<PAGE>
[Logo] M F S(R)
INVESTMENT MANAGEMENT
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
MFS(R) GOVERNMENT
MORTGAGE FUND
SEMIANNUAL REPORT o JANUARY 31, 1999
[Graphic Omitted]
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 3
Performance Summary ....................................................... 7
Portfolio of Investments .................................................. 10
Financial Statements ...................................................... 12
Notes to Financial Statements ............................................. 18
MFS' Year 2000 Readiness Disclosure ....................................... 24
Trustees and Officers ..................................................... 25
MFS CELEBRATES ITS DIAMOND ANNIVERSARY!
MARCH 21, 1999, MARKS THE 75TH ANNIVERSARY OF MFS' INVENTION OF
THE MUTUAL FUND. THE MUTUAL FUND INDUSTRY HAS BROUGHT THE POWER
OF INVESTING TO EVERY AMERICAN, OFFERING THEM THE OPPORTUNITY FOR
COLLEGE DEGREES, HOME OWNERSHIP, AND COMFORTABLE RETIREMENT.
IMAGINE TODAY'S WORLD WITHOUT MUTUAL
FUNDS. WE COULDN'T. AND WHILE THE MFS 75 YEARS
YEARS AHEAD WILL BRING A NUMBER OF [graphic omitted]
CHALLENGES, OUR 75 YEARS OF EXPERIENCE EXPERIENCE THE FUTURE(SM)
WILL HELP GUIDE A NEW GENERATION OF
INVESTORS INTO THE FUTURE.
- ------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- ------------------------------------------------------------------------------
<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders:
In 1999, MFS celebrates its 75th anniversary. The nation's first mutual fund
- -- our Massachusetts Investors Trust (MIT) -- was introduced to the public on
March 21, 1924. Since then, MFS Investment Management(R), the company that
grew out of that original fund, has helped guide shareholders through many
economic and investment cycles, primarily by focusing on the long-term
opportunities created by an expanding global economy. As of January 31, 1999,
MFS manages over $100 billion, and the firm's 2,000 people serve almost four
million investors and their financial advisers worldwide. Meanwhile, MIT's
assets have grown to over $12 billion, and 56 mutual funds are offered in the
MFS Family of Funds(R).
One of the elements in the success of MIT did not exist before our founders
invented it in 1924. That is daily redemption. This innovation means that
if you want to sell your investment in any MFS mutual fund, you have
the security of knowing that you may do so immediately by exchanging
into another MFS fund. Or, if you need your money for other purposes,
it can quickly be wired or mailed to you. This daily redemption feature,
through which new shares were created when people invested in MIT and were
redeemed when people sold, brought another important change to
the industry. Now, the price of a mutual fund's shares wasn't determined
by supply and demand, but by the value of the securities owned by
each portfolio.
Another factor in our growth was the development of one of the industry's
first in-house research departments in 1932. Unlike companies that rely on
Wall Street research reports, which can be used by many investors at the same
time, MIT's managers built its long-term track record by visiting companies,
talking to managers and competitors, and "kicking the tires" so they could
judge the quality and potential of each company's products and services for
themselves. Today, MFS has more than 100 full-time portfolio managers, stock
analysts, and credit analysts who track the equity and
bond markets.
While MIT introduced the daily redemption feature, that was not our only
invention. We also established the nation's first global bond fund, first
high-yield municipal bond fund, and first high-yield municipal closed-end bond
fund.
We are proud of the record of MIT and of the funds in the MFS Family of Funds,
but we are also proud of our long-standing relationship with financial
advisers. Not only do we believe investors can benefit from the advice of
these experts but, as was shown during the market volatility of 1998, people
who work with financial advisers are less likely to abandon their carefully
designed, long-term investment strategies.
Our ability to service your investment and information needs is also extremely
important to us. The MFS Service Center handles millions of transactions and
phone calls every year. Supporting the work of financial advisers, promptly
sending out statements and confirmations, and answering hundreds of investors'
questions every day are crucial elements in maintaining long-term relationships
with our fund shareholders. That link to our investors has also been enhanced by
our site on the World Wide Web: www.mfs.com. Since 1996, this site has given
investors and the general public access to up-to-date information about MFS
products and services, as well as market outlooks and retirement information.
The site has rapidly become one of our primary vehicles for communicating with
our investors and educating the public about mutual funds in general and MFS in
particular.
If there is a common thread running through these milestones, it is our
always-increasing commitment to providing you with the best possible investment
management and shareholder service, just as we have done for the past 75 years.
As we celebrate this anniversary, it is also a time for MFS to look ahead and
build on our 75 years of innovation and experience to help meet your investment
needs in the next century. We appreciate your confidence and welcome any
questions or comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
February 15, 1999
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
[Photo of D. Richard Smith]
D. Richard Smith
For the six months ended January 31, 1999, Class A shares of the Fund provided a
total return of 3.36%, Class B shares 2.95%, and Class I shares 3.35%. These
returns, which assume the reinvestment of distributions but exclude the effects
of any sales charges, compare to a 3.62% return for the Lehman Brothers
Government National Mortgage Association (GNMA) Index, an unmanaged index of
GNMA issues with more than $50 million outstanding, and to a 3.33% return for
the average GNMA fund as reported by Lipper Analytical Services, Inc., an
independent firm that tracks mutual fund performance.
Q. WHAT WERE SOME OF THE FACTORS AFFECTING THE FUND'S RECENT PERFORMANCE?
A. The biggest factor affecting performance was two waves of volatility, one
in June and another in August and September. Over those periods, yields on
securities issued by the U.S. Treasury declined about 100 basis points
(1.00%), while mortgage rates came down about 40 basis points (0.40%).
Although mortgage rates did not decline as much as Treasuries, the lower
rates created more refinancing opportunities. This meant less yield for
holders of mortgage-backed securities. Additionally, a combination of
record home sales and refinancings caused a huge supply in the marketplace,
which kept prices on mortgage-backed securities from appreciating as much
as Treasuries. So the Fund underperformed similar-maturity Treasuries.
However, with 1998 returns in the mortgage market at about 6%, it did
outperform some of the riskier fixed-income investment portfolios, such as
those holding lower-rated corporate bonds and emerging market debt.
(Principal value and interest on Treasury securities are guaranteed by the
U.S. government if held to maturity.)
Q. WHAT DIRECTION DO YOU ANTICIPATE FOR INTEREST RATES GOING FORWARD?
A. Interest rates came down a lot last year, and the first few months of 1999
will tell us quite a bit about the direction interest rates and the economy
will take going forward. Typically, we get a lot of information about the
strength of the U.S. and global economies in the first few months of the
year. That's because consumer spending habits are driven by income, and
some people receive a high percentage of their income in the first quarter
from bonuses and tax refunds. This year, we think the economy is going to
slow from the annual growth rate of 3% to 4% that we've seen in the
past three years, and we see interest rates being stable to slightly down
for the next several months.
Q. HOW HAVE YOU POSITIONED THE FUND IN THIS ENVIRONMENT?
A. Given our outlook for stable interest rates and slower growth going into
the spring and summer, we have increased the portfolio's weighting in
mortgage-backed securities to over 90% of assets. The minimum weighting
allowed by the Fund's prospectus is 65%, and we usually target a level of
80% to 85%. So we're a little higher in the mortgage weighting right now.
The highest concentration is in 6 1/2% to 7% mortgages. We think the yield
spread, or the differential between mortgages and Treasuries, will continue
to decline during the first quarter as pre-payments from refinanced
mortgages are reinvested back into the mortgage market. As this
reinvestment occurs, we will start to increase the Fund's duration, or
interest-rate sensitivity by buying newly issued 6.5% coupons. And, as the
economy slows, we may increase the proportion of Treasury securities to try
to produce additional principal and interest for the Fund.
Q. HAVE WE REACHED A POINT WHERE MORTGAGE RATES ARE AS LOW AS THEY MIGHT GO FOR
A WHILE AND MOST REFINANCINGS HAVE ALREADY BEEN DONE?
A. Prepayment rates are well off the peak they reached several months ago, but
they're still high. As long as we have reasonable job growth and a low-
inflation environment that keeps the general level of interest rates low,
people will continue to refinance.
Q. WHAT ABOUT THE FUND'S DURATION, OR EXPOSURE TO CHANGES IN INTEREST RATES?
A. The duration is relatively neutral, at 2.4 years, another reflection of our
outlook for stable interest rates.
Q. HAVE THERE BEEN ANY PARTICULARLY INTERESTING CHANGES IN THE MORTGAGE MARKET
IN THE PAST SEVERAL MONTHS?
A. Yes, we think that the value of GNMA, or "Ginnie Mae," securities versus
other types of mortgage securities continues to improve. Ginnie Maes are
less refinanceable than other types of mortgages. Fannie Mae and Freddie
Mac (Federal National Mortgage Association and Federal Home Loan Mortgage
Corporation) continue to raise the dollar amount they'll underwrite, which
means higher loan balances and more refinancing. Yields on nonagency
securities issued by private mortgage companies are not much more attractive
than yields on Ginnie Maes and are also more refinanceable. So we think the
Ginnie Mae story continues to be a great one.
Q. HOW DO YOU SEE THIS FUND'S ROLE IN AN INVESTMENT PORTFOLIO?
A. We see the Fund as a high-quality fund that has generated a high level of
current income. Although past performance is no guarantee of future
results, the price changes in the portfolio have been much less than most
other types of fixed-income funds. So this Fund may be good for people who
want relative safety and a high level of current income.
/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.
It is not possible to invest directly in an index.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S PROFILE
- --------------------------------------------------------------------------------
D. RICHARD SMITH IS VICE PRESIDENT -- INVESTMENTS AT MFS INVESTMENT
MANAGEMENT(R) AND PORTFOLIO MANAGER OF MFS(R) GOVERNMENT MORTGAGE FUND,
MFS(R) GOVERNMENT LIMITED MATURITY FUND, AND MFS(R) MERIDIAN(SM) U.S.
GOVERNMENT BOND 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. DEGREE 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>
- --------------------------------------------------------------------------------
FUND FACTS
- --------------------------------------------------------------------------------
OBJECTIVE: SEEKS PRIMARILY HIGH CURRENT INCOME AND, SECONDARILY,
PRESERVATION OF CAPITAL.
COMMENCEMENT OF
INVESTMENT OPERATIONS: JANUARY 9, 1986
CLASS INCEPTION: CLASS A JANUARY 9, 1986
CLASS B SEPTEMBER 7, 1993
CLASS I JANUARY 2, 1997
SIZE: $774.1 MILLION NET ASSETS AS OF JANUARY 31, 1999
- --------------------------------------------------------------------------------
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 JANUARY 31, 1999
CLASS A
<TABLE>
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years/Life
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return +3.36% +5.77% +18.97% +35.22% +102.87%
- --------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +5.77% + 5.96% + 6.22% + 7.33%
- --------------------------------------------------------------------------------------------------------------
SEC Results -- +0.75% + 4.25% + 5.19% + 6.81%
- --------------------------------------------------------------------------------------------------------------
CLASS B
6 Months 1 Year 3 Years 5 Years 10 Years/Life
- --------------------------------------------------------------------------------------------------------------
Cumulative Total Return +2.95% +4.89% +16.33% +30.32% + 95.25%
- --------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +4.89% + 5.17% + 5.44% + 6.92%
- --------------------------------------------------------------------------------------------------------------
SEC Results -- +0.92% + 4.27% + 5.12% + 6.92%
- --------------------------------------------------------------------------------------------------------------
CLASS I
6 Months 1 Year 3 Years 5 Years 10 Years/Life
- --------------------------------------------------------------------------------------------------------------
Cumulative Total Return +3.35% +6.06% +19.54% +35.85% +103.81%
- --------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +6.06% + 6.13% + 6.32% + 7.38%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTES TO PERFORMANCE SUMMARY
Class A share ("A") SEC results include the maximum 4.75% 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 I shares
("I") have no sales charge or Rule 12b-1 fees and are only available to
certain institutional investors.
B results include the performance and the operating expenses (e.g., Rule 12b-1
fees) of A for periods prior to the inception of B. Because operating expenses
of A are lower than those of B, B performance generally would have been lower
than A performance. The A performance included within the B SEC performance
has been adjusted to reflect the CDSC generally applicable to B 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 expenses subsidies and waivers,
without which the results would have been less favorable. Subsidies and
waivers may be rescinded at any time. See the prospectus for details. 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. See the prospectus for details.
<PAGE>
PORTFOLIO CONCENTRATION AS OF JANUARY 31, 1999
LARGEST SECTORS
Mortgage Backed 87.1%
Cash 8.7%
Other Government Agencies 0.2%
U.S. Treasuries 4.0%
The portfolio is actively managed, and holdings are subject to change.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) -- January 31, 1999
Bonds - 90.8%
<CAPTION>
- ------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Government Guaranteed - 76.6%
Government National Mortgage Association - 72.6%
GNMA, 6s, 2024 - 2028 $ 22,141 $ 21,994,855
GNMA, 6.5s, 2023 - 2029 94,662 85,645,431
GNMA, 6.5s, 2099(S)(S) 10,000 10,088,281
GNMA, 7s, 2022 - 2028 221,136 226,562,137
GNMA, 7.5s, 2017 - 2028 130,396 134,732,074
GNMA, 8s, 2008 - 2028 69,497 72,441,141
GNMA, 9s, 2008 - 2022 2,943 3,141,909
GNMA, 9.5s, 2009 - 2019 6,813 7,287,839
GNMA, 12s, 2011 289 328,867
------------
$562,222,534
- ------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 4.0%
U.S. Treasury Notes, 4.75s, 2008 $ 10,000 $ 10,079,700
U.S. Treasury Notes, 5.625s, 2008 15,950 17,006,687
U.S. Treasury Bonds, 10.375s, 2012 2,600 3,583,528
------------
$ 30,669,915
- ------------------------------------------------------------------------------------------------------
Total U.S. Government Guaranteed $592,892,449
- ------------------------------------------------------------------------------------------------------
U.S. Federal Agencies - 14.2%
Federal Home Loan Mortgage Corporation - 6.8%
FHLMC, 7.5s, 2027 - 2028 $ 50,356 $ 51,850,540
FHLMC, 8.5s, 2009 - 2017 18 19,557
FHLMC, 9s, 2020 - 2021 364 387,843
FHLMC, 9.5s, 2013 - 2021 211 224,241
------------
$ 52,482,181
- ------------------------------------------------------------------------------------------------------
Federal National Mortgage Association - 7.2%
FNMA, 6s, 2028 - 2099 $ 40,111 $ 39,672,025
FNMA, 7.95s, 2005 6,290 6,724,403
FNMA, 8.5s, 2004 - 2008 171 178,658
FNMA, 9s, 2002 - 2008 8,616 9,063,137
------------
$ 55,638,223
- ------------------------------------------------------------------------------------------------------
Other - 0.2%
United States Department of Veteran Affairs, 7.5s, 2013 $ 1,851 $ 1,868,510
- ------------------------------------------------------------------------------------------------------
Total U.S. Federal Agencies $109,988,914
- ------------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $694,645,596) $702,881,363
- ------------------------------------------------------------------------------------------------------
Repurchase Agreement - 11.4%
- ------------------------------------------------------------------------------------------------------
Goldman Sachs, dated 1/29/99, due 2/1/99, total to be
received $88,007,529 (secured by various U.S.
Treasury obligations in a jointly traded account), at
Cost $ 87,973 $ 87,973,000
- ------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $782,618,596) $790,854,363
Other Assets, Less Liabilities - (2.2)% (16,734,975)
- ------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $774,119,388
- ------------------------------------------------------------------------------------------------------
(S)(S) When-issued security. At January 31, 1999, the Fund had sufficient cash and/or securities at
least equal to the value of the when-issued security.
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- --------------------------------------------------------------------------------
JANUARY 31, 1999
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $782,618,596) $790,854,363
Cash 707
Receivable for Fund shares sold 59,492
Receivable for investments sold 10,206,737
Interest receivable 4,215,615
Other assets 5,814
------------
Total assets $805,342,728
------------
Liabilities:
Payable for Fund shares reacquired $ 766,601
Payable for investments purchased 19,894,535
Payable for when-issued investments purchased 9,989,063
Payable to affiliates -
Management fee 25,571
Shareholder servicing agent fee 7,192
Distribution and service fee 177,388
Administrative fee 959
Accrued expenses and other liabilities 362,031
------------
Total liabilities $ 31,223,340
------------
Net assets $774,119,388
============
Net assets consist of:
Paid-in capital $813,488,545
Unrealized appreciation on investments 8,235,767
Accumulated net realized loss on investments (47,100,946)
Accumulated distributions in excess of net investment
income (503,978)
------------
Total $774,119,388
============
Shares of beneficial interest outstanding 115,375,459
============
Class A shares:
Net asset value per share
(net assets of $667,336,659 / 99,485,390 shares of
beneficial interest outstanding) $6.71
=====
Offering price per share (100 / 95.25 of net asset value
per share) $7.04
=====
Class B shares:
Net asset value and offering price per share
(net assets of $106,722,257 / 15,881,042 shares of
beneficial interest outstanding) $6.72
=====
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets of $60,472 / 9,027 shares of beneficial
interest outstanding) $6.70
=====
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 (Unaudited)
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JANUARY 31, 1999
- --------------------------------------------------------------------------------
Net investment income:
Interest Income $27,222,676
-----------
Expenses -
Management fee $ 1,801,985
Trustees' compensation 32,769
Shareholder servicing agent fee 451,295
Distribution and service fee (Class A) 812,590
Distribution and service fee (Class B) 760,892
Administrative fee 40,778
Custodian fee 162,530
Printing 21,181
Postage 88,689
Auditing fees 19,180
Legal fees 3,607
Miscellaneous 251,893
-----------
Total expenses $ 4,447,389
Fees paid indirectly (152,206)
Preliminary reduction of expenses by investment adviser (95,793)
-----------
Net expenses $ 4,199,390
-----------
Net investment income $23,023,286
-----------
Realized and unrealized gain (loss) on investments:
Realized loss (identified cost basis) -
Investment transactions $(3,479,935)
Future contracts (1,428,102)
-----------
Net realized loss on investments $(4,908,037)
-----------
Change in unrealized appreciation (depreciation) -
Investments $ 6,927,168
Futures contracts (6,735)
-----------
Net unrealized gain on investments $ 6,920,433
-----------
Net realized and unrealized gain on investments $ 2,012,396
-----------
Increase in net assets from operations $25,035,682
===========
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Statement of Changes in Net Assets
<CAPTION>
- --------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, 1999 JULY 31, 1998
(UNAUDITED)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 23,023,286 $ 54,550,263
Net realized gain (loss) on investments (4,908,037) 9,772,406
Net unrealized gain (loss) on investments 6,920,433 (12,706,230)
------------ -------------
Increase in net assets from operations $ 25,035,682 $ 51,616,439
------------ -------------
Distributions declared to shareholders -
From net investment income (Class A) $(19,136,243) $ (40,398,677)
From net investment income (Class B) (3,885,460) (11,609,634)
From net investment income (Class I) (1,583) (5,097)
From net realized gain on investments (Class A) -- (1,910,443)
From net realized gain on investments (Class B) -- (549,017)
From net realized gain on investments (Class I) -- (241)
In excess of net investment income (Class A) (191,665) --
In excess of net investment income (Class B) (128,025) --
In excess of net investment income (Class I) (11) --
------------ -------------
Total distributions declared to shareholders $(23,342,987) $ (54,473,109)
------------ -------------
Net decrease in net assets from Fund share transactions $(39,682,794) $(124,725,903)
------------ -------------
Total decrease in net assets $(37,990,099) $(127,582,573)
Net assets:
At beginning of period 812,109,487 939,692,060
------------ -------------
At end of period (including accumulated distributions
in excess of net investment income of $503,978 and
$184,277, respectively) $774,119,388 $ 812,109,487
============ =============
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
EIGHT
SIX MONTHS MONTHS
ENDED YEAR ENDED JULY 31, ENDED YEAR ENDED
JANUARY 31, ------------------------------------------------ JULY 31, NOVEMBER 30,
1999 1998 1997 1996 1995 1994 1993
(UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS A
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a share
outstanding throughout
each period):
Net asset value - beginning of
period $ 6.69 $ 6.72 $ 6.53 $ 6.65 $ 6.49 $ 6.85 $ 6.82
------ ------ ------ ------ ------ ------ ------
Income from investment
operations# -
Net investment income(S) $ 0.37 $ 0.43 $ 0.44 $ 0.45 $ 0.45 $ 0.29 $ 0.34
Net realized and unrealized
gain (loss) on investments (0.15) (0.03) 0.18 (0.14) 0.14 (0.36) 0.20
------ ------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.22 $ 0.40 $ 0.62 $ 0.31 $ 0.59 $(0.07) $ 0.54
------ ------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $(0.20) $(0.41) $(0.42) $(0.42) $(0.42) $(0.20) $(0.47)
From net realized gains on
investments -- (0.02) -- -- -- -- --
In excess of net investment
income (0.00)+++ -- -- -- -- -- --
In excess of net realized
gains on investments -- -- -- -- -- -- (0.04)
From paid-in capital -- -- -- -- -- (0.09) --
From tax return of capital -- -- (0.01) (0.01) (0.01) -- --
------ ------ ------ ------ ------ ------ ------
Total distributions
declared to shareholders $(0.20) $(0.43) $(0.43) $(0.43) $(0.43) $(0.29) $(0.51)
------ ------ ------ ------ ------ ------ ------
Net asset value - end of
period $ 6.71 $ 6.69 $ 6.72 $ 6.53 $ 6.65 $ 6.49 $ 6.85
====== ====== ====== ====== ====== ====== ======
Total return(+) 3.36%++ 6.17% 9.90% 4.76% 9.60% (1.51)%++ 8.11%
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 0.94%+ 0.97% 1.09% 1.16% 1.25% 1.27%+ 1.38%
Net investment income 5.90%+ 6.43% 6.75% 6.75% 6.99% 6.46%+ 6.30%
Portfolio turnover 97% 72% 33% 25% 87% 37% 167%
Net assets at end of period
(000,000 omitted) $667 $657 $653 $541 $534 $424 $522
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash maintained by
the Fund with its custodian and dividend disbursing agent. For fiscal years ending after September 1, 1995, the Fund's expenses
are calculated without reduction for this expense offset arrangement.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results would
hav been lower.
(S) The investment adviser voluntarily waived a portion of their fee for certain of the periods indicated. If the fee had been
incurred by the Fund, the net investment income per share and the ratios would have been:
Net investment income $ 0.37 -- -- -- -- $ 0.29 $ 0.34
Ratios (to average net assets):
Expenses## 0.96%+ -- -- -- -- 1.28%+ 1.46%
Net investment income 5.88%+ -- -- -- -- 6.45%+ 6.22%
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
EIGHT
SIX MONTHS MONTHS PERIOD
ENDED YEAR ENDED JULY 31, ENDED ENDED
JANUARY 31, ------------------------------------------------ JULY 31, NOVEMBER 30,
1999 1998 1997 1996 1995 1994 1993*
(UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS B
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a share
outstanding throughout
each period):
Net asset value - beginning
of period $ 6.70 $ 6.72 $ 6.53 $ 6.65 $ 6.49 $ 6.84 $ 6.97
------ ------ ------ ------ ------ ------ ------
Income from investment
operations# -
Net investment income(S) $ 0.35 $ 0.38 $ 0.40 $ 0.40 $ 0.41 $ 0.26 $ 0.38
Net realized and unrealized
gain (loss) on investments (0.15) (0.03) 0.17 (0.13) 0.14 (0.35) (0.44)
------ ------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.20 $ 0.35 $ 0.57 $ 0.27 $ 0.55 $(0.09) $(0.06)
------ ------ ------ ------ ------ ------ ------
Less distributions declared
to shareholders -
From net investment income $(0.18) $(0.35) $(0.37) $(0.38) $(0.38) $(0.18) $(0.07)
From net realized gains on
investments -- (0.02) -- -- -- -- --
In excess of net investment
income (0.00)+++ -- -- -- -- -- --
From paid-in capital -- -- -- -- -- (0.08) --
From tax return of capital -- -- (0.01) (0.01) (0.01) -- --
------ ------ ------ ------ ------ ------ ------
Total distributions
declared to
shareholders $(0.18) $(0.37) $(0.38) $(0.39) $(0.39) $(0.26) $(0.07)
------ ------ ------ ------ ------ ------ ------
Net asset value - end of
period $ 6.72 $ 6.70 $ 6.72 $ 6.53 $ 6.65 $ 6.49 $ 6.84
====== ====== ====== ====== ====== ====== ======
Total return 2.95%++ 5.40% 9.09% 3.98% 8.81% (1.97)%++ (3.91)%++
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 1.69%+ 1.72% 1.78% 1.87% 1.96% 1.94%+ 1.87%+
Net investment income 5.12%+ 5.67% 6.02% 6.01% 6.28% 5.80%+ 5.92%+
Portfolio turnover 97% 72% 33% 25% 87% 37% 167%
Net assets at end of period
(000,000 omitted) $107 $155 $286 $553 $812 $1,229 $1,628
* For the period from the inception of Class B, September 7, 1993, through November 30, 1993.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01
# Per share data are based on average shares outstanding.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash maintained by
the Fund with its custodian and dividend disbursing agent. For fiscal years ending after September 1, 1995, the Fund's expenses
are calculated without reduction for this expense offset arrangement.
(S) The investment adviser voluntarily waived a portion of their fee for certain of the periods indicated. If the fee had been
incurred by the Fund, the net investment income per share and the ratios would have been:
Net investment income $ 0.33 -- -- -- -- $ 0.26 $ 0.38
Ratios (to average net
assets):
Expenses## 1.71%+ -- -- -- -- 1.94%+ 1.94%+
Net investment income 5.10%+ -- -- -- -- 5.80%+ 5.85%+
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
SIX MONTHS ENDED JULY 31, JULY 31,
JANUARY 31, 1999 1998 1997*
(UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------
CLASS I
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 6.69 $ 6.72 $ 6.59
------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.37 $ 0.44 $ 0.31
Net realized and unrealized gain (loss) on investments (0.15) (0.02) 0.09
------ ------ ------
Total from investment operations $ 0.22 $ 0.42 $ 0.40
------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.21) $(0.43) $(0.26)
In excess of net investment income (0.00)+++ -- --
From tax return of capital -- (0.02) (0.01)
------ ------ ------
Total distributions declared to shareholders $(0.21) $(0.45) $(0.27)
------ ------ ------
Net asset value - end of period $ 6.70 $ 6.69 $ 6.72
====== ====== ======
Total return 3.35%++ 6.47% 6.19%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.69%+ 0.73% 0.73%+
Net investment income 6.14%+ 6.67% 7.06%+
Portfolio turnover 97% 72% 33%
Net assets at end of period (000 omitted) $60 $51 $113
* For the period from the inception of Class I, January 2, 1997, through July 31, 1997.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash
maintained by the Fund with its custodian and dividend disbursing agent. The Fund's expenses are calculated without
reduction for this expense offset arrangement.
(S) The investment adviser voluntarily waived a portion of their fee for certain of the periods indicated. If these
fees had been incurred by the Fund, the net investment income per share and the ratios would have been:
Net investment income $ 0.38 -- --
Ratios (to average net assets):
Expenses## 0.71%+ -- --
Net investment income 6.12%+ -- --
See notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(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 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) 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 reported at market value using 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 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 that 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.
Futures Contracts - The Fund may enter into futures contracts for the delayed
delivery of securities or currency, or contracts based on financial indices at
a fixed price on a future date. In entering such contracts, the Fund is
required to deposit with the broker 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 contract, 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 future changes in interest
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 discount
is 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 be 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 July 31, 1998, the Fund, for federal income tax purposes, had a capital
loss carryforward of $42,186,173 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, 2002, ($5,628,534), July 31, 2003, ($4,604,728), July
31, 2004, ($30,095,607), and July 31, 2005, ($1,857,304).
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 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. 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
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 of 0.45%
of the Fund's average daily net assets. Effective November 1, 1998, the
investment adviser voluntarily agreed to waive a portion of its fee, which is
reflected as a preliminary reduction of expenses in the Statement of
Operations.
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
$15,169 for the six months ended January 31, 1999.
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
$19,783 for the six months ended January 31, 1999, 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 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 is not currently imposed, and will be implemented on
such date as the trustees of the trust may determine. MFD retains the service
fee for accounts not attributable to a securities dealer, which amounted to
$74,355 for the six months ended January 31, 1999. Fees incurred under the
distribution plan during the six months ended January 31, 1999, were 0.25% 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. 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. The service fee is
intended to be 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 $19,504 for Class B shares for the
six months ended January 31, 1999. Fees incurred under the distribution plan
during the six months ended January 31, 1999, were 1.00% of average daily net
assets attributable to Class B shares on an annualized basis.
Certain Class A 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 redemption's of
Class B shares in the event of a shareholder redemption within six years of
purchase. MFD receives all contingent deferred sales charges. Contingent
deferred sales charges imposed during the six months ended January 31, 1999,
were $10,020, and $43,182 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 Fund's average daily net assets at an effective annual rate
of 0.1125%.
(4) Portfolio Securities
Purchases and sales of investments, other than short-term obligations, were
as follows:
PURCHASES SALES
- --------------------------------------------------------------------------------
U.S. government securities $739,342,160 $844,114,228
------------ ------------
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 $782,618,596
------------
Gross unrealized appreciation $ 8,960,683
Gross unrealized depreciation (724,916)
------------
Net unrealized appreciation $ 8,235,767
============
(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. Transactions in
Fund shares were as follows:
<TABLE>
Class A Shares
<CAPTION>
SIX MONTHS ENDED JANUARY 31, 1999 YEAR ENDED JULY 31, 1998
--------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 15,043,616 $ 100,585,743 18,176,669 $ 122,097,242
Shares issued to shareholders
in reinvestment of
distributions 1,420,649 9,494,158 3,001,790 20,014,229
Shares reacquired (15,076,384) (100,858,577) (20,335,888) (135,963,645)
----------- ------------- ----------- -------------
Net increase 1,387,881 $ 9,221,324 842,571 $ 6,147,826
=========== ============= =========== =============
</TABLE>
<TABLE>
<CAPTION>
Class B Shares
SIX MONTHS ENDED JANUARY 31, 1999 YEAR ENDED JULY 31, 1998
--------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,204,947 $ 8,075,075 1,436,007 $ 9,624,515
Shares issued to shareholders
in reinvestment of
distributions 342,643 2,293,819 981,420 6,552,039
Shares reacquired (8,857,180) (59,282,255) (21,872,935) (146,988,676)
----------- ------------- ----------- -------------
Net decrease (7,309,590) $ (48,913,361) (19,455,508) $(130,812,122)
=========== ============= =========== =============
</TABLE>
<TABLE>
Class I Shares
<CAPTION>
SIX MONTHS ENDED JANUARY 31, 1999 YEAR ENDED JULY 31, 1998
--------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,892 $ 12,665 1,275 $ 8,547
Shares issued to shareholders
in reinvestment of
distributions 239 1,593 770 5,123
Shares reacquired (753) (5,015) (11,278) (75,277)
----------- ------------- ----------- -------------
Net increase (decrease) 1,378 $ 9,243 (9,233) $ (61,607)
=========== ============= =========== =============
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in an $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 six months ended January 31, 1999, was $4,177.
<PAGE>
<TABLE>
MFS(R) GOVERNMENT MORTGAGE FUND
<S> <C>
TRUSTEES SECRETARY
Richard B. Bailey* - Private Investor; Stephen E. Cavan*
Former Chairman and Director (until 1991),
MFS Investment Management ASSISTANT SECRETARY
James R. Bordewick, Jr.*
Peter G. Harwood - Private Investor
CUSTODIAN
J. Atwood Ives - Chairman and Chief Executive State Street Bank and Trust Company
Officer, Eastern Enterprises (diversified
services company) INVESTOR INFORMATION
For MFS stock and bond market outlooks, call
Lawrence T. Perera - Partner, Hemenway toll free: 1-800-637-4458 anytime from a
& Barnes (attorneys) touch-tone telephone.
William J. Poorvu - Adjunct Professor, Harvard For information on MFS mutual funds, call your
University Graduate School of Business financial adviser or, for an information kit,
Administration call toll free: 1-800-637-2929 any business day
from 9 a.m. to 5 p.m. Eastern time (or leave a
Charles W. Schmidt - Private Investor message anytime).
Arnold D. Scott* - Senior Executive INVESTOR SERVICE
Vice President, Director, and Secretary, MFS Service Center, Inc.
MFS Investment Management P.O. Box 2281
Boston, MA 02107-9906
Jeffrey L. Shames* - Chairman, Chief
Executive Officer, and Director, For general information, call toll free:
MFS Investment Management 1-800-225-2606 any business day from 8 a.m. to
8 p.m. Eastern time.
Elaine R. Smith - Independent Consultant
For service to speech- or hearing-impaired,
David B. Stone - Chairman and Director, call toll free: 1-800-637-6576 any business day
North American Management Corp. from 9 a.m. to 5 p.m. Eastern time. (To use
(investment advisers) this service, your phone must be equipped with
a Telecommunications Device for the Deaf.)
INVESTMENT ADVISER
Massachusetts Financial Services Company For share prices, account balances, and
500 Boylston Street exchanges, call toll free: 1-800-MFS-TALK
Boston, MA 02116-3741 (1-800-637-8255) anytime from a touch-tone
telephone.
DISTRIBUTOR
MFS Fund Distributors, Inc. WORLD WIDE WEB
500 Boylston Street www.mfs.com
Boston, MA 02116-3741
PORTFOLIO MANAGER
D. Richard Smith*
TREASURER
W. Thomas London*
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
-----------------
MFS(R) GOVERNMENT MORTGAGE FUND Bulk Rate
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
(c)1999 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MGM-3 3/99 61M 31/231/831
