massachusetts
Financial Services Company For service to speech- or hearing-impaired,
call toll free: 1-800-637-6576 any business
Elaine R. Smith - Independent Consultant day from 9 a.m. to 5 p.m. Eastern time.
(To use this service, your phone must be
David B. Stone - Chairman, North American equipped with a Telecommunications Device for
Management Corp. (Investment Advisers) the 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, Massachusetts 02116-3741 telephone.
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, Massachusetts 02116-3741
-------------------------------------------
PORTFOLIO MANAGER TOP-RATED SERVICE
James J. Calmas* [SEAL] MFS was rated first when securities
firms evaluated the quality of
TREASURER service they receive from 40
W. Thomas London* mutual fund companies. MFS got
high marks for answering calls
ASSISTANT TREASURER quickly, processing transactions
James O. Yost* accurately and sending statements
out on time.
SECRETARY (Source: 1994 DALBAR Survey)
Stephen E. Cavan* -------------------------------------------
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
Following a difficult year of rising interest rates and declining prices in
1994, the bond markets have shown improvement in 1995, as signs of a weaker
U.S. economy have pointed to a more positive outlook for inflation and as
investors have anticipated the Federal Reserve Board's July 6 reduction in
short-term interest rates. As a result of these developments, interest rates
declined and bond prices rose in the first several months of 1995. The
mortgage market, which closely follows the Treasury market, has shown similar
improvement and the Fund ended its fiscal year with positive returns. For the
12 months ended July 31, 1995, Class A shares of the Fund provided a total
return of +9.60%, while Class B shares had a total return of +8.81%. Both of
these returns, which include the reinvestment of distributions but exclude the
effects of any sales charges, underperformed the Lehman Brothers Government
National Mortgage Association (GNMA) Index, an unmanaged index of GNMA issues
with more than $50 million outstanding, which returned +10.58% in the same
period. A discussion of the Fund's performance relative to the GNMA Index may
be found in the Portfolio Performance and Strategy section of this letter.
Performance information for the Fund is provided on pages four and five of
this report.
Economic Outlook
Moderate, but sustainable, growth appears to be the hallmark of the economic
expansion's fifth year. Consumer spending and homebuying showed only modest
gains through July 31, while businesses continued to work off excess inventories
and reduce factory output. Meanwhile, overseas economies, particularly those of
Germany and Japan, have not recovered as expected, limiting U.S. export growth.
However, we believe the Federal Reserve's consistent and, so far, successful
efforts to fight inflation seem to be giving consumers and businesses enough
confidence to help maintain 2 1/2% to 3% real (adjusted for inflation) growth in
gross domestic product through 1995.
Interest Rates
Although the Federal Reserve implemented a one-quarter percentage point
decrease in short-term interest rates in July, the effects of its seven rate
increases, which began in late 1993 and ended in February of this year, are
still being felt throughout the economy. While there have been some increases
in commodity prices, companies have not been able to pass along most of those
higher costs, partly because of the need to keep fighting for market share,
but also because wages and benefits of U.S. workers continue to grow at rates
that are near or perhaps below the inflation rate, limiting consumer buying
power. At the end of July, the nation's employment cost index had risen at a
rate of just 2.8% over the previous year, helping to contain cost pressures.
At the same time, however, the bond markets have perceived isolated signs of
more rapid economic growth as possible harbingers of increasing inflation, and
have slightly bid up longer-term interest rates. Although previous monetary
easing by the Federal Reserve has been followed by additional rate reductions,
prospects for further decreases in the current environment are uncertain.
Still, with long-term government bonds yielding approximately 7%, in an
environment of 2 1/2% to 3% inflation, we believe real rates of return in the
fixed-income markets could remain relatively attractive.
Portfolio Performance and Strategy
The slight underperformance of Class A and Class B shares of the Fund relative
to the GNMA Index during the year ended July 31, 1995 was partly the result of
a strategy designed to maintain a relatively short duration at the beginning
of 1995. This strategy was undertaken to help avoid potential losses that
might result from further increases in interest rates. As a result of this
conservative strategy, the Fund did not fully participate in the beginning of
the bond market rally, although Class A shares of the Fund did outperform the
average GNMA fund tracked by Lipper Analytical Services, Inc., an independent
firm that monitors mutual fund performance. (Refer to the table on page five
for performance results.) Although the Fund's duration was lengthened as
interest rates began to decline in anticipation of the Federal Reserve's
interest rate cut, duration has since been reduced again, making the Fund less
sensitive to additional changes in interest rates. Currently, the portfolio
has an interest rate sensitivity similar to that of a 6-year Treasury.
(Principal value and interest on Treasury securities are guaranteed by the
U.S. government if held to maturity.)
On the whole, the mortgage market has performed well during the bond market
rally as investors have been looking for additional yield in an environment
where the supply of higher-yielding mortgage-backed securities has been low.
This was a result of a slowdown in housing sales and mortgage refinancings, both
of which saw a great deal of activity in 1992 and 1993, largely satisfying the
pent-up demand that existed up to that point.
In coming months, we anticipate maintaining the Fund's fairly conservative
strategy with relatively short durations, while keeping approximately 80% of the
portfolio in mortgage securities. We believe these returns should compare
favorably with those of other fixed-income investments. At the same time, during
a period of relative uncertainty about the near-term outlook for the economy and
interest rates, we are holding fewer longer-term (greater than 20-year)
securities to reduce the portfolio's exposure to possible changes in shorter-
and longer-term interest rates.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
- ------------------------- ---------------------
[A photo of [A photo of
A. Keith Brodkin, James J. Calmas,
Chairman and President.] Portfolio Manager.]
- ------------------------- ---------------------
/s/ A. Keith Brodkin /s/ James J. Calmas
A. Keith Brodkin James J. Calmas
Chairman and President Portfolio Manager
August 10, 1995
PORTFOLIO MANAGER PROFILE
James Calmas joined the MFS Fixed Income Department in 1988. A graduate of
Dartmouth College and the Amos Tuck School of Business Administration of
Dartmouth College, he was named Assistant Vice President - Investments in
1991. In 1993, he was named Vice President - Investments and Portfolio Manager
of MFS Government Mortgage Fund.
OBJECTIVES AND POLICIES
The Fund's primary investment objective is to provide a high level of current
income. The Fund's secondary objective is to protect shareholders' capital.
Any investment involves risk and there can be no assurance that the Fund will
achieve its objectives.
The Fund seeks to achieve its investment objectives by investing, under normal
circumstances, at least 65% of its total assets in obligations issued or
guaranteed by the Government National Mortgage Association (GNMA) and in
obligations fully collateralized or otherwise fully secured by obligations
issued or guaranteed by the GNMA. The Fund may also invest in other securities
that are issued or guaranteed by the U.S. government, its agencies,
authorities or instrumentalities. Depending on market conditions, the Fund may
temporarily invest a substantial portion of its assets in cash, short-term
government securities and related repurchase agreements.
TAX FORM SUMMARY
In January 1996, shareholders will be mailed a Tax Form Summary reporting the
federal tax status of all distributions paid during the calendar year 1995.
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS
For the year ended July 31, 1995, the distributions from ordinary income of
Class A and Class B shares were $27,183,924 and $63,697,419, respectively.
PERFORMANCE
The information on the following page illustrates the historical performance
of MFS Government Mortgage Fund Class A shares in comparison to various market
indicators. Class A share results reflect the deduction of the 4.75% maximum
sales charge; benchmark comparisons are unmanaged and do not reflect any fees
or expenses. You cannot invest in an index. All results reflect the
reinvestment of all dividends and capital gains.
Class B shares were offered effective September 7, 1993. Information on Class
B share performance appears on the next page.
<PAGE>
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the Period from January 9, 1986 to July 31, 1995)
[GRAPHIC OMITTED:]
Line graph representing the growth of a $10,000 investment for the period from
January 1, 1986 to July 31, 1995. The graph is scaled from $5,000 to $30,000 in
$5,000 segments. The years are marked from 1986 to 1995. There are three lines
drawn to scale. One is a solid line representing MFS Government Mortgage Fund
(Class A), a second line of short dashes represents the Lehman Brothers GNMA
Index, and a third line of long dashes represents the Consumer Price Index.
MFS Government Mortgage Fund $18,309
Lehman Brothers GNMA Index $23,744
Consumer Price Index $13,953
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS
<CAPTION>
Life of Class
through
1 Year 3 Years 5 Years 7/31/95
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS Government Mortgage Fund (Class A)
including 4.75% sales charge + 4.46% +4.09% +6.46% +6.53%<F1>
- -----------------------------------------------------------------------------------------------------------
MFS Government Mortgage Fund (Class A)
at net asset value + 9.60% +5.81% +7.50% +7.08%<F1>
- -----------------------------------------------------------------------------------------------------------
MFS Government Mortgage Fund (Class B)
with CDSC<F3> + 4.81% -- -- +1.36%<F2>
- -----------------------------------------------------------------------------------------------------------
MFS Government Mortgage Fund (Class B)
without CDSC + 8.81% -- -- +3.33%<F2>
- -----------------------------------------------------------------------------------------------------------
Average GNMA fund + 9.25% +5.46% +7.90% +8.19%<F4>
- -----------------------------------------------------------------------------------------------------------
Lehman Brothers GNMA Index +10.58% +6.37% +8.75% +9.44%<F4>
- -----------------------------------------------------------------------------------------------------------
Consumer Price Index<F5> + 2.76% +2.77% +3.18% +3.54%<F4>
- -----------------------------------------------------------------------------------------------------------
<FN>
<F1> For the period from the commencement of offering of Class A shares, January 9, 1986 to July 31, 1995.
<F2> For the period from the commencement of offering of Class B shares, September 7, 1993 to July 31, 1995.
<F3> These returns reflect the current maximum Class B contingent deferred sales charge (CDSC) of 4%.
<F4> Benchmark comparisons begin on January 1, 1986.
<F5> The Consumer Price Index is a popular measure of change in prices.
</FN>
</TABLE>
In the above table, we have included the average annual total returns of all
GNMA funds (including the Fund) tracked by Lipper Analytical Services, Inc. for
the applicable time periods (50, 36, 31 and 18 funds for the 1-, 3- and 5-year
periods ended July 31, 1995, and for the period from January 1, 1986 through
July 31, 1995, respectively). Because these returns do not reflect any
applicable sales charges, we have also included the Fund's results at net asset
value (no sales charge) for comparison. All results are historical and,
therefore, are not an indication of future results. The principal value and
income return of an investment in a mutual fund will vary with changes in market
conditions, and shares, when redeemed, may be worth more or less than their
original cost.
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - July 31, 1995
Bonds - 97.3%
- -----------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Federal Home Loan Mortgage Corporation - 15 Year - 2.2%
FHLMC, 9s, 2001 - 2006 $ 28,249 $ 29,458,774
- -----------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation - 30 Year - 0.1%
FHLMC, 8.5s, 2009 - 2017 $ 63 $ 64,882
FHLMC, 9s, 2020 - 2021 861 889,044
FHLMC, 9.5s, 2015 - 2021 440 458,086
--------------
$ 1,412,012
- -----------------------------------------------------------------------------------------
Federal Housing Authority - 1.9%
FHA, Centennial, "A", 8.25s, 2028+ $ 23,895 $ 25,109,400
- -----------------------------------------------------------------------------------------
Federal National Mortgage Association - 15 Year - 2.1%
FNMA, 8.5s, 2004 - 2008 $ 517 $ 534,844
FNMA, 9s, 2002 - 2008 26,757 27,927,434
--------------
$ 28,462,278
- -----------------------------------------------------------------------------------------
Federal National Mortgage Association - 30 Year - 3.5%
FNMA, 6.695s, 2005 $ 10,000 $ 10,068,750
FNMA, Stripped Mortgage-Backed Security, "240", 7s, 2023 18,096 5,954,531
FNMA, 7.5s, 2022 48 48,165
FNMA, 7.95s, 2005 6,290 6,522,926
FNMA, 8s, 2017 - 2023 1,591 1,617,091
FNMA, 8.5s, 2022 2,332 2,403,129
FNMA, 9s, 2017 7 6,932
FNMA, 9.5s, 2022 - 2025 18,969 19,899,598
--------------
$ 46,521,122
- -----------------------------------------------------------------------------------------
Financing Corporation - 5.0%
FICO, 10.7s, 2017 $ 11,305 $ 15,526,739
FICO, 9.8s, 2018 5,285 6,731,769
FICO, 10.35s, 2018 33,965 45,391,166
--------------
$ 67,649,674
- -----------------------------------------------------------------------------------------
Government National Mortgage Association - 15 Year - 3.8%
GNMA, 7.5s, 2008 - 2009 $ 17,690 $ 17,971,884
GNMA, 8s, 2002 - 2009 15,149 15,608,407
GNMA, 9.5s, 2009 - 2010 16,420 17,240,771
--------------
$ 50,821,062
- -----------------------------------------------------------------------------------------
Government National Mortgage Association - 30 Year - 64.7%
GNMA, 6.5s, 2023 - 2024 $ 10,188 $ 9,678,548
GNMA, 7s, 2022 - 2024 245,719 239,804,910
GNMA, 7.5s, 2008 - 2024 179,491 179,377,680
GNMA, 8s, 2002 - 2025 71,192 72,659,576
GNMA, 8.5s, 2022 - 2024 27,622 28,631,431
GNMA, 9s, 2008 - 2024 147,937 155,875,822
GNMA, 9.5s, 2009 - 2022 106,731 113,234,228
GNMA, 10s, 2009 - 2019 29,598 32,206,560
GNMA, 10.5s, 2019 - 2021 7,341 8,102,682
GNMA, 11s, 2021 27,356 30,502,148
GNMA, 12.5s, 2011 632 716,799
--------------
$ 870,790,384
- -----------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - continued
Bonds - continued
- -----------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Small Business Administration - 4.8%
SBA, 8.75s, 2006 $ 176 $ 189,483
SBA, 10s, 2009 4,103 4,659,618
SBA, 10.1s, 2009 7,937 9,026,832
SBA, 9.3s, 2010 3,920 4,346,649
SBA, 9.45s, 2010 9,352 10,449,751
SBA, 9.55s, 2010 10,249 11,438,833
SBA, 9.7s, 2010 3,209 3,608,156
SBA, 8.8s, 2011 3,327 3,631,817
SBA, 8.85s, 2011 13,178 14,418,201
SBA, 8.05s, 2012 2,808 2,871,038
--------------
$ 64,640,378
- -----------------------------------------------------------------------------------------
U.S. Federal Agencies - 0.2%
Federal Agricultural Mortgage Corp., 8.07s, 2006 $ 3,000 $ 3,305,610
- -----------------------------------------------------------------------------------------
U.S. Treasury Obligations - 9.0%
Principal Stripped-Interest Payments, 0s, 2017 - 2021 $ 69,900 $ 12,569,339
U.S. Treasury Notes, 9.375s, 1996 3,000 3,074,070
U.S. Treasury Notes, 5.25s, 1998 29,000 28,401,730
U.S. Treasury Bonds, 13.125s, 2001* 25,000 33,293,000
U.S. Treasury Bonds, 10.75s, 2003 - 2005 27,085 35,091,789
U.S. Treasury Bonds, 8.75s, 2020 7,900 9,572,589
--------------
$ 122,002,517
- -----------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $1,307,801,045) $1,310,173,211
- -----------------------------------------------------------------------------------------
Repurchase Agreement - 3.4%
- -----------------------------------------------------------------------------------------
Lehman Brothers, dated 7/31/95, due 8/01/
95, total to be received $45,456,335
(secured by U.S. Treasury Note, 5.81s,
due 3/07/96, market value $47,960,000),
at Cost and Value $ 45,449 $ 45,449,000
- -----------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,353,250,045) $1,355,622,211
Other Assets, Less Liabilities - (0.7)% (9,569,414)
- -----------------------------------------------------------------------------------------
Net Assets - 100.0% $1,346,052,797
- -----------------------------------------------------------------------------------------
+ Restricted security.
* Denotes all or a portion of a security segregated as collateral for open futures contracts.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
July 31, 1995
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $1,353,250,045) $1,355,622,211
Cash 157,067
Receivable for daily variation margin on open futures
contracts 37,500
Receivable for Fund shares sold 109,919
Interest receivable 13,494,789
Other assets 19,877
--------------
Total assets $1,369,441,363
--------------
Liabilities:
Payable for investments purchased $ 20,134,375
Payable for Fund shares reacquired 2,342,969
Payable to affiliates -
Management fee 71,293
Shareholder servicing agent fee 19,987
Distribution fee 352,910
Accrued expenses and other liabilities 467,032
--------------
Total liabilities $ 23,388,566
--------------
Net assets $1,346,052,797
==============
Net assets consist of:
Paid-in capital $1,471,569,421
Unrealized appreciation on investments 2,115,035
Accumulated net realized loss on investments (127,510,438)
Distributions in excess of net investment income (121,221)
--------------
Total $1,346,052,797
==============
Shares of beneficial interest outstanding 202,424,538
==============
Class A shares:
Net asset value and redemption price per share
(net assets of $533,986,698 / 80,276,379 shares of
beneficial interest outstanding) $6.65
=====
Offering price per share (100/95.25) $6.98
=====
Class B shares:
Net asset value and offering price per share
(net assets of $812,066,099 / 122,148,159 shares of
beneficial interest outstanding) $6.65
=====
On sales of $100,000 or more, the offering price of Class A shares is reduced.
A contingent deferred sales charge may be imposed on redemptions of Class A
and Class B shares.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ------------------------------------------------------------------------------
Year Ended July 31, 1995
- ------------------------------------------------------------------------------
Net investment income:
Interest income $120,116,845
------------
Expenses -
Management fee $ 9,450,684
Trustees' compensation 82,098
Shareholder servicing agent fee (Class A) 615,160
Shareholder servicing agent fee (Class B) 2,056,115
Distribution and service fee (Class A) 1,435,563
Distribution and service fee (Class B) 10,437,907
Postage 340,657
Printing 143,030
Auditing fees 78,719
Custodian fee 39,152
Legal fees 9,745
Miscellaneous 890,219
------------
Total expenses $ 25,579,049
------------
Net investment income $ 94,537,796
------------
Realized and unrealized gain (loss) on investments:
Realized loss (identified cost basis) -
Investment transactions $(41,522,420)
Futures contracts (2,714,208)
------------
Net realized loss on investments $(44,236,628)
------------
Change in unrealized appreciation -
Investments $ 66,859,957
Futures contracts 1,848,786
------------
Net unrealized gain on investments $ 68,708,743
------------
Net realized and unrealized gain on investments $ 24,472,115
------------
Increase in net assets from operations $119,009,911
============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -----------------------------------------------------------------------------------------------------
Eight Months Year Ended
Year Ended Ended November 30,
July 31, 1995 July 31, 1994 1993
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 94,537,796 $ 74,548,971 $ 61,921,749
Net realized gain (loss) on investments (44,236,628) (25,065,163) 3,896,696
Net unrealized gain (loss) on investments 68,708,743 (75,294,158) (29,750,350)
-------------- -------------- --------------
Increase (decrease) in net assets from operations $ 119,009,911 $ (25,810,350) $ 36,068,095
-------------- -------------- --------------
Distributions declared to shareholders -
From net investment income (Class A) $ (26,574,630) $ (14,372,080) $ (41,366,228)
From net investment income (Class B) (62,269,346) (38,804,832) (16,456,135)
In excess of net realized gain on investments
(Class A) -- -- (4,790,820)
From paid-in capital (Class A) -- (6,354,345) --
From paid-in capital (Class B) -- (17,156,825) --
Tax return of capital (2,036,802) -- --
-------------- -------------- --------------
Total distributions declared to shareholders $ (90,880,778) $ (76,688,082) $ (62,613,183)
-------------- -------------- --------------
Fund share (principal) transactions -
Net proceeds from sales of shares $ 207,482,564 $ 55,960,166 $ 29,918,411
Net asset value of shares issued to shareholders
in connection with merger of MFS Lifetime
Government Mortgage Fund -- -- 1,774,003,938
Net asset value of shares issued to shareholders in
reinvestment of distributions 40,173,434 31,831,973 24,936,586
Cost of shares reacquired (582,715,690) (482,278,453) (367,519,075)
-------------- -------------- --------------
Increase (decrease)in net assets from Fund
share transactions $ (335,059,692) $ (394,486,314) $1,461,339,860
-------------- -------------- --------------
Total increase (decrease) in net assets $ (306,930,559) $ (496,984,746) $1,434,794,772
Net assets:
At beginning of period 1,652,983,356 2,149,968,102 715,173,330
-------------- -------------- --------------
At end of period (including distributions in
excess of net investment income of $(121,221),
$(50,624) and $(11,856,473), respectively) $1,346,052,797 $ 1,652,983,356 $2,149,968,102
============== =============== ==============
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS - continued
Financial Highlights
- --------------------------------------------------------------------------------------------------------------------------
Eight
Year Ended Months Ended Year Ended November 30,
July 31, July 31, -----------------------------------------
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $ 6.49 $ 6.85 $ 6.82 $ 6.95 $ 7.01
------ ------ ------ ------ ------
Income from investment operations<F2> -
Net investment income<F4> $ 0.45 $ 0.29 $ 0.34 $ 0.46 $ 0.48
Net realized and unrealized gain (loss)
on investments 0.14 (0.36) 0.20 0.09 0.25
------ ------ ------ ------ ------
Total from investment operations $ 0.59 (0.07) $ 0.54 $ 0.55 $ 0.73
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.42) (0.20) $(0.47) $(0.42) $(0.44)
In excess of net realized gain on
investments -- -- (0.04) -- --
From paid-in capital -- (0.09) -- (0.26) (0.35)
Tax return of capital (0.01) -- -- -- --
------ ------ ------ ------ ------
Total distributions declared to shareholders $(0.43) (0.29) $(0.51) $(0.68) $(0.79)
------ ------ ------ ------ ------
Net asset value - end of period $ 6.65 $ 6.49 $ 6.85 $ 6.82 $ 6.95
====== ====== ====== ====== ======
Total return<F3> 9.60% (1.51)%<F1> 8.11% 8.25% 11.00%
Ratios (to average net assets)/
Supplemental data<F4>:
Expenses 1.25% 1.27%<F1> 1.38% 1.42% 1.44%
Net investment income 6.99% 6.46%<F1> 6.30% 6.57% 6.91%
Portfolio turnover 87% 37% 167% 484% 731%
Net assets at end of period (000,000 omitted) $ 534 $ 424 $ 522 $ 715 $ 886
<FN>
<F1>Annualized.
<F2>Per share data for the periods subsequent to November 30, 1993 is based on average shares outstanding.
<F3>Total returns for Class A shares do not include the applicable sales charge (except for reinvested dividends prior to
October 1, 1989). If the charge had been included, the results would have been lower.
<F4>The investment adviser did not impose a portion of its management fee for the periods indicated. If this fee had been
incurred by the Fund, the net investment income per share and the ratios would have been:
Net investment income -- $ 0.29 $ 0.34 -- --
Ratios (to average net assets):
Expenses -- 1.28%<F1> 1.46% -- --
Net investment income -- 6.45%<F1> 6.22% -- --
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- -----------------------------------------------------------------------------------------------------------------------
Year Ended November 30, 1990 1989 1988 1987 1986<F1>
- -----------------------------------------------------------------------------------------------------------------------
Class A
- -----------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $ 7.86 $ 7.82 $ 8.34 $ 9.82 $ 9.53
------ ------ ------ ------- ------
Income from investment operations -
Net investment income $ 0.53 $ 0.59 $ 0.64 $ 0.75 $ 0.72
Net realized and unrealized gain
(loss) on investments (0.40) 0.48 (0.06) (1.08) 0.43
------ ------ ------ ------- ------
Total from investment operations $ 0.13 $ 1.07 $ 0.58 $ (0.33) $ 1.15
------ ------ ------ ------- ------
Less distributions declared to shareholders -
From net investment income $(0.49) $(0.58) $(0.64) $ (0.82) $(0.65)
From net realized gain on investments -- -- -- (0.01) (0.21)
From paid-in capital (0.49) (0.45) (0.46) (0.32) --
------ ------ ------ ------- ------
Total distributions declared to
shareholders $(0.98) $(1.03) $(1.10) $ (1.15) $(0.86)
------ ------ ------ ------- ------
Net asset value - end of period $ 7.01 $ 7.86 $ 7.82 $ 8.34 $ 9.82
====== ====== ====== ======= ======
Total return<F3> 2.05% 14.72% 7.39% (3.37)% 13.75%<F2>
Ratios (to average net assets)/
Supplemental data:
Expenses 1.40% 1.37% 1.38% 1.34% 1.00%<F2>
Net investment income 7.29% 7.57% 7.88% 8.34% 9.54%<F2>
Portfolio turnover 507% 489% 285% 212% 169%
Net assets at end of period (000,000 omitted) $1,068 $1,380 $1,295 $1,129 $ 593
<FN>
<F1>For the period from the commencement of investment operations, January 9, 1986 to November 30, 1986.
<F2>Annualized.
<F3>Total returns for Class A shares do not include the applicable sales charge (except for reinvested dividends prior to
October 1, 1989). If the charge had been included, the results would have been lower.
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- -------------------------------------------------------------------------------------------
Eight Months
Year Ended Ended Period Ended
July 31, July 31, November 30,
1995 1994 1993<F1>
- -------------------------------------------------------------------------------------------
Class B
- -------------------------------------------------------------------------------------------
Per share data (for a share outstanding
throughout each period):
<S> <C> <C> <C>
Net asset value - beginning of period $ 6.49 $ 6.84 $ 6.97
------- ------- ------
Income from investment operations<F3> -
Net investment income<F4> $ 0.41 $ 0.26 $ 0.38
Net realized and unrealized gain (loss)
on investments 0.14 (0.35) (0.44)
------- ------- ------
Total from investment operations $ 0.55 $ (0.09) $(0.06)
------- ------- ------
Less distributions declared to shareholders -
From net investment income $ (0.38) $ (0.18) $(0.07)
From paid-in capital -- (0.08) --
Tax return of capital (0.01) -- --
------ ------- ------
Total distributions declared to
shareholders $ (0.39) $ (0.26) $(0.07)
------- ------- ------
Net asset value - end of period $ 6.65 $ 6.49 $ 6.84
======= ======= ======
Total return 8.81% (1.97)%<F2> (3.91)%<F2>
Ratios (to average net assets)/
Supplemental data<F4>:
Expenses 1.96% 1.94%<F2> 1.87%<F2>
Net investment income 6.28% 5.80%<F2> 5.92%<F2>
Portfolio turnover 87% 37% 167%
Net assets at end of period
(000,000 omitted) $ 812 $1,229 $1,628
<FN>
<F1>For the period from the commencement of offering of Class B shares, September 7, 1993 to November 30, 1993.
<F2>Annualized.
<F3>Per share data for the periods subsequent to November 30, 1993 is based on average shares outstanding.
<F4>The investment adviser did not impose a portion of its management fee for the periods indicated. If this fee had been
incurred by the Fund, the net investment income per share and the ratios would have been:
Net investment income -- $ 0.26 $ 0.38
Ratios (to average net assets):
Expenses -- 1.94%<F2> 1.94%<F2>
Net investment income -- 5.80%<F2> 5.85%<F2>
See notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Government Mortgage Fund (the Fund) is a diversified series of MFS Series
Trust X (the Trust). The Trust is organized as a Massachusetts business trust
and is registered under the Investment Company Act of 1940, as amended, as an
open-end, diversified management investment company.
(2) Significant Accounting Policies
Investment Valuations - Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues, are valued on the basis of
valuations furnished by dealers or by a pricing service with consideration to
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other market data, without exclusive reliance upon exchange or
over-the-counter prices. Short-term obligations, which mature in 60 days or
less, are valued at amortized cost, which approximates market value. Futures
contracts listed on commodities exchanges are valued at closing settlement
prices. 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.
Futures Contracts - The Fund may enter into futures contracts for the delayed
delivery of securities at a fixed price on a future date. In entering such
contracts, the Fund is required to deposit either in cash or securities an
amount equal to a certain percentage of the contract amount. Subsequent payments
are made or received by the Fund each day, depending on the daily fluctuations
in the value of the underlying security, and are recorded for financial
statement purposes as unrealized gains or losses by the Fund. The Fund's
investment in futures contracts is designed to hedge against anticipated changes
in interest rates or securities prices. Investments in interest rate futures for
purposes other than hedging may be made to modify the duration of the portfolio
without incurring the additional transaction costs involved in buying and
selling the underlying securities. Should interest rates or securities prices
move unexpectedly, the Fund may not achieve the anticipated benefits of the
futures contracts and may realize a loss.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
original issue discount are amortized or accreted for financial statement and
tax reporting purposes as required by federal income tax regulations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code which may differ from generally accepted accounting principles, the basis
on which these financial statements are prepared. Accordingly, the amount of net
investment income and net realized gain reported on these financial statements
may differ from that reported on the Fund's tax return and, consequently, the
character of distributions to shareholders reported in the financial highlights
may differ from that reported to shareholders on Form 1099-DIV. Distributions to
shareholders are recorded on the ex-dividend date.
The Fund distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a return of
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains. During the year ended July 31, 1995, $5,764,417 was reclassified from
accumulated undistributed net investment income and $48,392 and $5,716,025 were
reclassified to paid-in capital and accumulated net realized gain on
investments, respectively, due to differences between book and tax accounting
for mortgage-backed securities and tax-basis return of capital. This change had
no effect on the net assets or net asset value per share.
At July 31, 1995, the Fund, for federal income tax purposes, had a capital loss
carry- forward of $(95,700,480) which may be applied against any net taxable
realized gains of each succeeding year until the earlier of its utilization or
expiration on July 31, 1996 ($3,630,686), July 31, 1998 ($81,836,532), July 31,
2002 ($5,628,534) and July 31, 2003 ($4,604,728).
Multiple Classes of Shares of Beneficial Interest - The Fund offers Class A and
Class B shares. The two classes of shares differ in their respective shareholder
servicing agent, distribution and service fees. All shareholders bear the common
expenses of the Fund pro rata, based on average daily net assets of each class,
without distinction between share classes. Dividends are declared separately for
each class. No class has preferential dividend rights; differences in per share
dividend rates are generally due to differences in separate class expenses.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate equal to the
lesser of (i) 0.65% of the Fund's average daily net assets or (ii) 0.30% of the
Fund's average daily net assets and 6.1% of the Fund's gross 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 of the officers and Trustees of
the Fund are officers or directors of MFS, MFS Fund Distributors, Inc. (MFD) and
MFS Service Center, Inc. (MFSC). The Fund has an unfunded defined benefit plan
for all its independent Trustees. Included in Trustees' compensation is a net
periodic pension expense of $31,318 for the year ended July 31, 1995.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$19,176 for the year ended July 31, 1995, as its portion of the sales charge on
sales of Class A shares of the Fund.
The Trustees have adopted separate distribution plans for Class A and Class B
shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as follows:
The Class A distribution plan provides that the Fund will pay MFD up to 0.35%
per annum of its average daily net assets attributable to Class A shares in
order that MFD may pay expenses on behalf of the Fund related to the
distribution and servicing of its shares. These expenses include a service fee
to each securities dealer that enters into a sales agreement with MFD of up to
0.25% per annum of the Fund's average daily net assets attributable to Class A
shares which are attributable to that securities dealer, a distribution fee to
MFD of up to 0.10% per annum of the Fund's average daily net assets attributable
to Class A shares, commissions to dealers and payments to MFD wholesalers for
sales at or above a certain dollar level, and other such distribution-related
expenses that are approved by the Fund. MFD retains the service fee for accounts
not attributable to a securities dealer, which amounted to $105,920 for the year
ended July 31, 1995. Fees incurred under the distribution plan during the year
ended July 31, 1995 were 0.35% of average daily net assets attributable to Class
A shares on an annualized basis.
The Class B distribution plan provides that the Fund will pay MFD a monthly
distribution fee of 0.75% per annum, and a service fee of up to 0.25% per annum,
of the Fund's average daily net assets attributable to Class B shares. 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 shares. The service fee is
intended to be additional consideration for services rendered by the dealer with
respect to Class B shares. MFD retains the service fee for accounts not
attributable to a securities dealer, which amounted to $175,913 for Class B
shares for the year ended July 31, 1995. Fees incurred under the distribution
plan during the year ended July 31, 1995 were 1.00% of average daily net assets
attributable to Class B shares on an annualized basis.
A contingent deferred sales charge is imposed on shareholder redemptions of
Class A shares, on purchases of $1 million or more, in the event of a
shareholder redemption within 12 months following the share purchase. A
contingent deferred sales charge is imposed on shareholder redemptions of Class
B shares in the event of a shareholder redemption within six years of purchase.
MFD receives all contingent deferred sales charges. Contingent deferred sales
charges imposed during the year ended July 31, 1995 were $0 and $1,386,715 for
Class A and Class B shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the average daily net assets of each class of shares at an
effective annual rate of up to 0.15% and up to 0.22% attributable to Class A and
Class B shares, respectively.
(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 $1,230,194,850 $1,547,019,438
============== ==============
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 $1,353,408,420
==============
Gross unrealized appreciation $ 24,851,994
Gross unrealized depreciation (22,638,203)
--------------
Net unrealized appreciation $ 2,213,791
==============
(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
Eight Months Ended
Year Ended July 31, 1995 July 31, 1994
--------------------------- ----------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 27,491,721 $181,805,681 4,203,202 $ 27,515,113
Shares issued to shareholders in
reinvestment of distributions 1,875,858 12,007,470 1,321,312 8,740,816
Shares reacquired (14,375,598) (92,201,944) (16,516,662) (109,058,350)
----------- ------------ ----------- -------------
Net increase (decrease) 14,991,981 $101,611,207 (10,992,148) $ (72,802,421)
=========== ============ =========== =============
<CAPTION>
Year Ended November 30, 1993
----------------------------
Shares Amount
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Shares sold 2,146,686 $ 19,558,553
Shares issued to shareholders in reinvestment of distributions 2,663,943 18,391,733
Shares reacquired (33,340,955) (235,950,665)
----------- -------------
Net decrease (28,530,326) $(198,000,379)
=========== =============
<PAGE>
<CAPTION>
Class B Shares
Eight Months Ended
Year Ended July 31, 1995 July 31, 1994
--------------------------- ---------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 4,039,025 $ 25,676,883 4,217,881 $ 28,445,053
Shares issued to shareholders in
reinvestment of distributions 4,409,939 28,165,964 3,488,783 23,091,157
Shares reacquired (75,797,892) (490,513,746) (56,121,433) (373,220,103)
----------- ------------- ------------ -------------
Net decrease (67,348,928) $(436,670,899) (48,414,769) $(321,683,893)
=========== ============= =========== =============
<CAPTION>
Period Ended November 30, 1993*
-------------------------------
Shares Amount
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Shares sold 1,496,862 $ 10,359,858
Shares issued in connection with merger with Lifetime
Government Mortgage Fund 254,500,711 1,774,003,938
Shares issued to shareholders in reinvestment of distributions 949,148 6,544,853
Shares reacquired (19,034,865) (131,568,410)
----------- ---------------
Net increase 237,911,856 $ 1,659,340,239
=========== ===============
*For the period from the commencement of offering of Class B shares, September 7, 1993 to
November 30, 1993.
</TABLE>
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS in an unsecured line of credit with a bank which permits
borrowings up to $350 million, collectively. Borrowings may be made to
temporarily finance the repurchase of Fund shares. Interest is charged to each
fund, based on its borrowings, at a rate equal to the bank's base rate. In
addition, a commitment fee, based on the average daily unused portion of the
line of credit, is allocated among the participating funds at the end of each
quarter. The commitment fee allocated to the Fund for the year ended July 31,
1995 was $20,751.
(7) Financial Instruments
The Fund trades financial instruments with off-balance sheet risk in the normal
course of its investing activities in order to manage exposure to market risks
such as interest rates. These financial instruments include futures contracts.
The notional or contractual amounts of these instruments represent the
investment the Fund has in particular classes of financial instruments and does
not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered. A summary of
obligations under these financial instruments at July 31, 1995, is as follows:
Unrealized
Futures Contracts Expiration Contracts Position Depreciation
- ------------------------------------------------------------------------------
U.S. Treasury Notes September 1995 100 Long $257,131
========
At July 31, 1995, the Fund had sufficient cash and/or securities to cover margin
requirements on open futures contracts.
<PAGE>
(8) Restricted Securities
The Fund may invest not more than 10% of its total assets in securities which
are subject to legal or contractual restrictions on resale. At July 31, 1995,
the Fund owned the following restricted security (constituting 1.83% of total
assets) which may not be publicly sold without registration under the Securities
Act of 1933. The Fund does not have the right to demand that such security be
registered. The value of this security is determined by valuations supplied by a
pricing service or brokers.
<TABLE>
<CAPTION>
Description Date of Acquisition Par Amount Cost Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FHA, Centennial, "A", 8.25s, 2028 3/23/93 $23,895,281 $24,612,139 $25,109,400
===========
</TABLE>
(9) Acquisitions
At close of business on September 6, 1993, the Fund acquired all of the assets
and liabilities of MFS Lifetime Government Mortgage Fund. The acquisition was
accomplished by a tax-free exchange of 254,500,711 Class B shares of the Fund
(valued at $1,774,003,938) for all of the assets, subject to all of the
liabilities of MFS Lifetime Government Mortgage Fund. MFS Lifetime Government
Mortgage Fund then converted all of its outstanding shares for the Class B
shares of the Fund and distributed the Class B shares to its shareholders. MFS
Lifetime Government Mortgage Fund's net assets on that date ($1,774,003,938),
including $45,387,402 of unrealized appreciation, were combined with those of
the Fund. The aggregate net assets of the Fund after the acquisition were
$2,336,607,120.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Series Trust X and Shareholders of MFS Government
Mortgage Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Government Mortgage Fund as of July 31,
1995, the related statement of operations for the year then ended, the statement
of changes in net assets for the year ended July 31, 1995, the eight months
ended July 31, 1994 and the year ended November 30, 1993, and the financial
highlights for the year ended July 31, 1995, the eight months ended July 31,
1994, and for each of the years in the eight-year period ended November 30,
1993. 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.
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 the securities owned at July
31, 1995, by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Government
Mortgage Fund at July 31, 1995, the results of its operations, the changes in
its net assets, and its financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
September 8, 1995
---------------------------------------------
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>
THE MFS FAMILY OF FUNDS(R)
America's Oldest Mutual Fund Group
The members of the MFS Family of Funds are grouped below according to the types
of securities in their portfolios. For free prospectuses containing more
complete information, including the exchange privilege and all charges and
expenses, please contact your financial adviser or call MFS at 1-800-637-2929
any business day from 9 a.m. to 5 p.m. Eastern time (or, leave a message any
time). This material should be read carefully before investing or sending money.
<TABLE>
<S> <C>
STOCK LIMITED MATURITY BOND
- ----------------------------------------- ----------------------------------------
Massachusetts Investors Trust MFS(R) Government Limited Maturity Fund
- ----------------------------------------- ----------------------------------------
Massachusetts Investors Growth Stock Fund MFS(R) Limited Maturity Fund
- ----------------------------------------- ----------------------------------------
MFS(R) Capital Growth Fund MFS(R) Municipal Limited Maturity Fund
- ----------------------------------------- ----------------------------------------
MFS(R) Emerging Growth Fund
- -----------------------------------------
MFS(R) Gold & Natural Resources Fund WORLD
- ----------------------------------------- ----------------------------------------
MFS(R) Growth Opportunities Fund MFS(R) World Asset Allocation Fund
- ----------------------------------------- ----------------------------------------
MFS(R) Managed Sectors Fund MFS(R) World Equity Fund
- ----------------------------------------- ----------------------------------------
MFS(R) OTC Fund MFS(R) World Governments Fund
- ----------------------------------------- ----------------------------------------
MFS(R) Research Fund MFS(R) World Growth Fund
- ----------------------------------------- ----------------------------------------
MFS(R) Value Fund MFS(R) World Total Return Fund
- ----------------------------------------- ----------------------------------------
STOCK AND BOND NATIONAL TAX-FREE BOND
- ----------------------------------------- ----------------------------------------
MFS(R) Total Return Fund MFS(R) Municipal Bond Fund
- ----------------------------------------- ----------------------------------------
MFS(R) Utilities Fund MFS(R) Municipal High Income Fund
- ----------------------------------------- (closed to new investors)
----------------------------------------
BOND MFS(R) Municipal Income Fund
- ----------------------------------------- ----------------------------------------
MFS(R) Bond Fund
- -----------------------------------------
MFS(R) Government Mortgage Fund STATE TAX-FREE BOND
- ----------------------------------------- ----------------------------------------
MFS(R) Government Securities Fund Alabama, Arkansas, California, Florida,
- ----------------------------------------- Georgia, Louisiana, Maryland, Massachusetts,
MFS(R) High Income Fund Mississippi, New York, North Carolina,
- ----------------------------------------- Pennsylvania, South Carolina, Tennessee,
MFS(R) Intermediate Income Fund Texas, Virginia, Washington, West Virginia
- ----------------------------------------- ----------------------------------------
MFS(R) Strategic Income Fund
(formerly MFS(R) Income & Opportunity Fund) MONEY MARKET
- ----------------------------------------- ----------------------------------------
MFS(R) Cash Reserve Fund
----------------------------------------
MFS(R) Government Money Market Fund
----------------------------------------
MFS(R) Money Market Fund
----------------------------------------
</TABLE>
<PAGE>
-------------
MFS(R) [SEAL] BULK RATE
GOVERNMENT NUMBER U.S. POSTAGE
MORTGAGE 1 P A I D
FUND DALBAR PERMIT #55638
TOP-RATED SERVICE BOSTON, MA
-------------
500 Boylston Street
Boston, MA 02116
[LOGO] M F S (SM)
THE FIRST NAME IN MUTUAL FUNDS
MGM-2 9/95 109M 31/231
