<PAGE>
[LOGO] Semiannual Report
INVESTMENT MANAGEMENT May 31, 1997
MFS(R) WORLD GOVERNMENTS FUND
[GRAPHIC OMITTED]
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman ................................................... 1
Portfolio Manager's Overview ............................................... 2
Portfolio Manager's Profile ................................................ 3
Fund Facts ................................................................. 4
Performance Summary ........................................................ 4
Portfolio of Investments ................................................... 6
Financial Statements .......................................................10
Notes to Financial Statements ..............................................18
Independent Auditors' Report ...............................................27
The MFS Family of Funds(R) .................................................28
Trustees and Officers ......................................................29
HIGHLIGHTS
o FOR THE SIX MONTHS ENDED MAY 31, 1997, CLASS A SHARES OF THE FUND PROVIDED A
TOTAL RETURN AT NET ASSET VALUE OF -4.24%, CLASS B SHARES -4.55%, CLASS C
SHARES -4.57%, AND CLASS I SHARES -4.16%.
o AS A RESULT OF ACCELERATING GROWTH IN THE WORLD'S MAJOR ECONOMIES, INTEREST
RATES HAVE GENERALLY RISEN OVER THE PERIOD, RESULTING IN SOME CAPITAL LOSSES
ON BONDS, ALTHOUGH PROVIDING SOME POSITIVE RETURNS IN LOCAL CURRENCY TERMS.
o THE FUND'S DURATION, OR SENSITIVITY TO CHANGES IN INTEREST RATES, WAS KEPT
FAIRLY LOW, WHICH HELPED REDUCE THE RISK OF CAPITAL LOSSES FROM RISING RATES.
o HOWEVER, THE SURGE OF THE JAPANESE YEN LATE IN MAY, WHICH WAS UNUSUALLY
SEVERE, PULLED THE DOLLAR DOWN AGAINST OTHER CURRENCIES AND CAUSED THE FUND'S
OVERALL UNDER-PERFORMANCE.
<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of A. Keith Brodkin]
Dear Shareholders:
After more than six years of expansion, the U.S. economy is experiencing another
year of growth in 1997, although a few signs point to the possibility of a
modest rise in inflation during the year. On the positive side, the pattern of
moderate growth and inflation set over the past few years now seems fairly well
entrenched in the economy and, short of a major international or domestic
crisis, appears to have enough momentum to remain on track for some time. The
U.S. economy exhibited a great deal of strength in the first quarter of 1997,
growing at an annualized rate of 5.8%. This pace would clearly lead to
inflationary pressures were it to continue, as could the ongoing tightness in
the labor market. Moreover, there is reason for caution as a result of the
continuing high level of consumer debt and rising personal bankruptcies. Given
these somewhat conflicting indicators, we expect real (inflation-adjusted)
growth to revolve around 2% to 2 1/2% in 1997, with the strength of the first
quarter moderating as we move through the balance of the year.
In the bond markets, conflicting signals over the strength of the economy have
also created near-term volatility, and the Federal Reserve Board (the Fed) has
begun taking measured steps to control inflation by raising short-term interest
rates. Although we do not expect a repeat of the rapid growth in the first
quarter, we would expect the Fed to raise interest rates at least one more time
this year in reaction to the continuing economic momentum. While inflationary
forces largely remained in check in 1996, the persistent strength in the labor
market suggests that a pickup in inflation is still possible. At the same time,
the U.S. budget deficit continues to decline and, as a percentage of gross
domestic product, is now approaching 1%, which we consider a positive
development for the bond markets. Although interest rates may remain volatile
over the coming months, we believe that, at current levels, fixed-income markets
remain equitably valued.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/ A. Keith Brodkin
A. Keith Brodkin
Chairman and President
June 12, 1997
<PAGE>
PORTFOLIO MANAGER'S OVERVIEW
[Photo of Richard O. Hawkins]
Dear Shareholders:
For the six months ended May 31, 1997, Class A shares of the Fund provided a
total return of -4.24%, Class B shares -4.55%, Class C shares -4.57%, and Class
I shares -4.16%. All of these returns assume the reinvestment of distributions
but exclude the effects of any sales charges and compare to a -2.88% return for
the J.P. Morgan Global Government Bond Index (the Morgan Index), an aggregate
index of actively traded government bonds issued from 13 countries, including
the United States, with remaining maturities of at least one year.
Growth in the world's major economies accelerated during the first part of the
year but has been disappointing in certain countries. As a result of this
growth, interest rates have generally risen over the period, resulting in some
capital losses on bonds, although still providing some positive returns in local
currency terms. Strong U.S. growth and a Federal Reserve Board interest-rate
hike, as well as greater concerns about the outlook for a single European
currency, pushed the dollar significantly higher against all currencies. This
strong appreciation of the dollar contributed to negative overall returns year
to date. Through the end of May, the U.S. currency had risen by approximately
10% against most European currencies, by 1% to 4% against the dollar-bloc
currencies, and by roughly 9% against the Japanese yen before the yen's very
sudden and strong rise in May.
The Fund's duration, or sensitivity to changes in interest rates, was kept
fairly low, which helped reduce the risk of capital losses from rising rates.
Country allocation also contributed to performance. The Fund was significantly
underweighted in the U.S. market, which was among the worst performers, and was
overweighted in Australia, Spain, Denmark, and Ireland, all of which provided
above-average returns.
Our overweighted position in U.S. dollars helped cushion the portfolio against
the falling value of foreign currencies through April. However, the yen's surge
in May, during which it rose roughly 10% in one week, was an unusually severe
reversal even by the standards of the foreign exchange markets. Unfortunately,
the yen's move pulled the dollar down against other currencies as well. As a
result, the Fund's returns fell below that of the Morgan Index.
Looking forward, we believe the dollar may recover somewhat and that interest
rates may gradually rise. In addition, the outperformance by European high-yield
countries may be in its last stages, as their interest-rate spreads compared to
Germany have narrowed substantially. In this environment, it appears that the
best opportunities lie in selected emerging market debt instruments and certain
segments of the U.S. corporate market and that increased exposure to these
segments of the market would bring greater diversification to the portfolio. The
essence of this strategy is to augment the Fund's income while maintaining a
somewhat defensive exposure to potential increases in interest rates. On
average, emerging market and corporate holdings have shorter maturities and
represent countries or companies that we feel offer the potential for ratings
upgrades or solid performance, even in a rising interest-rate environment. This
strategy depends on careful security selection and judicious weighting in these
sectors, as well as controlled exposures to foreign currencies.
Respectfully,
/s/ Richard O. Hawkins
Richard O. Hawkins
Portfolio Manager
PORTFOLIO MANAGER'S PROFILE
RICHARD O. HAWKINS JOINED MFS IN 1988 AND WAS NAMED VICE PRESIDENT IN 1991,
SENIOR VICE PRESIDENT IN 1994, AND INTERNATIONAL FIXED INCOME DEPARTMENT HEAD
IN 1995. A GRADUATE OF BROWN UNIVERSITY WITH A MASTER'S DEGREE IN BUSINESS
ADMINISTRATION FROM THE UNIVERSITY OF PENNSYLVANIA'S WHARTON SCHOOL OF
BUSINESS, HE HAS MANAGED MFS(R) WORLD GOVERNMENTS FUND SINCE 1996.
FUND FACTS
STRATEGY: THE FUND'S INVESTMENT OBJECTIVE IS TO SEEK NOT ONLY
PRESERVATION, BUT ALSO GROWTH OF CAPITAL, TOGETHER
WITH MODERATE CURRENT INCOME.
COMMENCEMENT OF
INVESTMENT OPERATIONS: CLASS A: FEBRUARY 26, 1981
CLASS B: SEPTEMBER 7, 1993
CLASS C: JANUARY 3, 1994
CLASS I: JANUARY 2, 1997
SIZE: $328.8 MILLION NET ASSETS AS OF MAY 31, 1997
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, Class C, and Class I shares for the
applicable time periods.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN AS OF MAY 31, 1997
CLASS A INVESTMENT RESULTS
(net asset value change including reinvested distributions)
6 Months 1 Year 5 Years 10 Years
- -------------------------------------------------------------------------------
Cumulative Total Return -4.24% +3.16% +31.63% +123.20%
- -------------------------------------------------------------------------------
Average Annual Total Return -- +3.16% + 5.65% + 8.36%
- -------------------------------------------------------------------------------
SEC Results -- -1.73% + 4.62% + 7.83%
- -------------------------------------------------------------------------------
CLASS B INVESTMENT RESULTS
(net asset value change including reinvested distributions)
6 Months 1 Year 5 Years 10 Years
- ------------------------------------------------------------------------------
Cumulative Total Return -4.55% +2.40% +27.75% +116.69%
- ------------------------------------------------------------------------------
Average Annual Total Return -- +2.40% + 5.02% + 8.04%
- ------------------------------------------------------------------------------
SEC Results -- -1.60% + 4.74% + 8.04%
- ------------------------------------------------------------------------------
CLASS C INVESTMENT RESULTS
(net asset value change including reinvested distributions)
6 Months 1 Year 5 Years 10 Years
- ------------------------------------------------------------------------------
Cumulative Total Return -4.57% +2.38% +28.18% +117.30%
- ------------------------------------------------------------------------------
Average Annual Total Return -- +2.38% + 5.09% + 8.07%
- ------------------------------------------------------------------------------
SEC Results -- +1.38% + 5.09% + 8.07%
- ------------------------------------------------------------------------------
CLASS I INVESTMENT RESULTS
(net asset value change including reinvested distributions)
6 Months 1 Year 5 Years 10 Years
- -------------------------------------------------------------------------------
Cumulative Total Return -4.16% +3.26% +31.75% +123.40%
- -------------------------------------------------------------------------------
Average Annual Total Return -- +3.26% + 5.67% + 8.37%
- -------------------------------------------------------------------------------
All results are historical and assume the reinvestment of dividends and capital
gains. Investment return and principal value will fluctuate, and shares, when
redeemed, may be worth more or less than their original cost. Past performance
is no guarantee of future results.
Class A share SEC results include the maximum 4.75% sales charge. Class B share
SEC results reflect the applicable contingent deferred sales charge (CDSC),
which declines over six years as follows: 4%, 4%, 3%, 3%, 2%, 1%, 0%. Class C
shares have no initial sales charge but, along with Class B shares, have higher
annual fees and expenses than Class A shares. Class C share purchases are
subject to a 1% CDSC if redeemed within 12 months of purchase. Class I shares,
which became available on January 2, 1997, have no sales charge or Rule 12b-1
fees and are only available to certain institutional investors.
Class B and Class C share results include the performance and the operating
expenses (e.g., Rule 12b-1 fees) of the Fund's Class A shares for periods prior
to the commencement of offering of Class B and Class C shares. Because operating
expenses attributable to Class B and Class C shares are higher than those of
Class A shares, Class B and Class C share performance generally would have been
lower than Class A share performance. The Class A share performance included in
the Class B and Class C share SEC performance has been adjusted to reflect the
CDSC generally applicable to Class B and Class C shares rather than the sales
charge generally applicable to Class A shares.
Class I share results include the performance and the operating expenses (e.g.,
Rule 12b-1 fees) of the Fund's Class A shares for periods prior to the
commencement of offering of Class I shares. Because operating expenses
attributable to Class A shares are greater than those of Class I shares, Class I
share performance generally would have been higher than Class A share
performance. The Class A share performance included in the Class I share
performance has been adjusted to reflect the fact that Class I shares have no
initial sales charge.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Current subsidies and
waivers may be discontinued at any time.
PORTFOLIO OF INVESTMENTS - May 31, 1997
Bonds - 76.6%
- ------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- ------------------------------------------------------------------------------
Foreign Bonds - 61.0%
Argentina - 2.2%
City of Buenos Aires, 10.5s, 2004## $ 4,200 $ 4,200,000
Hidroelectrica Alicura, 8.375s, 1999## 3,100 3,115,500
-------------
$ 7,315,500
- ------------------------------------------------------------------------------
Australia - 12.5%
Commonwealth of Australia, 8.75s, 2001 AUD 8,450 $ 6,890,230
Commonwealth of Australia, 9.75s, 2002 14,815 12,610,214
Commonwealth of Australia, 10s, 2002 25,075 21,658,162
-------------
$ 41,158,606
- ------------------------------------------------------------------------------
Canada - 0.9%
Gulf Canada Resources Ltd., 9.25s, 2004 $ 2,900 $ 3,037,750
- ------------------------------------------------------------------------------
Denmark - 5.2%
BRF Kredit, 8s, 2026 DKK 8,759 $ 1,386,454
Kingdom of Denmark, 6s, 1999 26,838 4,278,719
Kingdom of Denmark, 8s, 2001 24,938 4,265,110
Kingdom of Denmark, 7s, 2007 27,251 4,318,568
Nykredit, 8s, 2026 14,056 2,219,937
Realkredit Danmark, 8s, 2026 4,081 643,906
-------------
$ 17,112,694
- ------------------------------------------------------------------------------
Ecuador - 2.6%
Republic of Ecuador, 10.813s, 2004## $ 8,250 $ 8,631,562
- ------------------------------------------------------------------------------
Greece - 3.6%
Hellenic Republic, 12.6s, 2003 GRD 1,531,500 $ 5,924,761
Hellenic Republic, 13.4s, 2003 390,000 1,490,861
Hellenic Republic, 14.8s, 2003 1,160,000 4,438,612
-------------
$ 11,854,234
- ------------------------------------------------------------------------------
Indonesia - 0.7%
APP International Finance Co., 10.25s, 2000 $ 1,148 $ 1,178,135
P T Indah Kiat Pulp + Paper, 8.875s, 2000## 1,148 1,145,130
-------------
$ 2,323,265
- ------------------------------------------------------------------------------
Ireland - 7.7%
Republic of Ireland, 6.5s, 2001 IEP 4,160 $ 6,401,035
Republic of Ireland, 9.25s, 2003 6,030 10,553,774
Republic of Ireland, 6.25s, 2004 5,510 8,259,215
-------------
$ 25,214,024
- ------------------------------------------------------------------------------
Italy - 3.1%
Republic of Italy, 9.5s, 1999 ITL 16,550,000 $ 10,208,118
- ------------------------------------------------------------------------------
Mexico - 3.4%
United Mexican States, 7.875s, 2001## $ 11,000 $ 11,082,500
- ------------------------------------------------------------------------------
New Zealand - 4.9%
Government of New Zealand, 8s, 2001 NZD 22,790 $ 16,083,829
- ------------------------------------------------------------------------------
Poland - 2.5%
Government of Poland, 6.938s, 2024 $ 8,250 $ 8,074,688
- ------------------------------------------------------------------------------
Russia - 1.0%
City of Moscow, 9.5s, 2000## $ 3,300 $ 3,293,400
- ------------------------------------------------------------------------------
Spain - 6.5%
Government of Spain, 8.4s, 2001 ESP 694,970 $ 5,286,257
Government of Spain, 10.5s, 2003 649,060 5,493,844
Government of Spain, 7.35s, 2007 1,478,170 10,705,295
-------------
$ 21,485,396
- ------------------------------------------------------------------------------
Sweden - 1.9%
Kingdom of Sweden, 11s, 1999 SEK 42,500 $ 5,993,913
Kingdom of Sweden, 10.25s, 2000 1,800 261,551
-------------
$ 6,255,464
- ------------------------------------------------------------------------------
Venezuela - 2.3%
Republic of Venezuela, 6.5s, 2007 $ 6,000 $ 5,460,000
Republic of Venezuela, 6.75s, 2020 2,500 1,903,125
-------------
$ 7,363,125
- ------------------------------------------------------------------------------
Total Foreign Bonds $ 200,494,155
- ------------------------------------------------------------------------------
U.S. Bonds - 15.6%
Building - 0.1%
Building Materials Corporation of
America, 8.625s, 2006 $ 500 $ 500,000
- ------------------------------------------------------------------------------
Consumer Goods and Services - 1.6%
Revlon, Inc., 10.5s, 2003 $ 1,800 $ 1,903,500
Westpoint Stevens, Inc., 8.75s, 2001 3,400 3,485,000
-------------
$ 5,388,500
- ------------------------------------------------------------------------------
Containers - 1.3%
Owens Illinois, Inc., 8.1s, 2007 $ 4,200 $ 4,190,970
- ------------------------------------------------------------------------------
Entertainment - 0.5%
AMC Entertainment, Inc., 9.5s, 2009## $ 1,750 $ 1,778,438
- ------------------------------------------------------------------------------
Financial Institutions - 0.8%
Primark Corp., 8.75s, 2000 $ 2,533 $ 2,624,821
- ------------------------------------------------------------------------------
Medical and Health Technology and Services - 1.7%
Tenet Healthcare Corp., 8.625s, 2003 $ 3,235 $ 3,340,137
Tenet Healthcare Corp., 8s, 2005 2,250 2,252,813
-------------
$ 5,592,950
- ------------------------------------------------------------------------------
Oil Services - 1.1%
Clark Oil Refining Corporation Delaware,
10.5s, 2001 $ 3,330 $ 3,471,525
- ------------------------------------------------------------------------------
Restaurants and Lodging - 0.6%
Red Roof Inns, Inc., 9.625s, 2003 $ 1,800 $ 1,858,500
- ------------------------------------------------------------------------------
Steel - 1.7%
AK Steel Corp., 9.125s, 2006 $ 2,900 $ 2,990,625
WCI Steel, Inc., 10s, 2004 2,650 2,729,500
-------------
$ 5,720,125
- ------------------------------------------------------------------------------
Supermarkets - 1.3%
Dominick's Finer Foods Co., 10.875s, 2005 $ 1,500 $ 1,666,875
Ralph's Grocery Co., 10.45s, 2004 2,250 2,469,375
-------------
$ 4,136,250
- ------------------------------------------------------------------------------
Telecommunications - 1.5%
Cablevision Systems Corp., 9.25s, 2005 $ 2,500 $ 2,512,500
Comcast Cellular Holdings, Inc.,
9.5s, 2007## 2,400 2,403,000
-------------
$ 4,915,500
- ------------------------------------------------------------------------------
U.S. Federal Agencies - 0.1%
Federal National Mortgage Assn., 8s, 2026 $ 172 $ 174,541
- ------------------------------------------------------------------------------
U.S. Treasury Obligations - 3.3%
U. S. Treasury Stripped Principal
Payments, 0s, 2015 $ 37,200 $ 10,844,544
- ------------------------------------------------------------------------------
Total U.S. Bonds $ 51,196,664
- ------------------------------------------------------------------------------
Total Bonds (Identified Cost, $256,153,114) $ 251,690,819
- ------------------------------------------------------------------------------
Short-Term Obligations - 18.8%
- ------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., due 06/10/97 $ 9,000 $ 8,987,782
Federal Home Loan Mortgage Corp., due 06/23/97 1,200 1,195,982
Federal National Mortgage Assn., due 06/03/97 10,000 9,996,989
Federal National Mortgage Assn., due 06/05/97 9,325 9,319,384
Federal National Mortgage Assn., due 06/06/97 6,800 6,794,891
Federal National Mortgage Assn., due 06/16/97 6,370 6,355,561
Federal National Mortgage Assn., due 06/19/97 695 693,099
Pfizer, Inc., due 06/09/97 9,190 9,178,809
Student Loan Marketing Assn., due 06/18/97 9,295 9,271,210
- ------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost and Value $ 61,793,707
- ------------------------------------------------------------------------------
Call Options Purchased - 0.1%
- ------------------------------------------------------------------------------
Principal Amount
of Contracts
Issuer/Expiration Month/Strike Price (000 Omitted)
- ------------------------------------------------------------------------------
Canadian Dollars
June/1.365 CAD 54,191 $ 5,202
Deutsche Marks/British Pounds
July/2.7 DEM 30,453 51,465
Japanese Government Bonds
June/117.226 JPY 609,000 1,218
June/117.622 2,937,000 2,937
June/113.741 1,149,000 0
July/114.635 2,450,000 9,800
Swiss Francs
August/1.35 CHF 49,324 331,706
- ------------------------------------------------------------------------------
Total Call Options Purchased (Premiums Paid, $1,643,580) $ 402,328
- ------------------------------------------------------------------------------
Put Options Purchased
- ------------------------------------------------------------------------------
Principal Amount
of Contracts
Issuer/Expiration Month/Strike Price (000 Omitted) Value
- ------------------------------------------------------------------------------
Deutsche Marks
June/1.72 DEM 57,170 $ 54,769
Japanese Yen
June/119.1 JPY 1,995,158 17,956
- ------------------------------------------------------------------------------
Total Put Options Purchased (Premiums Paid, $228,294) $ 72,725
- ------------------------------------------------------------------------------
Total Investments (Identified Cost, $319,818,695) $ 313,959,579
- ------------------------------------------------------------------------------
Call Option Written
- ------------------------------------------------------------------------------
Japanese Yen
June/113.74 (Premiums Received, $77,059) JPY 1,905,368 $ (28,581)
- -----------------------------------------------------------------------------
Put Options Written - (0.2)%
- ------------------------------------------------------------------------------
British Pounds
July/1.65 GBP 20,450 $ (210,675)
Japanese Government Bonds
July/114.635 JPY 1,149,000 (276,909)
June/117.226 609,000 (69,426)
Japanese Yen
August/128.50 2,118,798 (2,119)
- ------------------------------------------------------------------------------
Total Put Options Written (Premiums Received, $382,180) $ (559,129)
- ------------------------------------------------------------------------------
Other Assets, Less Liabilities - 4.7% 15,422,260
- ------------------------------------------------------------------------------
Net Assets - 100.0% $ 328,794,129
- ------------------------------------------------------------------------------
##SEC Rule 144A restriction.
Abbreviations have been used throughout this report to indicate amounts shown in
currencies other than the US dollar. A list of abbreviations is shown below.
AUD = Australian Dollars GRD = Greek Drachma
BEF = Belgian Francs IEP = Irish Punts
CAD = Canadian Dollars ITL = Italian Lire
CHF = Swiss Francs JPY = Japanese Yen
DEM = Deutsche Marks NLG = Dutch Guilders
DKK = Danish Kroner NZD = New Zealand Dollars
ESP = Spanish Pesetas SEK = Swedish Kroner
GBP = British Pounds
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
- ------------------------------------------------------------------------------------------
MAY 31, 1997
- ------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (identified cost, $319,818,695) $313,959,579
Cash 25,269
Net receivable for forward foreign currency exchange contracts
purchased 4,631,028
Net receivable for forward foreign currency exchange contracts sold 572,907
Receivable for investments sold 66,599,402
Receivable for Fund shares sold 242,987
Interest receivable 6,103,176
Other assets 2,884
------------
Total assets $392,137,232
------------
Liabilities:
Payable for investments purchased $ 55,260,563
Payable for Fund shares reacquired 552,756
Written options outstanding, at value (premiums received, $459,239) 587,710
Net payable for forward foreign currency exchange contracts closed or
subject to master netting agreements 6,290,666
Payable for interest rate swap agreements 243,551
Payable to affiliates -
Management fee 13,511
Administrative fee 270
Distribution and service fee 3,622
Shareholder servicing agent fee 2,342
Accrued expenses and other liabilities 388,112
------------
Total liabilities $ 63,343,103
------------
Net assets $328,794,129
============
Net assets consist of:
Paid-in capital $334,007,460
Unrealized depreciation on investments and translation of assets and
liabilities in foreign currencies (7,402,039)
Accumulated undistributed net realized loss on investments and foreign
currency transactions (11,217,600)
Accumulated undistributed net investment income 13,406,308
------------
Total $328,794,129
============
Shares of beneficial interest outstanding 30,250,009
==========
Class A shares:
Net asset value per share
(net assets of $225,469,557 / 20,647,422 shares of beneficial
interest outstanding) $10.92
======
Offering price per share (100 / 95.25 of net asset value per share) $11.46
==== ===== ======
Class B shares:
Net asset value and offering price per share
(net assets $87,944,499 / 8,176,122 shares of beneficial interest
outstanding) $10.76
======
Class C shares:
Net asset value and offering price per share
(net assets of $13,028,003 / 1,211,250 shares of beneficial interest
outstanding) $10.75
======
Class I shares:
Net asset value and offering price per share
(net assets of $2,352,070 / 215,215 shares of beneficial interest
outstanding) $10.93
======
</TABLE>
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, Class
B, and Class C shares. See notes to financial statements
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
- ---------------------------------------------------------------------------------------------
SIX MONTHS ENDED MAY 31, 1997
- ---------------------------------------------------------------------------------------------
<S> <C>
Net investment income:
Interest income $ 12,336,594
-------------
Expenses -
Management fee $ 1,338,743
Trustees' compensation 16,980
Shareholder servicing agent fee 188,770
Shareholder servicing agent fee (Class A) 35,204
Shareholder servicing agent fee (Class B) 18,918
Shareholder servicing agent fee (Class C) 1,834
Distribution and service fee (Class A) 309,448
Distribution and service fee (Class B) 467,848
Distribution and service fee (Class C) 68,809
Administrative fee 12,943
Custodian fee 153,025
Postage 32,094
Auditing 30,055
Printing 27,037
Legal 1,800
Miscellaneous 170,760
-------------
Total expenses $ 2,874,268
Fees paid indirectly (17,504)
-------------
Net expenses $ 2,856,764
-------------
Net investment income $ 9,479,830
-------------
Realized and unrealized loss on investments:
Realized loss (identified cost basis) -
Investment transactions $ (1,039,757)
Written option transactions (1,469,030)
Foreign currency transactions (8,457,743)
-------------
Net realized loss on investments and foreign currency transactions $ (10,966,530)
-------------
Change in unrealized appreciation (depreciation) -
Investments $ (18,021,661)
Interest rate swap agreements (1,551,070)
Written options 482,288
Translation of assets and liabilities in foreign currencies 4,377,541
-------------
Net unrealized loss on investments and foreign currency
translation $ (14,712,902)
-------------
Net realized and unrealized loss on investments and foreign
currency $ (25,679,432)
-------------
Decrease in net assets from operations $ (16,199,602)
=============
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1997 NOVEMBER 30, 1996
- -------------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
<S> <C> <C>
Net investment income $ 9,479,830 $ 22,983,273
Net realized gain (loss) on investments and
foreign currency transactions (10,966,530) 11,526,142
Net unrealized loss on investments and foreign
currency translation (14,712,902) (7,130,943)
------------ ------------
Increase (decrease) in net assets from
operations $(16,199,602) $ 27,378,472
----------- -----------
Distributions declared to shareholders -
From net investment income (Class A) $ (5,825,293) $(43,075,354)
From net investment income (Class B) (1,489,354) (11,027,123)
From net investment income (Class C) (222,681) (1,482,641)
From net realized gain on investments and
foreign currency transactions (Class A) (1,408,600) --
From net realized gain on investments and
foreign currency transactions (Class B) (527,589) --
From net realized gain on investments and
foreign currency transactions (Class C) (75,309) --
In excess of net realized gain on investments
and foreign currency transactions (Class A) (175,818) --
In excess of net realized gain on investments
and foreign currency transactions (Class B) (65,852) --
In excess of net realized gain on investments
and foreign currency transactions (Class C) (9,400) --
------------ ------------
Total distributions declared to shareholders $ (9,799,896) $(55,585,118)
------------ ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 43,708,636 $ 82,946,761
Net asset value of shares issued to shareholders
in reinvestment of distributions 7,736,048 43,475,232
Cost of shares reacquired (97,625,858) (143,219,840)
------------ ------------
Decrease in net assets from Fund share
transactions $(46,181,174) $(16,797,847)
------------ ------------
Total decrease in net assets $(72,180,672) $(45,004,493)
Net assets:
At beginning of period 400,974,801 445,979,294
------------ ------------
At end of period (including accumulated
undistributed net investment income of $13,406,308
and $11,463,806 respectively) $328,794,129 $400,974,801
============ ============
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, YEAR ENDED
SIX MONTHS ENDED -------------------------------------------------------------- DECEMBER 31,
MAY 31, 1997 1996 1995 1994 1993(++) 1992
- -----------------------------------------------------------------------------------------------------------------------------------
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 $11.70 $12.46 $11.39 $13.37 $11.50 $12.63
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.31 $ 0.65 $ 0.76 $ 0.63 $ 0.58 $ 0.87
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions (0.77) 0.17 0.76 (1.17) 1.29 (0.70)
------ ------ ------ ------ ------ ------
Total from investment
operations $(0.46) $ 0.82 $ 1.52 $(0.54) $ 1.87 $ 0.17
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.25) $(1.58) $ -- $(1.15) $ -- $(1.30)
From net realized gain on
investments and foreign
currency transactions (0.06) -- (0.45) (0.29) -- --
In excess of net realized
gain on investments and
foreign currency
transactions (0.01) -- -- -- -- --
------ ------ ------ ------ ------ ------
Total distributions
declared to
shareholders $(0.32) $(1.58) $(0.45) $(1.44) $ -- $(1.30)
------ ------ ------ ------ ------ ------
Net asset value - end of
period $10.92 $11.70 $12.46 $11.39 $13.37 $11.50
====== ====== ====== ====== ====== ======
Total return(+) (4.24)%++ 7.36% 13.93% (4.63)% 17.77%+ 1.35%
Ratios (to average net assets)/Supplemental data:
Expenses## 1.38%+ 1.42% 1.51% 1.54% 1.54%+ 1.53%
Net investment income 5.53%+ 5.70% 6.42% 5.45% 5.66%+ 6.78%
Portfolio turnover 214% 370% 277% 358% 179% 163%
Net assets at end of period
(000 omitted) $225,470 $283,770 $343,188 $370,110 $443,304 $340,347
+ Annualized.
++ Not annualized.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
(++) For the 11 months ended November 30, 1993.
# Per share data for the periods subsequent to November 30, 1993, are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS - CONTINUED
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1991 1990 1989 1988 1987 1986
- ------------------------------------------------------------------------------------------------------------------------------------
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 $12.00 $11.45 $11.11 $11.87 $11.45 $10.70
------ ------ ------ ------ ------ ------
Income from investment operations -
Net investment income $ 0.94 $ 0.98 $ 1.07 $ 0.94 $ 0.91 $ 0.82
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions 0.67 1.07 (0.26) (0.42) 1.86 2.35
------ ------ ------ ------ ------ ------
Total from investment
operations $ 1.61 $ 2.05 $ 0.81 $ 0.52 $ 2.77 $ 3.17
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $(0.75) $(0.95) $(0.47) $(0.90) $(0.90) $(0.82)
From net realized gain on
investments and foreign
currency transactions -- (0.50) -- (0.32) (1.40) (1.52)
From paid-in capital (0.23) (0.05) -- (0.06) (0.05) (0.08)
------ ------ ------ ------ ------ ------
Total distributions
declared to shareholders $(0.98) $(1.50) $(0.47) $(1.28) $(2.35) $(2.42)
------ ------ ------ ------ ------ ------
Net asset value - end of period $12.63 $12.00 $11.45 $11.11 $11.87 $11.45
====== ====== ====== ====== ====== ======
Total return(+) 13.42% 17.90% 7.27% 3.68% 23.29% 29.36%
Ratios (to average net assets)/Supplemental data:
Expenses 1.61% 1.44% 1.42% 1.12% 1.13% 1.17%
Net investment income 7.75% 8.06% 8.42% 7.91% 7.54% 6.57%
Portfolio turnover 208% 220% 282% 232% 378% 371%
Net assets at end of period
(000 omitted) $286,089 $145,202 $124,935 $190,590 $182,738 $142,183
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS - CONTINUED
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
SIX MONTHS ENDED --------------------------------------------------------
MAY 31, 1997 1996 1995 1994 1993**
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $11.50 $12.28 $11.32 $13.35 $13.22
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.26 $ 0.54 $ 0.65 $ 0.56 $ 0.07
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions (0.76) 0.17 0.76 (1.19) 0.06
------ ------ ------ ------ ------
Total from investment operations $(0.50) $ 0.71 $ 1.41 $(0.63) $ 0.13
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.17) $(1.49) $ -- $(1.11) $ --
From net realized gain on investments and
foreign currency transactions (0.06) -- (0.45) (0.29) --
In excess of net realized gain on investments
and foreign curency transactions (0.01) -- -- -- --
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.24) $(1.49) $(0.45) $(1.40) $ --
------ ------ ------ ------ ------
Net asset value - end of period $10.76 $11.50 $12.28 $11.32 $13.35
====== ====== ====== ====== ======
Total return (4.55)%++ 6.39% 13.01% (5.39)% 4.32%+
Ratios (to average net assets)/Supplemental data:
Expenses## 2.15%+ 2.27% 2.33% 2.38% 2.48%+
Net investment income 4.77%+ 4.89% 5.59% 4.81% 4.72%+
Portfolio turnover 214% 370% 277% 358% 179%
Net assets at end of period (000 omitted) $87,944 $102,717 $90,978 $73,458 $24,590
+ Annualized.
++ Not annualized.
** For the period from the commencement of offering of Class B shares, September 7, 1993, to November 30, 1993.
# Per share data for the periods subsequent to November 30, 1993, are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS - CONTINUED
- -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
SIX MONTHS ENDED --------------------------------------------------
MAY 31, 1997 1996 1995 1994***
- -------------------------------------------------------------------------------------------------------------------------------
CLASS C
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $11.51 $12.29 $11.31 $12.30
------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.26 $ 0.55 $ 0.66 $ 0.50
Net realized and unrealized gain (loss) on investments
and foreign currency transactions (0.77) 0.17 0.77 (1.35)
------ ------ ------ ------
Total from investment operations $(0.51) $ 0.72 $ 1.43 $(0.85)
------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $
$(0.18) $(1.50) -- $(0.14)
From net realized gain on investments and foreign
currency transactions (0.06) -- (0.45) --
In excess of net realized gain on investments and
foreign currency transactions (0.01) -- -- --
------ ------ ------ ------
Total distributions declared to shareholders $(0.25) $(1.50) $(0.45) $(0.14)
------ ------ ------ ------
Net asset value - end of period $10.75 $11.51 $12.29 $11.31
====== ====== ====== ======
Total return (4.57)%++ 6.56% 13.11% (6.92)%++
Ratios (to average net assets)/Supplemental data:
Expenses## 2.14%+ 2.20% 2.26% 2.32%+
Net investment income 4.79%+ 4.97% 5.67% 5.06%+
Portfolio turnover 214% 370% 277% 358%
Net assets at end of period (000 omitted) $13,028 $14,487 $11,813 $ 8,687
+ Annualized.
++ Not annualized.
*** For the period from the commencement of offering of Class C shares, January 3, 1994, to November 30, 1994.
# Per share data is based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS - CONTINUED
- ------------------------------------------------------------------------------------------------------
PERIOD ENDED
MAY 31, 1997****
- ------------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------------
<S> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $11.24
------
Income from investment operations# -
Net investment income $ 0.32
Net realized and unrealized loss on investments and foreign currency
transactions (0.63)
------
Total from investment operations $(0.31)
------
Net asset value - end of period $10.93
======
Total return (2.94)%++ Ratios (to average net assets)/Supplemental data:
Expenses 1.12%+
Net investment income 5.92%+
Portfolio turnover 214%
Net assets at end of period (000 omitted) $2,352
+ Annualized.
++ Not annualized.
**** For the period from the commencement of offering of Class I shares, January 2, 1997, to May 31, 1997.
# Per share data is based on average shares outstanding.
See notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION
MFS World Governments Fund (the Fund) is a non-diversified series of MFS 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
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
disclose 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. Investments
in foreign securities are vulnerable to the effects of changes in the relative
values of the local currency and the U.S. dollar and to the effects of changes
in each country's legal, political, and economic environment.
Investment Valuations - Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues, interest swaps, 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.
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, 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 result 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 part of an income-producing strategy reflecting the view of the
Fund's management on the direction of interest rates.
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 into 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. The Fund 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.
Swap Agreements - The Fund may enter into swap agreements. A swap is an exchange
of cash payments between the Fund and another party which is based on a specific
financial index. Cash payments are exchanged at specified intervals and the
expected income or expense is recorded on the accrual basis. The value of the
swap is adjusted daily and the change in value is recorded as unrealized
appreciation or depreciation. Risks may arise upon entering into these
agreements from the potential inability of counterparties to meet the terms of
their contract and from unanticipated changes in the value of the financial
index on which the swap agreement is based. The Fund uses swaps for both hedging
and non-hedging purposes. For hedging purposes, the Fund may use swaps to reduce
its exposure to interest and foreign exchange rate fluctuations. For non-hedging
purposes, the Fund may use swaps to take a position on anticipated changes in
the underlying financial index.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
original issue discount are amortized or accreted for financial statement and
tax reporting purposes as required by federal income tax regulations. Dividend
income is recorded on the ex-dividend date for dividends received in cash.
Dividend and interest payments received in additional securities are recorded on
the ex-dividend or ex-interest date in an amount equal to the value of the
security on such date.
Fees Paid Indirectly - The Fund's custodian bank calculates its fee based on the
Fund's average daily net assets. The fee is reduced according to a fee
arrangement, which provides for custody fees to be reduced based on a formula
developed to measure 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. Foreign taxes
have been provided for on interest and dividend 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 tax return of capital.
Differences in the recognition or classification of income between the financial
statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes are classified as
distributions in excess of net investment income or accumulated net realized
gains.
Multiple Classes of Shares of Beneficial Interest - The Fund offers Class A,
Class B, Class C, and Class I shares. The four classes of shares differ in their
respective shareholder servicing agent, distribution, and service fees. All
shareholders bear the common expenses of the Fund pro rata based on 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.
(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 effective annual rate of
0.75% of the first $500 million of the Fund's average daily net assets and 0.70%
of the Fund's average daily net assets in excess of $500 million for the Fund's
then-current fiscal year.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive remuneration
for their services to the Fund from MFS. Certain officers and Trustees of the
Fund are officers or directors of MFS, MFS Fund Distributors, Inc. (MFD), and
MFS Service Center, Inc. (MFSC). The Fund has an unfunded defined benefit plan
for all of its independent Trustees and Mr. Bailey. Included in Trustees'
compensation is a net periodic pension expense of $5,140 for the period ended
May 31, 1997.
Administrator - Effective March 1, 1997, the Fund has an administrative service
agreement with MFS to provide the Fund with certain financial, legal, compliance
shareholder communications, and other administrative services to the Fund. As a
partial reimbursement for the cost of providing these services, the Fund pays
MFS an administrative fee of up to 0.015% per annum of the Fund's average daily
net assets, provided that the administrative fee is not assessed on Fund assets
that exceed $3 billion.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$24,959 for the period ended May 31, 1997, as its portion of the sales charge on
sales of Class A shares of the Fund. The Trustees have adopted a distribution
plan for Class A, Class B, and Class C shares pursuant to Rule 12b-1 of the
Investment Company Act of 1940 as follows:
The Fund's distribution plan provides that the Fund will pay MFD up to 0.35% per
annum of its average daily net assets attributable to Class A shares in order
that MFD may pay expenses on behalf of the Fund related to the distribution and
servicing of its shares. These expenses include a service fee to each securities
dealer that enters into a sales agreement with MFD of up to 0.25% per annum of
the Fund's average daily net assets attributable to Class A shares which are
attributable to that securities dealer, a distribution fee to MFD of up to 0.10%
per annum of the Fund's average daily net assets attributable to Class A shares,
commissions to dealers, and payments to MFD wholesalers for sales at or above a
certain dollar level, and other such distribution-related expenses that are
approved by the Fund. MFD retains the service fee for accounts not attributable
to a securities dealer which amounted to $74,238 for the period ended May 31,
1997. Payment of the 0.10% per annum Class A distribution fee will commence on
such date as the Trustees of the Trust may determine. Fees incurred under the
distribution plan during the period ended May 31, 1997, 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 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. MFD
retains the service fee for accounts not attributable to a securities dealer,
which amounted to $8,959 and $8,961 for Class B and Class C shares,
respectively, for the period ended May 31, 1997. Fees incurred under the
distribution plan during the period ended May 31, 1997, were 1.00% of average
daily net assets attributable to Class B and Class C shares on an annualized
basis.
Purchases over $1 million of Class A shares and certain purchases into
retirement plans are subject to a contingent deferred sales charge in the event
of a shareholder redemption within 12 months following such purchase. A
contingent deferred sales charge is imposed on shareholder redemptions of Class
B shares in the event of a shareholder redemption within six years of purchase.
A contingent deferred sales charge is imposed on shareholder redemptions of
Class C shares in the event of a shareholder redemption within twelve months of
purchases made on or after April 1, 1996. MFD receives all contingent deferred
sales charges. Contingent deferred sales charges imposed during the period ended
May 31, 1997, were $0, $175,293, and $3,802 for Class A, Class B, and Class C
shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the average daily net assets at an effective annual rate of 0.13%.
Prior to January 1, 1997, the fee was 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 $264,087,396 $236,531,408
============ ============
Investments (non-U.S. government securities) $339,111,337 $441,018,071
============ ============
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 $319,818,695
============
Gross unrealized appreciation $ 1,581,201
Gross unrealized depreciation (7,440,317)
------------
Net unrealized depreciation $ (5,859,116)
============
(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 MAY 31, 1997 YEAR ENDED NOVEMBER 30, 1996
--------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,903,909 $ 31,810,399 3,456,886 $ 38,473,626
Shares issued to shareholders in
reinvestment of distributions 521,653 5,879,003 3,084,576 33,899,680
Transfer to Class I (259,561) (2,917,470) -- --
Shares reacquired (6,763,851) (74,645,319) (9,837,787) (109,032,589)
---------- ------------ --------- -------------
Net decrease (3,597,850) $(39,873,387) (3,296,325) $ (36,659,283)
========== ============ ========== =============
<CAPTION>
Class B Shares
SIX MONTHS ENDED MAY 31, 1997 YEAR ENDED NOVEMBER 30, 1996
--------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 935,031 $ 10,201,068 3,389,303 $ 37,175,577
Shares issued to shareholders in
reinvestment of distributions 148,162 1,649,031 799,999 8,704,007
Shares reacquired (1,840,450) (20,085,669) (2,665,621) (29,293,670)
---------- ------------ --------- -------------
Net increase (decrease) (757,257) $ (8,235,570) 1,523,681 $ 16,585,914
========== ============ ========== =============
<CAPTION>
Class C Shares
SIX MONTHS ENDED MAY 31, 1997 YEAR ENDED NOVEMBER 30, 1996
--------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 150,360 $ 1,649,498 663,887 $ 7,297,558
Shares issued to shareholders in
reinvestment of distributions 18,690 208,014 80,105 871,545
Shares reacquired (216,965) (2,357,958) (446,199) (4,893,581)
---------- ------------ --------- -------------
Net increase (decrease) (47,915) $ (500,446) 297,793 $ 3,275,522
========== ============ ========== =============
</TABLE>
Class I Shares
SIX MONTHS ENDED MAY 31, 1997*
---------------------------------
SHARES AMOUNT
- --------------------------------------------------------------------
Shares sold 4,355 $ 47,671
Shares issued to shareholders in
reinvestment of distributions -- --
Transfer from Class A 259,561 2,917,470
Shares reacquired (48,701) (536,912)
------- -----------
Net increase 215,215 $ 2,428,229
======= ===========
* For the period from commencement of offering Class I shares, January 2, 1997,
to May 31, 1997.
(6) LINE OF CREDIT
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS in an unsecured line of credit with a bank which permits
borrowings up to $400 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 period ended May 31,
1997, was $831.
(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, forward foreign currency exchange
contracts, and interest rate swaps. 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, 1997, is
as follows:
<PAGE>
Written Option Transactions
<TABLE>
<CAPTION>
1997 CALLS 1997 PUTS
--------------------------------------- ---------------------------------------
PRINCIPAL AMOUNTS PRINCIPAL AMOUNTS
OF CONTRACTS OF CONTRACTS
(000 OMITTED) PREMIUMS (000 OMITTED) PREMIUMS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OUTSTANDING, BEGINNING OF PERIOD -
Deutsche Marks/
British Pounds 51,387 $ 196,904 53,162 $ 685,137
Japanese Government
Bonds 1,321,000 95,228 4,585,000 380,655
Swiss Francs/Deutsche
Marks 35,076 106,449 21,947 246,856
Options written -
Australian Dollars 8,772 59,253 -- --
British Pounds -- -- 20,450 154,304
Deutsche Marks -- -- 61,432 102,990
Japanese Government
Bonds -- -- 10,937,000 832,046
Japanese Yen 10,894,647 987,342 2,118,798 115,422
Swiss Francs/Deutsche
Marks -- -- 57,887 738,072
Options terminated in closing transactions -
Australian Dollars (8,772) (59,253) -- --
Deutsche Marks -- -- (61,432) (102,990)
Deutsche Marks/
British Pounds -- -- (53,162) (685,137)
Japanese Government
Bonds (1,321,000) (95,228) (13,764,000) (1,100,247)
Japanese Yen (8,989,279) (910,283) -- --
Swiss Francs/Deutsche
Marks -- -- (79,834) (984,928)
Options expired -
Deutsche Marks/
British Pounds (51,387) (196,904) -- --
Swiss Francs/Deutsche
Marks (35,076) (106,449) -- --
---------- ---------- ----------- ----------
OUTSTANDING, END OF PERIOD 1,905,368 $ 77,059 3,897,248 $ 382,180
========= ========== ========= ==========
OPTIONS OUTSTANDING AT END OF PERIOD
CONSIST OF -
British Pounds -- $ -- 20,450 $ 154,304
Japanese Government
Bonds -- -- 1,758,000 112,454
Japanese Yen 1,905,368 77,059 2,118,798 115,422
---------- ---------- ----------- ----------
OUTSTANDING, END OF PERIOD 1,905,368 $ 77,059 3,897,248 $ 382,180
========= ========== =========== ==========
At May 31, 1997, the Fund had sufficient cash and/or securities at least equal to the value of written options.
</TABLE>
<PAGE>
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
NET
UNREALIZED
CONTRACTS TO CONTRACTS APPRECIATION
SETTLEMENT DATE DELIVER/RECEIVE IN EXCHANGE FOR AT VALUE (DEPRECIATION)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales 8/26/97 AUD 16,251,314 $ 12,609,801 $ 12,374,677 $ 235,124
6/30/97 BEF 398,394,125 12,388,648 11,329,134 1,059,514
8/26/97 CHF 24,241,398 17,130,520 17,348,745 (218,225)
8/26/97 DEM 111,065,468 65,555,927 65,514,076 41,851
8/26/97 - 9/30/97 ESP 3,994,367,395 27,838,159 27,703,808 134,351
6/30/97 JPY 2,303,244,526 19,185,711 19,890,820 (705,109)
6/30/97 SEK 1,921,106 273,654 248,253 25,401
------------- ------------- ----------
$ 154,982,420 $ 154,409,513 $ 572,907
============= ============= ==========
Purchases 9/30/97 CAD 15,397,454 $ 11,178,962 $ 11,256,879 $ 77,917
8/26/97 CHF 19,942,718 13,935,334 14,272,325 336,991
6/30/97 - 9/30/97 DEM 112,040,646 66,613,664 66,057,682 (555,982)
6/30/97 - 8/26/97 ESP 7,057,072,296 49,119,219 48,908,993 (210,226)
9/30/97 GBP 9,988,617 16,351,366 16,331,698 (19,668)
6/30/97 - 8/26/97 JPY 13,268,412,008 109,504,675 114,732,324 5,227,649
8/26/97 NLG 66,500,607 35,086,003 34,860,350 (225,653)
------------- ------------- ----------
$301,789,223 $ 306,420,251 $4,631,028
============ ============= ==========
</TABLE>
Forward foreign currency purchases and sales under master netting arrangements
and closed forward foreign currency exchange contracts, excluded from above,
amounted to a net receivable of $1,052,116 with Deutschebank, $837,308 with
Merrill Lynch, and $608,385 with Morgan Stanley and a net payable of $4,052,184
with C.S. First Boston, $2,607,289 with Banker's Trust, $1,118,889 with Chase
Manhattan Bank, $776,419 with Swiss Bank Corp., and $233,694 with Goldman Sachs,
Co. at May 31, 1997.
At May 31, 1997, the Fund had sufficient cash and/or securities to cover any
commitments under these contracts.
Interest Rate Swaps
<TABLE>
<CAPTION>
NOTIONAL PRINCIPAL CASH FLOWS CASH FLOWS UNREALIZED
EXPIRATION AMOUNT OF CONTRACT PAID BY THE FUND RECEIVED BY THE FUND (DEPRECIATION)
- -------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
5/22/04 ITL 27,680,000 Floating - 6 Month LIBOR Fixed - 7.09% $(243,551)
=========
</TABLE>
At May 31, 1997, the Fund has segregated sufficient cash and/or securities to
cover margin requirements on open interest rate swaps.
<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 schedule of portfolio investments as of
May 31, 1997, and the related statement of operations for the six month period
ended May 31, 1997, the statement of changes in net assets for the six month
period ended May 31, 1997 and for the year ended November 30, 1996, and the
financial highlights for the six month period ended May 31, 1997 and each of the
three years in the period ended November 30, 1996. 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 and financial highlights. Our procedures included confirmation of
securities owned as of May 31, 1997, by correspondence with the custodian and
brokers or by other appropriate auditing procedures where replies from brokers
were not received. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
World Governments Fund at May 31, 1997, the results of its operations for the
six month period ended May 31, 1997, the changes in its net assets for the six
month period ended May 31, 1997 and for the year ended November 30, 1996, and
the financial highlights for the six month period ended May 31, 1997 and for
each of the three years in the period ended November 30, 1996, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
July 1, 1997
--------------------------------------------
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 FUND
<TABLE>
<S> <C>
TRUSTEES AUDITORS
A. Keith Brodkin* - Chairman and President Ernst & Young LLP
Richard B. Bailey* - Private Investor; INVESTOR INFORMATION For MFS stock
Former Chairman and Director (until 1991), and bond market outlooks, call toll
Massachusetts Financial Services Company; free: 1-800-637-4458 anytime from a
Director, Cambridge Bancorp; Director, touch-tone telephone.
Cambridge Trust Company
For information on MFS mutual
Peter G. Harwood - Private Investor funds, call your financial adviser
or, for an information kit, call
J. Atwood Ives - Chairman and Chief toll free:
Executive Officer, Eastern Enterprises 1-800-637-2929 any business day
from 9 a.m. to 5 p.m. Eastern time
Lawrence T. Perera - Partner, (or leave a message anytime).
Hemenway & Barnes
INVESTOR SERVICE MFS Service Center, Inc.
William J. Poorvu - Adjunct Professor, P.O. Box 2281
Harvard University Graduate School of Boston, MA 02107-9906
Business Administration For general information, call toll free:
1-800-225-2606 any business day from
Charles W. Schmidt - Private Investor 8 a.m. to 8 p.m. Eastern time.
Arnold D. Scott* - Senior Executive Vice For service to speech- or hearing-impaired,
President, Director and Secretary, call toll free: 1-800-637-6576 any business
Massachusetts Financial Services Company day from 9 a.m. to 5 p.m. Eastern time.
(To use this service, your phone must be
Jeffrey L. Shames* - President and Director, equipped with a Telecommunications Device
Massachusetts Financial Services Company for the Deaf.)
Elaine R. Smith - Independent Consultant For share prices, account balances,
and exchanges, call toll free:
David B. Stone - Chairman, North American 1-800-MFS-TALK (1-800-637-8255)
Management Corp. (investment advisers) anytime from a touch-tone
telephone.
INVESTMENT ADVISER
Massachusetts Financial Services Company WORLD WIDE WEB
500 Boylston Street www.mfs.com
Boston, MA 02116-3741
DISTRIBUTOR [DALBAR LOGO] For the third year in a
MFS Fund Distributors, Inc. row, MFS earned a #1
500 Boylston Street ranking in the DALBAR, Inc. Broker/Dealer
Boston, MA 02116-3741 Survey, Main Office Operations Service
Quality Category. The firm achieved a 3.48
PORTFOLIO MANAGER overall score on a scale of 1 to 4 in the
Richard O. Hawkins* 1996 survey. A total of 110 firms responded,
offering input on the quality of service they
TREASURER received from 29 mutual fund companies nationwide.
W. Thomas London* The survey contained questions about service
quality in 15 categories, including "knowledge of
ASSISTANT TREASURER phone service contacts," "accuracy of transaction
James O. Yost* processing," and "overall ease of doing business
with the firm."
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
CUSTODIAN
State Street Bank and Trust Company
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
MFS(R) WORLD
GOVERNMENTS FUND [DALBAR LOGO] ------------
BULK RATE
500 Boylston Street U.S. POSTAGE
Boston, MA 02116-3741 PAID
MFS
[MFS LOGO] ------------
INVESTMENT MANAGEMENT
WE INVENTED THE MUTUAL FUND(TM)
(C)1997 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MWG-3 7/97/45M 20/220/320/820
