<PAGE>
[MFS LOGO] Semiannual Report
THE FIRST NAME IN MUTUAL FUNDS May 31, 1995
MFS(R) WORLD GOVERNMENTS FUND
[GRAPHIC OMITTED: art work:
Silhouette of two men talking
in front of a large window.]
<PAGE>
<TABLE>
<S> <C>
MFS(R) WORLD GOVERNMENTS FUND
TRUSTEES CUSTODIAN
A. Keith Brodkin* - Chairman and President State Street Bank and Trust Company
Richard B. Bailey* - Private Investor; AUDITORS
Former Chairman and Director (until 1991), Ernst & Young LLP
Massachusetts Financial Services Company
INVESTOR INFORMATION
Peter G. Harwood - Private Investor For MFS stock and bond market outlooks,
call toll free: 1-800-637-4458 anytime from
J. Atwood Ives - Chairman and Chief Executive a touch-tone telephone.
Officer, Eastern Enterprises
For information on MFS mutual funds,
Lawrence T. Perera - Partner, 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 Executive MFS Service Center, Inc.
(until 1990), Raytheon Company P.O. Box 2281
Boston, MA 02107-9906
Arnold D. Scott* - Senior Executive Vice President
and Secretary, Massachusetts Financial Services Company For current account service, call toll free:
1-800-225-2606 any business day from
Jeffrey L. Shames* - President, Massachusetts 8 a.m. to 8 p.m. Eastern time.
Financial Services Company
For service to speech- or hearing-impaired,
Elaine R. Smith - Independent Consultant call toll free: 1-800-637-6576 any business
day from 9 a.m. to 5 p.m. Eastern time. (To use this
David B. Stone - Chairman, North American service, your phone must be equipped with a
Management Corp. (Investment Advisers) Telecommunications Device for 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.
PORTFOLIO MANAGER -------------------------------------------------
Leslie J. Nanberg* TOP-RATED SERVICE
MFS was rated first when
TREASURER NUMBER securities firms evaluated the
W. Thomas London* 1 quality of service they receive
DALBAR from 40 mutual fund companies.
ASSISTANT TREASURER MFS got high marks for
James O. Yost* answering calls quickly,
processing transactions
SECRETARY accurately and sending statements
Stephen E. Cavan* out on time.
ASSISTANT SECRETARY (Source: 1994 DALBAR Survey)
James R. Bordewick, Jr.* ------------------------------------------------
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
Most bond markets have rallied this year as the thoughts of strong world
growth and runaway inflation that plagued markets last year have given way to
expectations of a much slower path of worldwide economic recovery. During the
past six-month period, Class A shares of the Fund provided a total return of
+11.18%, Class B shares +10.71%, and Class C shares +10.81%. All of these
returns assume the reinvestment of distributions but exclude the effects of
any sales charges. A discussion of these results may be found in the Portfolio
Performance and Strategy section of this letter.
Economic Environment
Last year, all bond markets overreacted to a perceived risk of a sharp pickup
in inflation. Our view has been, and continues to be, that the worldwide focus
of controlling inflation and reducing budget deficits suggests that we are not
likely to see the sharp increase in inflation that we have seen in past
recoveries. Following very strong performance last year, economic growth in
the U.S. has fallen off sharply as consumers have retrenched and retailers
find themselves with larger than expected inventories. Thus, as is the case in
Europe and Japan, expectations of more restrictive monetary policy have
quickly given way to expectations of lower interest rates over the balance of
the year. As a result, our outlook for fixed-income investments on a worldwide
basis is quite positive.
Global Markets
The best performing bond market this year has been Japan's. While economic
growth appeared to bottom out in late 1994, the adverse effect of the Kobe
earthquake and the combination of a weak banking system and very strong yen
have contributed to a reversal in Japan. Unemployment, though low by U.S.
standards at 3.2%, is at a record high. Our expectation is that Japan will
experience deflation this year, and while we expect the Japanese government to
implement a stimulative fiscal policy to get the economic momentum moving
forward, past policies have not had much of an impact. As a result, while 10-
year Japanese government bonds currently yield only 2.75%, we expect a
continuation of the bond market rally in Japan.
Japanese bonds were also helped by yen strength relative to the U.S.
dollar, with returns of 12.3% in yen terms through the end of May. From a U.S.
dollar perspective, currency appreciation of the yen added an additional 20%
to the return of yen-denominated assets.
In Europe, Germany and the Netherlands were the best performers, returning
8.6% and 9.9%, respectively. Economic growth in Europe is now slowing more
quickly than had been forecast. Our strategy in Europe has been to focus on
core markets such as Germany and the Netherlands and, to a lesser extent,
Denmark, France and the United Kingdom. We have generally stayed away from the
higher-yielding markets of Italy, Spain and Sweden, as these countries have
been experiencing moderately rising inflation rates and political problems
which seem to preclude strong efforts at deficit reduction. With growth
slowing and inflation stable to declining, we expect an easing in monetary
policy in Europe led by the German Bundesbank. In this environment, we believe
there is good capital appreciation potential in these core markets over the
next six months. While European currencies did not appreciate versus the U.S.
dollar to the extent of the yen, the deutsche mark has appreciated
approximately 10% versus the dollar.
In the dollar-bloc markets, Australia, one of the hardest hit markets in
1994, was the star performer. Local currency return was 10.8%, although the
Australian dollar did depreciate versus the U.S. dollar over this period. The
U.S. and Canadian bond markets both turned in strong performance of 9.9%
during this same period.
<PAGE>
LETTER TO SHAREHOLDERS - continued
Portfolio Performance and Strategy
One of the factors which has contributed to the total return this year has
been our exposure to the yen and some of the European currencies -- primarily
the deutsche mark. The decline of the U.S. dollar has been quite dramatic and,
thus, it would not be unusual to expect a period of consolidation or stability
in the foreign exchange markets. The stabilization of the situation in Mexico
and recent strong central bank momentum should help restore some stability to
the foreign exchange markets.
On a longer-term basis, however, the large and persistent U.S. current-
account deficit has led to a large overhang of U.S. dollars that has primarily
been absorbed by foreign central banks. Our expectation is that this overhang
will require a large increase in the U.S. savings rate to dissipate, and will,
therefore, cap the upside appreciation of the dollar for several years. As a
result, we have structured the portfolio to benefit from a somewhat weaker
U.S. dollar environment.
During the past six months, the Fund also benefited from exposure in
Australia, Germany, Japan and the Netherlands. Early in the year, we removed
many of our currency hedges and, therefore, were able to participate in the
appreciation of the deutsche mark and the yen. For a good part of the year, we
did have a shorter duration (average maturity) than the general market
indices, and we have continued to be underweighted relative to our benchmark
in U.S. Treasury bonds. This hurt our performance, especially during late
April and May.
Looking ahead, we are very optimistic about the performance of fixed-
income markets over the balance of this year, especially those outside of the
U.S. where we believe the potential for capital gains is strong. We also
believe there should be opportunities for currency appreciation as the year
progresses.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
----------------------- -----------------------
A 1 1/2" x 1 5/8" photo A 1 1/2" x 1 5/8" photo
of A. Keith Brodkin, of Leslie J. Nanberg
Chairman and President. Portfolio Manager
----------------------- -----------------------
/s/ A. Keith Brodkin /s/ Leslie J. Nanberg
A. Keith Brodkin Leslie J. Nanberg
Chairman and President Portfolio Manager
June 23, 1995
PORTFOLIO MANAGER PROFILE
Leslie Nanberg joined MFS in 1980 as a member of the Fixed Income Department.
He is a graduate of the University of Illinois and holds graduate degrees from
Northwestern University and the Northwestern University Graduate School of
Management. He was named Assistant Vice President - Investments in 1981, Vice
President - Investments in 1983 and Senior Vice President in 1986. Mr. Nanberg
has senior responsibility for all fixed-income assets under MFS management.
<PAGE>
OBJECTIVE AND POLICIES
The Fund's investment objective is to seek not only preservation but also
growth of capital, together with moderate current income. The Fund seeks to
achieve its investment objective through a professionally managed,
internationally diversified portfolio consisting primarily of debt securities
and to a lesser extent equity securities.
The Fund varies the percentage of assets invested in securities issued in
relation to the state of the economies of the principal countries of the
world, their financial markets and the relationship of their currencies to the
U.S. dollar. The Fund may also invest in U.S. securities. In addition, the
Fund may engage in options and futures transactions and enter into forward
foreign currency exchange contracts.
PERFORMANCE SUMMARY
Because mutual funds like MFS World Governments Fund are designed for
investors with long-term goals, we have provided cumulative results as well as
the average annual total returns for Class A, Class B, and Class C shares for
the applicable time periods.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
Class A Investment Results
(net asset value change including reinvested distributions)
6 Months 1 Year 5 Years 10 Years
------------------------------------------------------------------------------
Cumulative Total Return* +11.18% +14.54% +62.95% +270.21%
------------------------------------------------------------------------------
Average Annual Total Return* -- +14.54% +10.26% + 13.98%
------------------------------------------------------------------------------
The average annual total returns, calculated for the period ended as of the
most recent calendar quarter as required by the Securities and Exchange
Commission (the SEC), with all distributions reinvested and reflecting the
maximum sales charge of 4.75% on the initial investment for the 1-, 5- and 10-
year periods ended March 31, 1995, were +4.19%, +9.09% and +13.80%,
respectively.
Class B Investment Results
(net asset value change including reinvested distributions)
9/07/93+
6 Months 1 Year 5/31/95
------------------------------------------------------------------------------
Cumulative Total Return++ +10.71% +13.65% +5.78%
------------------------------------------------------------------------------
Average Annual Total Return++ -- +13.65% +3.30%
------------------------------------------------------------------------------
The average annual total returns, calculated for the period ended as of the
most recent calendar quarter as required by the SEC, with all distributions
reinvested and reflecting the current maximum contingent deferred sales charge
(CDSC) of 4% for the 1-year period ended March 31, 1995 and for the period
from September 7, 1993+ to March 31, 1995, were +4.47% and +0.01%,
respectively.
+Commencement of offering of this class of shares.
*These results do not include the sales charge. If the charge had been
included, the results would have been lower.
++These results do not include any CDSC. If the charge had been included, the
results would have been lower.
<PAGE>
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN - continued
Class C Investment Results
(net asset value change including reinvested distributions)
1/03/94+ -
6 Months 1 Year 5/31/95
------------------------------------------------------------------------------
Cumulative Total Return(S) +10.81% +13.67% +3.13%
------------------------------------------------------------------------------
Average Annual Total Return(S) -- +13.67% +2.22%
------------------------------------------------------------------------------
The average annual total returns, calculated for the period ended as of the
most recent calendar quarter as required by the SEC, with all distributions
reinvested for the 1-year period ended March 31, 1995 and for the period from
January 3, 1994+ to March 31, 1995, were +8.58% and +0.80%, respectively.
All results represent past performance and are not necessarily an indication
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost. All
Class A share results reflect the applicable expense subsidy which is
explained in the Notes to Financial Statements. Had the subsidy not been in
effect, the results would have been less favorable. The subsidy may be
rescinded by MFS at any time.
+Commencement of offering of this class of shares.
(S)Class C shares have no initial sales charge or CDSC but, along with Class B
shares, have higher annual fees and expenses than Class A shares.
<PAGE>
PORTFOLIO OF INVESTMENTS - May 31, 1995
<TABLE>
Bonds - 73.0%
<CAPTION>
-------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Foreign Denominated - 53.6%
Australia - 6.8%
Commonwealth of Australia, 8.75s, 2001 AUD 16,370 $ 11,902,991
Commonwealth of Australia, 12s, 2001 1,215 1,019,202
Commonwealth of Australia, 10s, 2002 23,555 18,075,124
------------
$ 30,997,317
-------------------------------------------------------------------------------------------------
Canada - 3.3%
Government of Canada, 9.75s, 2001 CAD 18,500 $ 14,908,251
-------------------------------------------------------------------------------------------------
Czechoslovakia - 0.6%
Czech Electric Co., 16.5s, 1998 CSK 66,000 $ 2,673,704
-------------------------------------------------------------------------------------------------
Denmark - 5.8%
Danish Nykredit, 9s, 2026 DKK 1 $ 177
Kingdom of Denmark, 9s, 1998 97,200 18,473,689
Kingdom of Denmark, 9s, 2000 39,600 7,585,162
------------
$ 26,059,028
-------------------------------------------------------------------------------------------------
France - 3.1%
Government of France, 8s, 1998 FRF 21,900 $ 4,553,946
Government of France, 7s, 1999 22,590 4,560,807
Government of France, 7.75s, 2000 23,270 4,829,445
------------
$ 13,944,198
-------------------------------------------------------------------------------------------------
Germany - 11.6%
German Unity Fund, 8.5s, 2001 DEM 6,520 $ 5,108,025
Republic of Germany, 8.5s, 2000 19,560 15,268,705
Republic of Germany, 6.5s, 2003 12,990 9,115,064
Republic of Germany, 6.75s, 2004 9,000 6,385,350
Republic of Germany, 6.875s, 2005 19,145 13,757,844
Treuhandanstalt Obligationen, 6.375s, 1999 4,085 2,957,505
------------
$ 52,592,493
-------------------------------------------------------------------------------------------------
Ireland - 1.9%
Republic of Ireland, 9.25s, 2003 IEP 5,000 $ 8,549,550
-------------------------------------------------------------------------------------------------
Italy - 5.7%
Republic of Italy, 8.5s, 1999 ITL 16,825,000 $ 9,322,098
Republic of Italy, 9.5s, 1999 9,010,000 5,080,165
Republic of Italy, 8.5s, 2004 18,230,000 9,064,887
Republic of Italy, 9.5s, 2005 4,495,000 2,368,319
------------
$ 25,835,469
-------------------------------------------------------------------------------------------------
Netherlands - 7.7%
Dutch State Loan, 6.25s, 1998 NLG 4,820 $ 3,117,352
Dutch State Loan, 7s, 1999 490 323,576
Netherlands Government, 7.75s, 2005 21,250 14,409,173
Netherlands Government, 8.25s, 2007 23,990 16,775,693
------------
$ 34,625,794
-------------------------------------------------------------------------------------------------
New Zealand - 2.0%
Government of New Zealand, 8s, 1995 NZD 13,500 $ 8,927,694
-------------------------------------------------------------------------------------------------
Thailand - 1.1%
Industrial Finance Corp. Trust, 8.4s, 1995 THB 120,000 $ 4,849,615
-------------------------------------------------------------------------------------------------
United Kingdom - 4.0%
United Kingdom Gilts, 9s, 2000 GBP 10,920 $ 18,201,357
-------------------------------------------------------------------------------------------------
Total Foreign Denominated $242,164,470
-------------------------------------------------------------------------------------------------
Foreign - U.S. Dollar Denominated - 1.9%
United Mexican States, "A", 7.219s, 2019 $ 6,250 $ 4,117,188
United Mexican States, "B", 7.188s, 2019 2,200 1,449,250
United Mexican States, "C", 6.969s, 2019 2,200 1,449,250
United Mexican States, "D", 7.25s, 2019 2,200 1,449,250
------------
$ 8,464,938
-------------------------------------------------------------------------------------------------
U.S. Dollar Denominated - 17.5%
U.S. Treasury Notes, 6.875s, 1997 $43,000 $ 43,712,080
U.S. Treasury Notes, 7.25s, 2004 26,500 28,172,680
U.S. Treasury Stripped Principal Payments, 0s, 2019 38,000 7,352,240
------------
$ 79,237,000
-------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $315,659,121) $329,866,408
-------------------------------------------------------------------------------------------------
Call Options Purchased - 1.1%
-------------------------------------------------------------------------------------------------
Principal Amount
of Contracts
Description/Expiration Month/Strike Price (000 Omitted)
-------------------------------------------------------------------------------------------------
Canadian Dollars
August/1.34 CAD 16,472 $ 27,113
Deutsche Marks
July/1.385 DEM 67,844 567,383
Japanese Bonds
July/110.164 JPY 1,798,000 843,262
August/109.274 2,396,000 1,128,516
September/108.284 2,362,000 885,750
September/108.577 1,432,000 768,984
September/111.15 2,712,000 783,768
-------------------------------------------------------------------------------------------------
Total Call Options Purchased (Premiums Paid, $2,375,798) $ 5,004,776
-------------------------------------------------------------------------------------------------
Put Options Purchased - 0.2%
-------------------------------------------------------------------------------------------------
Deutsche Marks
July/1.42 DEM 69,559 $ 823,508
Deutsche Marks/British Pounds
July/2.29 14,208 53,237
-------------------------------------------------------------------------------------------------
Total Put Options Purchased (Premiums Paid, $714,628) $ 876,745
-------------------------------------------------------------------------------------------------
Short-Term Obligations - 29.8%
-------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted)
-------------------------------------------------------------------------------------------------
U.S. Dollar Denominated - 25.3%
Dow Chemical Co., due 6/02/95 $ 5,500 $ 5,499,094
Federal Home Loan Bank, due 6/05/95 - 6/13/95 15,315 15,296,683
Federal Home Loan Mortgage Corp., due 6/01/95 - 6/19/95 54,610 54,491,789
Federal National Mortgage Assn., due 6/06/95 - 6/22/95 22,890 22,849,144
Ford Motor Credit Co., due 6/07/95 10,000 9,990,033
Tennessee Valley Authority, due 6/14/95 6,500 6,486,222
------------
$114,612,965
-------------------------------------------------------------------------------------------------
Foreign Denominated - 4.5%
New Zealand Treasury Bills, due 12/20/95 NZD 29,121 $ 18,395,611
New Zealand Treasury Bills, due 3/20/96 3,036 1,873,258
------------
$ 20,268,869
-------------------------------------------------------------------------------------------------
Total Short-Term Obligations (Amortized Cost, $134,195,424) $134,881,834
-------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $452,944,971) $470,629,763
-------------------------------------------------------------------------------------------------
Call Options Written - (0.2)%
-------------------------------------------------------------------------------------------------
Principal Amount
of Contracts
Description/Expiration Month/Strike Price (000 Omitted)
-------------------------------------------------------------------------------------------------
British Pounds
September/1.64 GBP 17,912 $ (165,434)
Deutsche Marks/British Pounds
July/2.1139 DEM 13,115 (6,951)
Japanese Yen
March/78 JPY 1,933,612 (734,771)
-------------------------------------------------------------------------------------------------
Total Call Options Written (Premiums Received, $852,868) $ (907,156)
-------------------------------------------------------------------------------------------------
Put Options Written - (0.4)%
-------------------------------------------------------------------------------------------------
British Pounds
September/1.53 GBP 16,710 $ (162,927)
Canadian Dollars
August/1.373 CAD 16,877 (132,421)
Deutsche Marks
August/1.5 DEM 41,781 (193,695)
Japanese Bonds
September/108.284 JPY 2,362,000 (177,150)
September/108.577 1,432,000 (67,304)
Japanese Yen
March/93 2,305,460 (223,630)
June/84 3,544,076 (737,168)
-------------------------------------------------------------------------------------------------
Total Put Options Written (Premiums Received, $2,086,399) $ (1,694,295)
-------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (3.5)% $(15,811,231)
-------------------------------------------------------------------------------------------------
Net Assets - 100.0% $452,217,081
-------------------------------------------------------------------------------------------------
Abbreviations have been used throughout this report to indicate amounts shown
in currencies other than the U.S. dollar. A list of abbreviations is shown
below.
AUD = Australian Dollars ESP = Spanish Pesetas JPY = Japanese Yen
CAD = Canadian Dollars FRF = French Francs NLG = Dutch Guilders
CHF = Swiss Francs GBP = British Pounds NZD = New Zealand Dollars
CSK = Czech Republic Korunas IEP = Irish Punts SEK = Swedish Kronor
DEM = Deutsche Marks ITL = Italian Lire THB = Thailand Bahts
DKK = Danish Kroner
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
------------------------------------------------------------------------------
May 31, 1995
------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $452,944,971) $470,629,763
Cash 3,472,768
Foreign currency, at value (identified cost, $1,045,858) 1,125,075
Net receivable for forward foreign currency exchange
contracts 927,453
Receivable for investments sold 11,004,874
Receivable for Fund shares sold 1,488,164
Interest receivable 9,959,636
Other assets 5,565
------------
Total assets $498,613,298
------------
Liabilities:
Payable for investments purchased $ 18,767,759
Payable for Fund shares reacquired 2,600,347
Written options outstanding, at value (premiums received,
$2,939,267) 2,601,451
Net payable for forward foreign currency exchange contracts
sold 12,516,144
Net payable for forward foreign currency exchange contracts
purchased 9,406,578
Payable to affiliates -
Management fee 11,201
Distribution fee 217,680
Shareholder servicing agent fee 2,030
Accrued expenses and other liabilities 273,027
------------
Total liabilities $ 46,396,217
------------
Net assets $452,217,081
------------
Net assets consist of:
Paid-in capital $413,442,426
Unrealized depreciation on investments and translation of
assets and liabilities in foreign currencies (2,655,610)
Accumulated net realized gain on investments and foreign
currency transactions 34,327,021
Accumulated undistributed net investment income 7,103,244
------------
Total $452,217,081
------------
Shares of beneficial interest outstanding 37,270,302
------------
Class A shares:
Net asset value and redemption price per share
(net assets of $357,360,271 / 29,386,534 shares of beneficial
interest outstanding) $12.16
------
Offering price per share (100/95.25 of net asset value per
share) $12.77
------
Class B shares:
Net asset value and offering price per share
(net assets of $85,139,894 / 7,076,287 shares of beneficial
interest outstanding) $12.03
------
Class C shares:
Net asset value, offering price, and redemption price per share
(net assets of $9,716,916 / 807,481 shares of beneficial
interest outstanding) $12.03
------
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
------------------------------------------------------------------------------
Six Months Ended May 31, 1995
------------------------------------------------------------------------------
Net investment income:
Interest income $17,823,050
-----------
Expenses -
Management fee $ 1,988,888
Trustees' compensation 14,984
Shareholder servicing agent fee (Class A) 267,081
Shareholder servicing agent fee (Class B) 84,483
Shareholder servicing agent fee (Class C) 6,798
Distribution and service fee (Class A) 623,225
Distribution and service fee (Class B) 384,013
Distribution and service fee (Class C) 45,323
Custodian fee 210,512
Auditing fees 27,259
Postage 23,544
Printing 21,048
Miscellaneous 108,674
-----------
Total expenses $ 3,805,832
Reduction of expenses by distributor (178,090)
-----------
Total net expenses $ 3,627,742
-----------
Net investment income $14,195,308
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (identified cost basis) -
Investment transactions $ 7,585,902
Written option transactions 4,040,177
Foreign currency transactions 14,738,056
-----------
Net realized gain on investments $26,364,135
-----------
Change in unrealized appreciation (depreciation) -
Investments $22,268,123
Written options 1,588,790
Translation of assets and liabilities in foreign currencies (17,894,738)
-----------
Net unrealized gain on investments $ 5,962,175
----------
Net realized and unrealized gain on investments $32,326,310
-----------
Increase in net assets from operations $46,521,618
-----------
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
------------------------------------------------------------------------------
Six Months Ended Year Ended
May 31, 1995 November 30, 1994
------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment income $ 14,195,308 $ 25,417,486
Net realized gain (loss) on
investments and foreign currency
transactions 26,364,135 (48,681,897)
Net unrealized gain (loss) on
investments and foreign
currency transactions 5,962,175 (831,027)
------------ ------------
Increase (decrease) in net assets
from operations $ 46,521,618 $(24,095,438)
------------ ------------
Distributions declared to
shareholders -
From net investment income (Class A) $ -- $(38,773,645)
From net investment income (Class B) -- (3,332,371)
From net investment income (Class C) -- (99,440)
From net realized gain on
investments and foreign currency
transactions (Class A) (14,380,757) (9,595,121)
From net realized gain on
investments and foreign currency
transactions (Class B) (2,952,759) (754,139)
From net realized gain on
investments and foreign currency
transactions (Class C) (346,641) --
------------ ------------
Total distributions declared to
shareholders $(17,680,157) $(52,554,716)
------------ ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 43,460,413 $180,053,701
Net asset value of shares issued to
shareholders in reinvestment of
distributions 14,245,518 37,130,247
Cost of shares reacquired (86,585,735) (156,172,084)
------------ ------------
Increase (decrease) in net assets
from Fund share transactions $(28,879,804) $ 61,011,864
------------ ------------
Total decrease in net assets
$ (38,343) $(15,638,290)
Net assets:
At beginning of period 452,255,424 467,893,714
------------ ------------
At end of period (including
undistributed (distributions in
excess of) net investment income
of $7,103,244 and $(7,092,064),
respectively) $452,217,081 $452,255,424
------------ ------------
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights
--------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended
November 30, Year Ended December 31,
Six Months Ended ----------------------- ---------------------------------------
May 31, 1995 1994 1993<F5> 1992 1991 1990
--------------------------------------------------------------------------------------------------------------
Class A
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value -
beginning of period $11.39 $13.37 $11.50 $12.63 $12.00 $11.45
------ ------ ------ ------ ------ ------
Income from investment operations<F6> -
Net investment
income<F7> $ 0.38 $ 0.63 $ 0.58 $ 0.87 $ 0.94 $ 0.98
Net realized and
unrealized gain(loss)
on investments 0.84 (1.17) 1.29 (0.70) 0.67 1.07
------ ------ ------ ------ ------ ------
Total from investment
operations $ 1.22 $(0.54) $ 1.87 $ 0.17 $ 1.61 $ 2.05
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment
income $ -- $(1.15) $ -- $(1.30) $(0.75) $(0.95)
From net realized
gain on investments (0.45) (0.29) -- -- -- (0.50)
From paid-in capital -- -- -- -- (0.23) (0.05)
------ ------ ------ ------ ------ ------
Total distributions
declared to
shareholders $(0.45) $(1.44) $ -- $(1.30) $(0.98) $(1.50)
------ ------ ------ ------ ------ ------
Net asset value - end
of period $12.16 $11.39 $13.37 $11.50 $12.63 $12.00
------ ------ ------ ------ ------ ------
Total return<F4> 11.18%<F2> (4.63)% 17.77%<F1> 1.35% 13.42% 17.90%
Ratios (to average net assets)/Supplemental data<F7>:
Expenses 1.48%<F1> 1.54 % 1.54%<F1> 1.53% 1.61% 1.44%
Net investment income 6.56%<F1> 5.45 % 5.66%<F1> 6.78% 7.75% 8.06%
Portfolio turnover<F3> 104% 358 % 179%<F1> 163% 208% 220%
Net assets at end of
period (000 omitted) $357,360 $370,110 $443,304 $340,347 $286,089 $145,202
<FN>
-------------
<F1> Annualized.
<F2> Not annualized.
<F3> The portfolio turnover for 1985 and subsequent years includes portfolio activity applicable to U.S. government
securities, while the preceding years do not.
<F4> 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.
<F5> For the eleven months ended November 30, 1993.
<F6> Per share data for the periods subsequent to November 30, 1993 were calculated using the average share method.
<F7> The distributor waived a portion of the Class A distribution 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 $ 0.37 $ 0.62 $ 0.58 -- -- --
Ratios (to average net assets):
Expenses 1.58%<F1> 1.64% 1.57%<F1> -- -- --
Net investment
income 6.46%<F1> 5.35% 5.63%<F1> -- -- --
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights - continued
-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------------------------------------------------------
1989 1988 1987 1986 1985 1984
-----------------------------------------------------------------------------------------------------------------------------------
Class A
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning
of period $11.11 $11.87 $11.45 $10.70 $ 9.40 $ 9.92
------ ------ ------ ------ ------ ------
Income from investment operations -
Net investment income $ 1.07 $ 0.94 $ 0.91 $ 0.82 $ 0.75 $ 0.78
Net realized and
unrealized gain (loss) on
investments (0.26) (0.42) 1.86 2.35 1.94 (0.51)
------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.81 $ 0.52 $ 2.77 $ 3.17 $ 2.69 $ 0.27
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.47) $(0.90) $(0.90) $(0.82) $(0.74) $(0.79)
From net realized gain on
investments -- (0.32) (1.40) (1.52) (0.65) --
From paid-in capital -- (0.06) (0.05) (0.08) -- --
------ ------ ------ ------ ------ ------
Total distributions
declared to shareholders $(0.47) $(1.28) $(2.35) $(2.42) $(1.39) $(0.79)
------ ------ ------ ------ ------ ------
Net asset value - end of
period $11.45 $11.11 $11.87 $11.45 $10.70 $ 9.40
------ ------ ------ ------ ------ ------
Total return<F2> 7.27% 3.68% 23.29% 29.36% 28.72% 2.36%
Ratios (to average net assets)/Supplemental data:
Expenses 1.42% 1.12% 1.13% 1.17% 1.43% 1.40%
Net investment income 8.42% 7.91% 7.54% 6.57% 7.45% 7.98%
Portfolio turnover<F1> 282% 232% 378% 371% 307% 135%
Net assets at end of period
(000 omitted) $124,935 $190,590 $182,738 $142,183 $69,581 $35,486
<FN>
---------
<F1> The portfolio turnover for 1985 and subsequent years includes portfolio
activity applicable to U.S. government securities, while the preceding
years do not.
<F2> 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.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights - continued
---------------------------------------------------------------------------------------------------------------
<CAPTION>
Six Six
Months Year Ended Months Period
Ended November 30, Ended Ended
May 31, ---------------------------- May 31, November 30,
1995 1994 1993<F4> 1995 1994<F5>
---------------------------------------------------------------------------------------------------------------
Class B Class C
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value -
beginning of period $11.32 $13.35 $13.22 $11.31 $12.30
------ ------ ------ ------ ------
Income from investment operations<F6> -
Net investment income $ 0.33 $ 0.56 $ 0.07 $ 0.33 $ 0.50
Net realized and unrealized
gain (loss) on
investments 0.83 (1.19) 0.06 0.84 (1.35)
------ ------ ------ ------ ------
Total from investment
operations $ 1.16 $(0.63) $ 0.13 $ 1.17 $(0.85)
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment
income $ -- $(1.11) $ -- $ -- $(0.14)
From net realized
gain on investments (0.45) (0.29) -- (0.45) --
------ ------ ------ ------ ------
Total distributions
declared to
shareholders $(0.45) $(1.40) $ -- $ (0.45) $(0.14)
------ ------ ------ ------ ------
Net asset value -
end of period $12.03 $11.32 $13.35 $12.03 $11.31
------ ------ ------ ------ ------
Total return 10.71%<F2> (5.39)% 4.32%<F1> 10.81%<F2> (6.92)%
Ratios (to average net assets)/Supplemental data:
Expenses 2.30%<F1> 2.38 % 2.48%<F1> 2.23%<F1> 2.32 %<F1>
Net investment income 5.75%<F1> 4.81 % 4.72%<F1> 5.83%<F1> 5.06 %<F1>
Portfolio turnover<F3> 104% 358 % 179%<F1> 104% 358%
Net assets at end of
period (000 omitted) $85,140 $73,458 $24,590 $9,717 $8,687
<FN>
----------
<F1> Annualized.
<F2> Not annualized.
<F3> The portfolio turnover for 1985 and subsequent years includes portfolio
activity applicable to U.S. government securities, while the preceding
years do not.
<F4> For the period from the commencement of offering of Class B shares,
September 7, 1993 to November 30, 1993.
<F5> For the period from the commencement of offering of Class C shares, January
3, 1994 to November 30, 1994.
<F6> Per share data for the periods subsequent to November 30, 1993 were
calculated using the average share method.
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS World Governments Fund (the Fund) is a non-diversified series of MFS(R)
Series Trust VII (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
Investment Valuations - Debt securities (other than short-term obligations
which mature in 60 days or less), including listed issues and forward
contracts, 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. Non-U.S. dollar denominated short-term
obligations are valued at amortized cost as calculated in the base currency
and translated into U.S. dollars at the closing daily exchange rate. Futures
contracts, options and options on futures contracts listed on commodities
exchanges are valued at closing settlement prices. Over-the-counter options
are valued by brokers through the use of a pricing model which takes into
account closing bond valuations, implied volatility and short-term repurchase
rates. 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.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments and income and expenses are converted into
U.S. dollars based upon currency exchange rates prevailing on the respective
dates of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that results from fluctuations in foreign currency
exchange rates is not separately disclosed.
Written Options - The Fund may write covered call or put options for which
premiums are received and are recorded as liabilities, and are subsequently
adjusted to the current value of the options written. Premiums received from
writing options which expire are treated as realized gains. Premiums received
from writing options which are exercised or are closed are offset against the
proceeds or amount paid on the transaction to determine the realized gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
security purchased by the Fund. The Fund, as writer of an option, may have no
control over whether the underlying securities may be sold (call) or purchased
(put) and, as a result, bears the market risk of an unfavorable change in the
price of the securities underlying the written option. In general, written
call options may serve as a partial hedge against decreases in value in the
underlying securities to the extent of the premium received. Written options
may also be used as a part of an income producing strategy reflecting the view
of the Fund's management on the direction of interest rates.
Futures Contracts - The Fund may enter into futures contracts for the delayed
delivery of securities, 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 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 future changes in interest
or exchange rates or securities prices. For example, interest rate futures may
be used in modifying the duration of the portfolio without incurring the
additional transaction costs involved in buying and selling the underlying
securities. Should interest or exchange rates or securities prices move
unexpectedly, the Fund may not achieve the anticipated benefits of the futures
contracts and may realize a loss.
Security Loans - The Fund may lend its securities to member banks of the
Federal Reserve System and to member firms of the New York Stock Exchange or
subsidiaries thereof. The loans are collateralized at all times by cash or
securities with a market value at least equal to the market value of
securities loaned. As with other extensions of credit, the Fund may bear the
risk of delay in recovery or even loss of rights in the collateral should the
borrower of the securities fail financially. The Fund receives compensation
for lending its securities in the form of fees or from all or a portion of the
income from investment of the collateral. The Fund would also continue to earn
income on the securities loaned. At May 31, 1995, the Fund had no securities
on loan.
Forward Foreign Currency Exchange Contracts - The Fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the
value of a foreign currency relative to the U.S. dollar. The Fund will enter
into forward contracts for hedging purposes as well as for non-hedging
purposes. For hedging purposes, the Fund may enter into contracts to deliver
or receive foreign currency it will receive from or require for its normal
investment activities. It may also use contracts in a manner intended to
protect foreign currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the Fund may
enter into contracts with the intent of changing the relative exposure of the
Fund's portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains
or losses are recorded for financial statement purposes as unrealized until
the contract settlement date.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and original issue discount are amortized or accreted for both financial
statement and tax reporting purposes as required by federal income tax
regulations. Interest payments received in additional securities are recorded
on the ex-interest date in an amount equal to the value of the security on
such date.
The Fund uses the effective interest method for reporting interest income on
payment-in-kind (PIK) bonds, whereby interest income on PIK bonds is recorded
ratably by the Fund at a constant yield to maturity. Legal fees and other
related expenses incurred to preserve and protect the value of a security
owned are added to the cost of the security; other legal fees are expensed.
Capital infusions, which are generally non-recurring, incurred to protect or
enhance the value of high-yield debt securities, are reported as an addition
to the cost basis of the security. Costs that are incurred to negotiate the
terms or conditions of capital infusions or that are expected to result in a
plan of reorganization are considered workout expenses and are reported as
realized losses. Ongoing costs incurred to protect or enhance an investment,
or costs incurred to pursue other claims or legal actions, are reported as
operating expenses.
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. Foreign taxes have been provided
for on interest income earned on foreign investments in accordance with the
applicable country's tax rates and to the extent unrecoverable are recorded as
a reduction of investment income. 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.
Multiple Classes of Shares of Beneficial Interest - The Fund offers Class A,
Class B and Class C shares. The three classes of shares differ in their
respective shareholder servicing agent, distribution and service fees.
Shareholders of each class also bear certain expenses that pertain only to
that particular class. All shareholders bear the common expenses of the Fund
pro rata based on the average daily net assets of each class, without
distinction between share classes. Dividends are declared separately for each
class. No class has preferential dividend rights; differences in per share
dividend rates are generally due to differences in separate class expenses,
including distribution and shareholder service fees.
(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, computed daily and paid monthly at an effective annual rate of
0.90% of average daily net assets, amounted to $1,988,888 for the six months
ended May 31, 1995.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive
remuneration for their services to the Fund from MFS. Certain of the officers
and Trustees of the Fund are officers or directors of MFS, MFS Fund
Distributors, Inc. (MFD) and MFS Service Center, Inc. (MFSC). The Fund has an
unfunded defined benefit plan for all its independent Trustees and Mr. Bailey.
Included in Trustees' compensation is a net periodic pension expense of $4,478
for the six months ended May 31, 1995.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$47,306 as its portion of the sales charge on sales of Class A shares of the
Fund. The Trustees have adopted separate distribution plans for Class A, Class
B and Class C shares pursuant to Rule 12b-1 of the Investment Company Act of
1940 as follows:
The Class A Distribution Plan provides that the Fund will pay MFD up to 0.35%
per annum of its average daily net assets attributable to Class A shares in
order that MFD may pay expenses on behalf of the Fund related to the
distribution and servicing of its shares. These expenses include a service fee
to each securities dealer that enters into a sales agreement with MFD of up to
0.25% per annum of the Fund's average daily net assets attributable to Class A
shares which are attributable to that securities dealer, a distribution fee to
MFD of up to 0.10% per annum of the Fund's average daily net assets
attributable to Class A shares, commissions to dealers and payments to MFD
wholesalers for sales at or above a certain dollar level, and other such
distribution-related expenses that are approved by the Fund. MFD is not
imposing the 0.10% distribution fee for an indefinite period. Fees incurred
under the distribution plan for the six months ended May 31, 1995 were 0.25%
of average daily net assets attributable to Class A shares on an annualized
basis and amounted to $445,135 (of which MFD retained $72,214).
The Class B and Class C Distribution Plans provide that the Fund will pay MFD
a monthly distribution fee, equal to 0.75% per annum, and a quarterly service
fee of up to 0.25% per annum, of the Fund's average daily net assets
attributable to Class B and Class C shares. MFD will pay to securities dealers
that enter into a sales agreement with MFD all or a portion of the service fee
attributable to Class B and Class C shares, and will pay to such securities
dealers all of the distribution fee attributable to Class C shares. The
service fee is intended to be additional consideration for services rendered
by the dealer with respect to Class B and Class C shares. Fees incurred under
the distribution plans during the six months ended May 31, 1995 were 1.00% of
average daily net assets attributable to Class B and Class C shares on an
annualized basis and amounted to $384,013 and $45,323, respectively (of which
MFD retained $4,838 and $1,547, respectively).
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 twelve 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 six months ended May 31, 1995 were
$305 and $149,225 for Class A and Class B shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earned
$267,081, $84,483 and $6,798 for Class A, Class B and Class C shares,
respectively, for its services as shareholder servicing agent. The fee is
calculated as a percentage of the average daily net assets of each class of
shares at an effective annual rate of up to 0.15%, up to 0.22% and up to 0.15%
attributable to Class A, Class B and Class C shares, respectively.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
Purchases Sales
------------------------------------------------------------------------------
U.S. government securities $ 88,630,622 $172,336,090
------------ ------------
Investments (non-U.S. government securities) $311,071,239 $349,260,730
------------ ------------
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 $452,945,086
------------
Gross unrealized appreciation $ 18,042,814
Gross unrealized depreciation (1,044,547)
------------
Net unrealized appreciation $ 16,998,267
------------
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares Six Months Ended Year Ended
May 31, 1995 November 30, 1994
-------------------------------- ---------------------------------
Shares Amount Shares Amount
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,896,729 $ 21,895,454 6,994,122 $ 83,202,907
Shares issued to shareholders in
reinvestment of distributions 1,062,046 11,587,461 2,765,118 33,750,055
Shares reacquired (6,071,083) (69,517,135) (10,416,982) (120,789,728)
---------- ------------ ----------- ------------
Net decrease
(3,112,308) $(36,034,220) (657,742) $ (3,836,766)
---------- ------------ ----------- ------------
Class B Shares Six Months Ended Year Ended
May 31, 1995 November 30, 1994
-------------------------------- ---------------------------------
Shares Amount Shares Amount
------------------------------------------------------------------------------------------------------
Shares sold 1,609,994 $ 18,497,840 7,078,760 $ 83,400,018
Shares issued to shareholders in
reinvestment
of distributions 223,213 2,417,930 275,106 3,329,286
Shares reacquired (1,247,729) (14,192,025) (2,704,874) (30,935,821)
---------- ------------ ----------- ------------
Net increase 585,478 $ 6,723,745 4,648,992 $ 55,793,483
---------- ------------ ----------- ------------
Class C Shares Six Months Ended Period Ended
May 31, 1995 November 30, 1994<F1>
-------------------------------- ---------------------------------
Shares Amount Shares Amount
------------------------------------------------------------------------------------------------------
Shares sold 269,851 $ 3,067,119 1,159,179 $ 13,450,776
Shares issued to shareholders in
reinvestment
of distributions 22,172 240,127 4,578 50,906
Shares reacquired (252,333) (2,876,575) (395,966) (4,446,535)
---------- ------------ ----------- ------------
Net increase 39,690 $ 430,671 767,791 $ 9,055,147
---------- ------------ ----------- ------------
<F1> For the period from the commencement of offering of Class C shares, January
3, 1994 to November 30, 1994.
</TABLE>
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS, or an affiliate of MFS, in an unsecured line of credit
with a bank which permits borrowings up to $350 million, collectively.
Borrowings may be made to temporarily finance the 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 May 31, 1995 was $3,246.
(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 and foreign currency exchange rates. These
financial instruments include written options and forward foreign currency
exchange 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 May 31, 1995, is
as follows:
<TABLE>
Written Option Transactions
<CAPTION>
1995 Calls 1995 Puts
---------------------------------------- ------------------------------------------
Principal Amounts Principal Amounts
of Contracts of Contracts
(000 Omitted) Premiums (000 Omitted) Premiums
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OUTSTANDING, BEGINNING OF PERIOD -
Canadian Dollars -- $ -- 13,696 $ 71,457
Deutsche Marks 147,651 1,875,077 -- --
Japanese Yen 3,530,848 533,572 2,279,000 244,928
Swiss Francs/
Deutsche Marks 21,051 88,635 -- --
Options written -
Australian Dollars 11,269 85,963 36,474 446,467
British Pounds 17,912 309,088 16,710 309,088
Canadian Dollars -- -- 37,298 153,821
Deutsche Marks 299,934 1,428,883 217,943 1,749,402
Deutsche Marks/
British Pounds 13,115 85,168 60,188 205,757
Italian Lire/
Deutsche Marks 39,100,751 357,825 -- --
Japanese Yen 10,268,629 2,719,994 25,374,755 2,733,043
Spanish Pesetas/
Deutsche Marks -- -- 1,568,959 102,820
U.S. Dollars -- -- 23,000 303,672
Options terminated in closing
transactions -
Australian Dollars (11,269) (85,963) (36,474) (446,467)
Canadian Dollars -- -- (34,117) (139,526)
Deutsche Marks (63,152) (313,437) (176,162) (1,494,540)
Deutsche Marks/
British Pounds -- -- (60,188) (205,757)
Japanese Yen (9,474,517) (2,414,731) (18,010,219) (1,541,274)
Spanish Pesetas/
Deutsche Marks -- -- (1,568,959) (102,820)
U.S. Dollars -- -- (23,000) (303,672)
Options exercised -
Deutsche Marks (185,144) (1,994,901) -- --
Swiss Francs/
Deutsche Marks (21,051) (88,635) -- --
Options expired -
Deutsche Marks (199,289) (995,622) -- --
Italian Lire/
Deutsche Marks (39,100,751) (357,825) -- --
Japanese Yen (2,391,348) (380,223) -- --
---------- ----------
OUTSTANDING, END OF PERIOD -
British Pounds 17,912 $ 309,088 16,710 $ 309,088
Canadian Dollars -- -- 16,877 85,752
Deutsche Marks -- -- 41,781 254,862
Deutsche Marks/
British Pounds 13,115 85,168 -- --
Japanese Yen 1,933,612 458,612 9,643,536 1,436,697
---------- ----------
$ 852,868 $2,086,399
---------- ----------
</TABLE>
At May 31, 1995, the Fund had sufficient cash and/or securities at least equal
to the value of the written options.
<TABLE>
Forward Foreign Currency Exchange Contracts
<CAPTION>
Net
Unrealized
Contracts to Contracts Appreciation
Settlement Date Deliver/Receive In Exchange for at Value (Depreciation)
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales 6/09/95 - 9/01/95 AUD 63,855,624 $46,880,166 $45,833,832 $ 1,046,334
6/09/95 - 8/01/95 CAD 10,612,675 7,805,665 7,739,869 65,796
6/09/95 CHF 14,103,501 11,482,355 12,112,580 (630,225)
6/06/95 - 9/08/95 DEM 630,285,888 440,189,675 446,841,758 (6,652,083)
6/08/95 - DKK 128,710,056 23,704,383 23,322,134 382,249
6/21/95 - 7/10/95 ESP 3,984,439,004 30,488,868 32,504,128 (2,015,260)
8/02/95 FRF 71,099,215 14,578,771 14,297,626 281,145
6/09/95 - 7/07/95 GBP 20,043,909 32,025,707 31,781,716 243,991
8/04/95 IEP 4,604,842 7,505,892 7,453,097 52,795
6/05/95 - 9/11/95 ITL 68,654,016,189 41,553,817 41,616,260 (62,443)
6/08/95 - 8/25/95 JPY 15,129,438,877 175,329,962 180,301,451 (4,971,489)
6/26/95 NLG 58,258,779 37,292,701 36,909,383 383,318
6/09/95 - 7/24/95 NZD 47,839,226 30,710,776 31,739,869 (1,029,093)
7/13/95 - 8/16/95 SEK 174,296,488 24,047,318 23,658,497 388,821
------------ ------------ ------------
$923,596,056 $936,112,200 $(12,516,144)
------------ ------------ ------------
Purchases 7/05/95 - 8/25/95 AUD 19,950,433 $ 14,851,208 $ 14,304,676 $ (546,532)
8/01/95 CAD 8,262,634 5,991,368 6,014,653 23,285
6/09/95 - 8/02/95 CHF 53,399,736 47,483,294 45,998,816 (1,484,478)
6/06/95 - 9/01/95 DEM 629,242,033 450,870,996 445,851,168 (5,019,828)
9/08/95 DKK 50,454,570 9,288,534 9,129,452 (159,082)
6/21/95 - 7/05/95 ESP 3,425,320,977 26,891,329 27,942,783 1,051,454
6/21/95 - 8/25/95 GBP 17,209,331 27,168,740 27,278,854 110,114
6/05/95 - 6/09/95 ITL 27,506,392,766 16,813,650 16,804,243 (9,407)
6/08/95 - 9/08/95 JPY 18,751,298,061 226,817,949 223,630,834 (3,187,115)
6/09/95 NZD 24,509,492 16,526,751 16,272,244 (254,507)
7/13/95 - 8/16/95 SEK 174,296,488 23,609,435 23,658,497 49,062
8/21/95 THB 98,900,000 3,948,104 3,968,560 20,456
------------ ------------ ------------
$870,261,358 $860,854,780 $ (9,406,578)
------------ ------------ ------------
</TABLE>
Forward foreign currency purchases and sales under master netting arrangements
and closed forward foreign currency exchange contracts excluded above amounted
to a net receivable of $927,453 at May 31, 1995.
At May 31, 1995, the Fund had sufficient cash and/or securities to cover any
commitments under these contracts.
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees of MFS Series Trust VII and Shareholders of MFS World
Governments Fund:
We have audited the accompanying statement of assets and liabilities of MFS
World Governments Fund, including the portfolio of investments, as of May 31,
1995, the related statement of operations for the six-month period then ended
and the statement of changes in net assets and the financial highlights for
the six-month period then ended and for the year ended November 30, 1994.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The
financial highlights for the periods prior to the year ended November 30, 1994
indicated herein, were audited by other auditors whose report dated January
19, 1994 expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of May 31, 1995, by correspondence with the custodian and brokers or
by other appropriate auditing procedures where replies from brokers were not
received. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
World Governments Fund as of May 31, 1995, the results of its operations for
the six-month period then ended, the changes in its net assets and financial
highlights for the six-month period then ended, and for the year ended
November 30, 1994, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
July 7, 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>
MFS(R) WORLD -------------
GOVERNMENTS [LOGO: NUMBER 1 DALBAR BULK RATE
FUND TOP RATED SERVICE] U.S. POSTAGE
PAID
500 Boylston Street PERMIT #55638
Boston, MA 02116 BOSTON, MA
-------------
[LOGO: M F S
THE FIRST NAME IN MUTUAL FUNDS]
MWG-3 7/95 40M 20/220/320
