<PAGE>
Annual Report
[LOGO] MFS(SM) for Year Ended
INVESTMENT MANAGEMENT November 30, 1997
MFS(R) WORLD GOVERNMENTS FUND
[Graphic Omitted]
LEARNING FINANCIAL BASICS THE EASY WAY (see page 36)
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
A Discussion with the Portfolio Manager ................................... 2
Portfolio Manager's Profile ............................................... 6
Fund Facts ................................................................ 7
Performance Summary ....................................................... 7
Portfolio Concentration ................................................... 10
Tax Form Summary .......................................................... 10
Portfolio of Investments .................................................. 11
Financial Statements ...................................................... 15
Notes to Financial Statements ............................................. 23
Independent Auditors' Report .............................................. 33
MFS Investment Opportunities .............................................. 34
The MFS Family of Funds(R) ................................................ 35
The ABCs of Investing ..................................................... 36
Trustees and Officers ..................................................... 37
HIGHLIGHTS
o FOR THE 12 MONTHS ENDED NOVEMBER 30, 1997, CLASS A SHARES OF THE FUND
PROVIDED A TOTAL RETURN AT NET ASSET VALUE OF -0.29%, CLASS B SHARES
-1.08%, CLASS C SHARES -1.10%, AND CLASS I SHARES -0.12%. (SEE PERFORMANCE
SUMMARY FOR MORE INFORMATION.)
o BECAUSE YIELDS IN THE FUND'S TRADITIONAL MARKETS DECLINED, THE PORTFOLIO
WAS RESTRUCTURED TO ALLOW MORE SIGNIFICANT WEIGHTINGS IN EMERGING-COUNTRY
AND CORPORATE DEBT.
o THE TURMOIL IN ASIAN ECONOMIES AND INVESTMENT MARKETS HAS HAD LITTLE
DIRECT EFFECT ON THE FUND. ALTHOUGH WE HAVE HAD INVESTMENTS IN THESE
COUNTRIES HISTORICALLY, WE HAD ALMOST NO INVESTMENTS THERE WHEN THE
MARKETS BEGAN TO FALL.
o THE STRENGTH OF THE U.S. DOLLAR AGAINST THE JAPANESE YEN AND AGAINST MOST
EUROPEAN CURRENCIES CREATED A DRAG ON RETURNS THIS YEAR, NOT ONLY FOR THE
FUND, BUT FOR THE ENTIRE INTERNATIONAL BOND ASSET CATEGORY.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of A. Keith Brodkin]
Dear Shareholders:
An unprecedented combination of generally positive factors has helped the U.S.
economy enjoy a sustained period of relative stability and moderate growth in
which thousands of new jobs have been created every month, inflation remains
under control, and the investment climate -- at least until now -- has been
favorable. For example, the increased use of technology and other productivity
enhancements, as well as corporate restructuring and global competition, is
improving companies' balance sheets and helping control inflation. Meanwhile,
borrowing by corporations and governments continues to decline, while consumer
confidence is increasing, although consumer debt levels are still
uncomfortably high. The rapid pace of growth seen in the first quarter slowed
to an annual rate of 3.3% in the second quarter and 3.5% in the third. We
believe economic momentum will carry well into the first quarter of 1998, as
the money supply is increasing at a rapid rate. Because economic growth
continues to be impressive, markets are likely to continue to focus on the
Federal Reserve Board's (the Fed's) willingness to raise interest rates.
The U.S. government bond market has benefited from the deflationary events in
Asia, while the high-yield and emerging-debt markets have come under severe
pressure. Inflation remains under control, and the Fed will most likely take a
wait-and-see attitude toward raising interest rates. As a result, our near-
term outlook for high-grade markets is neutral to moderately positive. At the
same time, high-yield markets, having gone through a substantial correction,
could offer reasonable value but require careful selection. Overall, fixed-
income markets appear to be reasonably 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
December 15, 1997
<PAGE>
A DISCUSSION WITH THE PORTFOLIO MANAGER
[Photo of Richard O. Hawkins]
Richard O. Hawkins
For the 12 months ended November 30, 1997, Class A shares of the Fund provided
a total return of -0.29%, Class B shares -1.08%, Class C shares -1.10%, and
Class I shares -0.12%. These returns assume the reinvestment of distributions
but exclude the effects of any sales charges and compare to a 0.81% return for
the J.P. Morgan Global Government Bond Index (the Morgan Index), an aggregate
index of actively traded government bonds issued by 13 countries, including
the United States, with remaining maturities of at least one year.
Q. COULD YOU TALK ABOUT HOW YOU'VE MANAGED THE FUND OVER THE
PAST YEAR?
A. During the year, we re-oriented the Fund away from the Morgan Index's
emphasis on larger countries toward a broader range of fixed-income
opportunities. The reason for this was that yields in the Fund's
traditional markets have declined to lower levels than have been the case
historically, which is partly a reflection of the fact that inflation has
been falling in all developed countries, not just in the United States. So,
in terms of potential returns, these countries have become less attractive,
which is why the portfolio was restructured to allow more significant
weightings in emerging-country and corporate debt. As a result, we really
have two six-month periods during which the Fund was being managed somewhat
differently.
Q. HOW HAD THE FUND BEEN PERFORMING UNTIL THIS CHANGE WAS MADE?
A. The Fund had been underperforming the average fund in its category (as
tracked by Lipper Analytical Services, Inc., an independent firm that
reports mutual fund performance) because that category includes many funds
that have significant weightings in emerging-country debt and high-yield
corporate bonds. Even now, the Fund's investments in these segments of the
bond market are relatively moderate.
Q. HOW HAS THE TURMOIL IN THE ASIAN ECONOMIES AND INVESTMENT MARKETS AFFECTED
THE FUND?
A. Surprisingly little. Although we have had investments in these Asian
countries historically, we had almost no investments there when the markets
began to fall, and the overall position in emerging-country debt markets
has been brought down to below 5% of the portfolio. Our aim in investing in
emerging-country debt is not to buy the wildest, riskiest bonds just to get
a higher yield, but to buy bonds of countries whose fundamentals, including
economic policies, we feel will help add income and capital appreciation to
the portfolio.
Q. AND WHAT ABOUT THE CORPORATE SIDE?
A. We now have the flexibility to include corporate issues in the portfolio,
but rather than including the lowest-rated bonds with the highest risk, we
have invested a good portion of our corporate position in what are known as
"crossover" bonds. These are bonds that don't yield enough for the high-
yield corporate market, or that lack adequate ratings criteria for the
investment-grade market. They're often neglected, but crossover bonds can
provide value and capital gains if the research has been thorough and the
credits are moving up toward investment-grade levels.
Q. LET'S TALK ABOUT SOME OTHER MARKETS, STARTING WITH EUROPE.
A. Europe is in a unique situation right now. Almost all economic issues have
been subsumed to the issue of European monetary union (EMU). The relative
performance of government debt among nations depends almost entirely on the
likelihood of each country's joining the first round of EMU in 1999. This
has tightened yield spreads among all European markets. In this
environment, we have concentrated holdings in some of the higher-yielding
markets such as Italy, Spain, Sweden, Denmark, and the United Kingdom. Even
countries unlikely to join EMU in the first round, such as Sweden and the
United Kingdom, have performed well in this environment. If the United
Kingdom waits until 2002 or 2003 to join EMU, the government will still
need to prepare its economy fairly soon in order to get the pound into the
European exchange-rate mechanism over the next couple of years, and the
markets have anticipated that.
Q. HOW ABOUT RUSSIA?
A. During the summer, Russia was actually one of our largest emerging-debt
positions. At the time, economic fundamentals were supportive, reformers
seemed to be in a strong position, and, perhaps most importantly for the
market, a significant portion of its foreign debt was being rescheduled. We
were optimistic that the rescheduling would take place, which it eventually
did. Russian bonds performed well during the middle of the year. However,
as we began to reduce our overall exposure to emerging-country debt and
move into less-risky positions, we also cut back on our Russian position.
Q. COULD YOU TALK ABOUT THE DOLLAR-BLOC MARKETS (THE UNITED STATES, CANADA,
AUSTRALIA, AND NEW ZEALAND)?
A. On the bond side, we have been consistently underweighted in the U.S.
market in favor of one or another of the three other markets. We have been
most consistently overweighted in Australia. In fact, Australian yield
spreads have declined dramatically versus those of the United States and,
therefore, Australian bonds have outperformed. Inflation in Australia is
extremely low, even below U.S. levels. For most of the year, the economy
trended weaker, and the central bank has been cutting interest rates.
Q. WILL THE ASIAN CRISIS HAVE A SEVERE IMPACT ON AUSTRALIA?
A. South Korea is Australia's number two export market, and Japan is number
one. So, clearly, if the Asian crisis deepens, Australia's export side
isn't going to be as strong. Domestically, the Australian economy looks
stronger but, in our view, the odds of an acceleration in growth are not
that great. We still like the market, in part because the Asian crisis will
tend to dampen growth and inflation.
Q. AND WHAT ABOUT THE UNITED STATES?
A. The first question concerns the general direction of interest rates; the
second concerns the spread markets, that is, the nongovernment sector. On
interest rates, the big question is: What is the Fed going to do? Two
important issues for the Fed are always growth and inflation. On the growth
side, we have consistently believed the economy would remain strong because
the situation for consumers is so favorable and because investment
continues to be quite strong. We've been right on that; where we've not
been as right is on inflation. Given our expectations of continued U.S.
growth, with ever-lower unemployment and increasing constraints on
resources in the economy, we had believed that inflation would stabilize
and, if anything, pick up over the course of the year. But what has
happened, to the surprise of many people -- including Fed Chairman Alan
Greenspan -- is that inflation has fallen, as have inflation expectations.
So, the most important trend for the bond market has been the surprising
decline in inflation, bringing yields down despite strong growth. While our
defensive position on the Treasury market hurt us in the second quarter, we
changed our position as we realized inflation was continuing to perform
remarkably well, and we increased the Fund's duration, or sensitivity to
changes in interest rates.
Q. WHAT ABOUT THE SPREAD, OR NONGOVERNMENT MARKET?
A. There, we have made use of both the mortgage market and the corporate
market. The mortgage market has outperformed U.S. Treasuries, while the
corporate market has also performed well, especially some of the crossover
issues that have received upgrades. (Principal value and interest on
Treasury securities are guaranteed by the U.S. government if
held to maturity.)
Q. WHAT HAS THE FUND BEEN DOING IN THE CURRENCY MARKETS?
A. We've had a bias toward a stronger dollar this year, especially against the
Japanese yen, which has proven to be correct. What was surprising was the
magnitude of the dollar's rise against European currencies, which we
believed reflected excessive concern in the market about the possible
weakness of the new Euro currency. But since September, the German mark's
strength against the dollar has been more in line with our expectations,
reflecting a more realistic assessment of prospects for the Euro. In an
environment of a strong dollar, our policy is to hedge out losses that
would otherwise be incurred from owning foreign assets. However, given that
the nature of this Fund is to offer some international diversification,
only under very extreme circumstances would we be 100% hedged, which would
make the portfolio in practical terms a dollar portfolio. So the very
strong dollar this year has created a significant drag on returns, not only
for this Fund but for the entire international bond asset category. When
the cycle turns and the dollar weakens, we believe our foreign currency
exposure will again add to performance.
Q. HAVE YOU SIGNIFICANTLY INCREASED OR DECREASED POSITIONS IN ANY SECTORS THIS
YEAR?
A. We started the year with a significantly overweighted position in European
bonds. As the year progressed and yield spreads in Europe narrowed, we cut
back on the European weighting and brought the dollar-bloc weighting up
commensurately. The narrowing of spreads has reached a point at which
current yield levels almost fully reflect the advent of the single European
currency.
Q. WHAT KIND OF MARKET OR ECONOMIC ENVIRONMENT DO YOU ANTICIPATE GOING INTO
1998?
A. It almost entirely hinges on Asia. That situation contains the kernels of
what could turn out to be something similar to the Latin American debt
debacle of the 1980s. The Asian nations are trade oriented and have close
financial and trade relationships with the rest of the world. If the Asian
contagion spreads, it would tend to bring yields down globally, creating a
very bond-friendly environment. On the other hand, should a firewall be
built to contain the region's economic difficulties, then the outcome could
be very different. For example, given the continued strength of the U.S.
economy, it's quite possible that, in the absence of Asian uncertainty, the
Fed would raise interest rates. European economies are also accelerating as
we go into 1998. So, for the time being, we're running a middle course, and
a key strategy for our bond duration will be to determine which of the two
scenarios plays out. Since Australia and New Zealand are so closely tied to
Asian events, we see a potential for falling yields there as well. In
Europe, fewer and fewer markets offer real value relative to Germany.
Sweden and the United Kingdom, both of which are unlikely to join the EMU
in the first round, still offer attractive spreads to the core markets, so
we're likely to remain overweighted there for the time being. In Japan, our
weighting has varied between 10% and 15% for most of the year, which is
higher than the average global bond fund due to our perception that
Japanese growth is unlikely to accelerate and that deflation, not
inflation, remains the reality. Indeed, yields have dropped to levels that
reflect this. Also, the government is under increasing pressure to come up
with programs to stimulate the economy and provide capital for the banking
sector. So we will remain in that 10% to 15% range initially, but should
new policy initiatives appear likely to succeed in boosting growth, we
would reduce the weighting in Japan. We expect U.S. growth to remain
relatively solid despite any Asian impact, and therefore continue to prefer
corporate bonds to U.S. government and mortgage bonds. The high degree of
uncertainty in emerging economies suggests a cautious stance for the time
being but, on a longer-term basis, emerging-country debt still looks
attractive.
/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, HE HOLDS A
MASTER OF BUSINESS ADMINISTRATION DEGREE FROM THE UNIVERSITY OF
PENNSYLVANIA WHARTON SCHOOL OF FINANCE AND COMMERCE AND HAS MANAGED
MFS(R) WORLD GOVERNMENTS FUND SINCE 1996.
NOTE TO SHAREHOLDERS: EFFECTIVE JANUARY 12, 1998, THE FUND WILL BE
MANAGED BY JAMES T. SWANSON. MR. SWANSON JOINED MFS(R) IN 1985 AS
VICE PRESIDENT -- INVESTMENTS AND WAS NAMED SENIOR VICE PRESIDENT
IN 1989. HE IS A GRADUATE OF COLGATE UNIVERSITY AND THE HARVARD
UNIVERSITY GRADUATE SCHOOL OF BUSINESS ADMINISTRATION.
<PAGE>
FUND FACTS
OBJECTIVE: THE FUND'S INVESTMENT OBJECTIVE IS TO SEEK
INCOME AND CAPITAL APPRECIATION.
COMMENCEMENT OF INVESTMENT OPERATIONS: FEBRUARY 26, 1981
CLASS INCEPTION: CLASS A FEBRUARY 26, 1981
CLASS B SEPTEMBER 7, 1993
CLASS C JANUARY 3, 1994
CLASS I JANUARY 2, 1997
SIZE: $276.7 MILLION NET ASSETS AS OF NOVEMBER 30, 1997
PERFORMANCE SUMMARY
The information below and on the following page illustrates the historical
performance of MFS World Governments Fund -- Class A shares in comparison to
various market indicators. Class A share performance results reflect the
deduction of the 4.75% maximum sales charge; benchmark comparisons are
unmanaged and do not reflect any fees or expenses. The performance of other
share classes will be greater than or less than the line shown, based on
differences in charges and fees paid by shareholders investing in different
classes. It is not possible to invest directly in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 5-year period ended November 30, 1997)
J.P. Morgan
MFS Salomon Brothers Global
World Governments World Government Consumer Government
Fund - Class A Bond Index Price Index - U.S. Bond Index
----------------- --------------- ------------------ -----------
11/92 $ 9,522 $10,000 $10,000 $10,000
11/93 $11,106 $11,301 $10,268 $11,218
11/94 $10,592 $11,629 $10,542 $11,451
11/95 $12,067 $13,738 $10,813 $13,527
11/96 $12,955 $14,503 $11,169 $14,397
11/97 $12,917 $14,464 $11,409 $14,513
<PAGE>
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 10-year period ended November 30, 1997)
J.P. Morgan
MFS Global Salomon Brothers
World Governments Government World Government Consumer
Fund - Class A Bond Index Bond Index Price Index - U.S.
----------------- ----------- ---------------- -----------------
11/87 $ 9,522 $10,000 $10,000 $10,000
11/89 $10,782 $11,460 $11,220 $10,904
11/91 $13,819 $14,240 $14,000 $11,934
11/93 $17,408 $17,380 $17,460 $12,627
11/95 $18,915 $20,960 $21,230 $13,298
11/97 $20,248 $22,489 $22,352 $14,030
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS AS OF NOVEMBER 30, 1997
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS World Governments Fund (Class A)
including 4.75% sales charge (SEC results) -5.00% +5.11% +5.25% +7.31%
- ------------------------------------------------------------------------------------------------------------
MFS World Governments Fund (Class A)
at net asset value -0.29% +6.84% +6.29% +7.84%
- ------------------------------------------------------------------------------------------------------------
MFS World Governments Fund (Class B)
with CDSC (SEC results) -4.96% +5.07% +5.27% +7.46%
- ------------------------------------------------------------------------------------------------------------
MFS World Governments Fund (Class B)
at net asset value -1.08% +5.95% +5.55% +7.46%
- ------------------------------------------------------------------------------------------------------------
MFS World Governments Fund (Class C)
with CDSC (SEC results) -2.07% +6.03% +5.62% +7.50%
- ------------------------------------------------------------------------------------------------------------
MFS World Governments Fund (Class C)
at net asset value -1.10% +6.03% +5.62% +7.50%
- ------------------------------------------------------------------------------------------------------------
MFS World Governments Fund (Class I)
at net asset value -0.12% +6.90% +6.33% +7.86%
- ------------------------------------------------------------------------------------------------------------
Average general world income fund* +2.27% +9.38% +7.09% +7.46%
- ------------------------------------------------------------------------------------------------------------
Salomon Brothers World Government Bond Index**+ -0.27% +7.54% +7.66% +8.38%
- ------------------------------------------------------------------------------------------------------------
J.P. Morgan Global Government Bond Index* +0.81% +8.22% +7.73% +8.44%
- ------------------------------------------------------------------------------------------------------------
Consumer Price Index+# +2.15% +2.67% +2.67% +3.44%
- ------------------------------------------------------------------------------------------------------------
* Source: Lipper Analytical Services, Inc.
** The Salomon Brothers World Government Bond Index is unmanaged and consists of complete universes of
government bonds with remaining maturities of at least five years.
+ Source: CDA/Wiesenberger.
# The Consumer Price Index is published by the U.S. Bureau of Labor Statistics and measures the cost of
living (inflation).
</TABLE>
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 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 inception 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 within 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 initial 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
inception 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 within 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. Subsidies and
waivers may be rescinded at any time. See the prospectus for details.
<PAGE>
PORTFOLIO CONCENTRATION AS OF NOVEMBER 30, 1997
LARGEST SECTORS
International 69.6%
Corporate 17.5%
U.S. Treasuries 7.3%
Emerging Markets 2.5%
Cash 3.1%
For a more complete breakdown, refer to the Portfolio of Investments.
TAX FORM SUMMARY
IN JANUARY 1998, SHAREHOLDERS WILL BE MAILED A TAX FORM SUMMARY
REPORTING THE FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE
CALENDAR YEAR 1997.
<PAGE>
PORTFOLIO OF INVESTMENTS - November 30, 1997
<TABLE>
<CAPTION>
Bonds - 84.1%
- ----------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Foreign Bonds - 63.7%
Australia - 6.0%
Commonwealth of Australia, 9.5s, 2003 AUD 20,700 $ 16,541,770
- ----------------------------------------------------------------------------------------------------------
Canada - 1.1%
Gulf Canada Resources Ltd., 9.25s, 2004 (Oil Services) $ 2,900 $ 3,059,993
- ----------------------------------------------------------------------------------------------------------
Denmark - 1.8%
BRF Kredit, 8s, 2026 (Bank) DKK 7,607 $ 1,177,836
Kingdom of Denmark, 7s, 2007 9,672 1,553,153
Nykredit, 8s, 2026 (Bank) 12,202 1,892,029
Realkredit Danmark, 8s, 2026 (Bank) 3,475 538,571
------------
$ 5,161,589
- ----------------------------------------------------------------------------------------------------------
Germany - 11.7%
Colt Telecom Group PLC, 8.875s, 2007 (Telecommunications) DEM 1,800 $ 1,015,000
Germany Federal Republic, 6s, 2016 40,620 23,487,755
Germany Federal Republic, 6s, 2007 13,158 7,753,821
------------
$ 32,256,576
- ----------------------------------------------------------------------------------------------------------
Italy - 5.2%
Republic of Italy, 9.5s, 1999 ITL 16,550,000 $ 10,017,357
Republic of Italy, 9.5s, 2006 5,910,000 4,232,912
------------
$ 14,250,269
- ----------------------------------------------------------------------------------------------------------
Japan - 6.4%
Federal National Mortgage Assn., 2.125s, 2007 JPY 1,050,000 $ 8,305,712
Nippon Telegraph & Telephone Corp., 2.5s, 2007
(Telecommunications) 1,174,000 9,406,167
------------
$ 17,711,879
- ----------------------------------------------------------------------------------------------------------
New Zealand - 10.2%
Government of New Zealand, 8s, 2001 NZD 9,500 $ 6,042,206
Government of New Zealand, 8s, 2004 34,000 22,222,222
------------
$ 28,264,428
- ----------------------------------------------------------------------------------------------------------
Russia - 0.3%
City of Moscow, 9.5s, 2000## $ 1,000 $ 963,960
- ----------------------------------------------------------------------------------------------------------
South Korea - 2.2%
Shinhan Bank, 7.25s, 2002 (Bank) $ 6,500 $ 5,944,770
- ----------------------------------------------------------------------------------------------------------
Spain - 3.0%
Government of Spain, 5s, 2001 ESP 456,210 $ 3,046,907
Government of Spain, 10.5s, 2003 649,060 5,446,916
------------
$ 8,493,823
- ----------------------------------------------------------------------------------------------------------
Sweden - 9.9%
Kingdom of Sweden, 5.5s, 2002 SEK 107,600 $ 13,714,819
Kingdom of Sweden, 10.25s, 2000 1,800 256,873
Kingdom of Sweden, 11s, 1999 42,500 5,848,154
Kingdom of Sweden, 13s, 2001 48,100 7,621,857
------------
$ 27,441,703
- ----------------------------------------------------------------------------------------------------------
United Kingdom - 5.9%
U.K. Treasury, 7.75s, 2006 GBP 5,840 $ 10,593,669
U.K. Treasury, 10s, 2003 2,900 5,628,351
------------
$ 16,222,020
- ----------------------------------------------------------------------------------------------------------
Total Foreign Bonds $176,312,780
- ----------------------------------------------------------------------------------------------------------
U.S. Bonds - 20.4%
Airlines - 0.8%
Continental Airlines, Inc., 9.5s, 2001 $ 2,009 $ 2,109,450
- ----------------------------------------------------------------------------------------------------------
Building - 0.2%
Building Materials Corp., 8.625s, 2006 $ 500 $ 515,000
- ----------------------------------------------------------------------------------------------------------
Consumer Goods and Services - 2.0%
Revlon, Inc., 10.5s, 2003 $ 1,800 $ 1,899,000
Westpoint Stevens, Inc., 8.75s, 2001 3,400 3,536,000
------------
$ 5,435,000
- ----------------------------------------------------------------------------------------------------------
Containers - 1.6%
Owens-Illinois, Inc., 8.1s, 2007 $ 4,200 $ 4,447,128
- ----------------------------------------------------------------------------------------------------------
Entertainment - 0.6%
AMC Entertainment, Inc., 9.5s, 2009 $ 1,750 $ 1,793,750
- ----------------------------------------------------------------------------------------------------------
Media - 1.0%
Cablevision Systems Corp., 9.25s, 2005 $ 2,500 $ 2,625,000
- ----------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 2.0%
Tenet Healthcare Corp., 8s, 2005 $ 2,250 $ 2,272,500
Tenet Healthcare Corp., 8.625s, 2003 3,235 3,372,487
------------
$ 5,644,987
- ----------------------------------------------------------------------------------------------------------
Oil Services - 1.3%
Clark Oil Refining Corp., 10.5s, 2001 $ 3,330 $ 3,471,525
- ----------------------------------------------------------------------------------------------------------
Restaurants and Lodging - 0.7%
Red Roof Inns, Inc., 9.625s, 2003 $ 1,800 $ 1,858,500
- ----------------------------------------------------------------------------------------------------------
Steel - 2.0%
Alaska Steel Holdings Corp., 9.125s, 2006 $ 2,900 $ 2,987,000
WCI Steel, Inc., 10s, 2004 2,650 2,742,750
------------
$ 5,729,750
- ----------------------------------------------------------------------------------------------------------
Supermarkets - 0.9%
Ralph's Grocery Co., 10.45s, 2004 $ 2,250 $ 2,534,063
- ----------------------------------------------------------------------------------------------------------
Telecommunications - 0.9%
Comcast Cellular Holdings, Inc., "B", 9.5s, 2007 $ 2,400 $ 2,484,000
- ----------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 6.4%
U.S. Treasury Strip, 0s, 2015++ $ 50,630 $ 17,706,830
- ----------------------------------------------------------------------------------------------------------
Total U.S. Bonds $ 56,354,983
- ----------------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $236,806,702) $232,667,763
- ----------------------------------------------------------------------------------------------------------
Short-Term Obligations - 12.4%
- ----------------------------------------------------------------------------------------------------------
CSFB Moscow Note, due 12/30/97+ $ 1,000 $ 991,154
Federal Home Loan Bank, due 12/01/97 8,630 8,630,000
Federal Home Loan Mortgage Corp., due 12/11/97 6,900 6,889,554
Federal Home Loan Mortgage Corp., Discount Notes,
due 1/23/98 3,920 3,888,028
Federal Home Loan Bank, due 12/10/97 4,760 4,753,527
Federal Home Loan Mortgage Corp., Discount Notes,
due 12/04/97 - 12/08/97 9,036 9,027,640
- ----------------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 34,179,903
- ----------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
OF CONTRACTS
ISSUER/EXPIRATION MONTH/STRIKE PRICE (000 OMITTED)
- ----------------------------------------------------------------------------------------------------------
Put Options Purchased - 0.5%
- ----------------------------------------------------------------------------------------------------------
Japanese Yen/April/121 (Premiums Paid, $620,677) JPY 3,445,041 $ 1,398,687
- ----------------------------------------------------------------------------------------------------------
Call Options Purchased
- ----------------------------------------------------------------------------------------------------------
Deutsche Marks/British Pounds/March/2.775
(Premiums Paid, $590,271) DEM 52,416 $ 91,151
- ----------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $272,197,553) $268,337,504
- ----------------------------------------------------------------------------------------------------------
Call Options Written - (0.2)%
- ----------------------------------------------------------------------------------------------------------
Japanese Yen/U.S. Dollars/May/119.000 JPY 3,388,098 $ (518,379)
Japanese Yen/Deutsche Marks/December/63.100 JPY 2,093,519 --
Deutsche Marks/British Pounds March/2.675 DEM 50,527 (16,118)
- ----------------------------------------------------------------------------------------------------------
Total Call Options Written (Premiums Received $952,863) $ (534,497)
- ----------------------------------------------------------------------------------------------------------
Put Options Written - (0.2)%
- ----------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- ----------------------------------------------------------------------------------------------------------
Deutsche Marks/British Pounds/March/2.775
(Premiums Received $228,787) DEM 55,721 $ (553,033)
- ----------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 3.4% 9,420,940
- ----------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $276,670,914
- ----------------------------------------------------------------------------------------------------------
## SEC Rule 144A restriction.
+ Restricted security.
++ Segregated to cover margin requirements.
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 GBP = British Pounds
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
FRF = French Francs
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- -------------------------------------------------------------------------------
NOVEMBER 30, 1997
- -------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $272,197,553) $268,337,504
Cash 6,916
Net receivable for forward foreign currency exchange
contracts to sell 1,899,005
Net receivable for forward foreign currency exchange
contracts closed or subject to master netting agreements 2,602,011
Receivable for daily variation margin on open futures contracts 51,046
Receivable for investments sold 2,387,606
Receivable for Fund shares sold 185,430
Interest receivable 5,907,867
Receivable for interest rate swap agreements 464,491
Other assets 2,892
------------
Total assets $281,844,768
------------
Liabilities:
Payable for Fund shares reacquired $ 382,157
Written options outstanding, at value (premiums received,
$1,181,650) 1,087,530
Net payable for forward foreign currency exchange
contracts to purchase 3,316,515
Payable to affiliates -
Management fee 23,300
Distribution and service fee 145,224
Shareholder servicing agent fee 4,038
Administrative fee 455
Accrued expenses and other liabilities 214,635
------------
Total liabilities $ 5,173,854
------------
Net assets $276,670,914
============
Net assets consist of:
Paid-in capital $272,251,520
Unrealized depreciation on investments and translation of
assets and liabilities in foreign currencies (2,094,582)
Accumulated undistributed net realized gain on
investments and foreign currency transactions 1,303,947
Accumulated undistributed net investment income 5,210,029
------------
Total $276,670,914
============
Shares of beneficial interest outstanding 24,539,103
==========
Class A shares:
Net asset value per share
(net assets of $187,151,646 / 16,500,904 shares of
beneficial interest outstanding) $11.34
======
Offering price per share (100 / 95.25 of net asset value
per share) $11.91
======
Class B shares:
Net asset value and offering price per share
(net assets of $77,962,407 / 7,003,735 shares of
beneficial interest outstanding) $11.13
======
Class C shares:
Net asset value and offering price per share
(net assets of $9,533,509 / 856,473 shares of
beneficial interest) $11.13
======
Class I shares:
Net asset value and offering price per share
(net assets of $2,023,352 / 177,991 shares of
beneficial interest outstanding) $11.37
======
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
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- -------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1997
- -------------------------------------------------------------------------------
Net investment income:
Interest income $ 23,537,729
------------
Expenses -
Management fee $ 2,485,005
Trustees' compensation 34,904
Shareholder servicing agent fee 383,958
Shareholder servicing agent fee (Class A) 36,841
Shareholder servicing agent fee (Class B) 20,599
Shareholder servicing agent fee (Class C) 2,013
Distribution and service fee (Class A) 576,874
Distribution and service fee (Class B) 886,576
Distribution and service fee (Class C) 125,067
Administration 35,858
Custodian fee 263,925
Printing 84,235
Auditing 60,755
Postage 55,580
Legal 4,954
Miscellaneous 276,143
------------
Total expenses $ 5,333,287
Fees paid indirectly (80,725)
------------
Net expenses $ 5,252,562
------------
Net investment income $ 18,285,167
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ (4,720,863)
Written option transactions (1,408,461)
Foreign currency transactions (9,401,471)
Futures contracts 344,684
Swap agreements 1,551,690
------------
Net realized loss on investments and foreign currency
transactions $(13,634,421)
------------
Change in unrealized appreciation (depreciation) -
Investments $(16,022,594)
Written options 704,879
Translation of assets and liabilities in foreign
currencies 6,704,252
Futures contracts 51,046
Swap agreements (843,028)
------------
Net unrealized loss on investments and foreign
currency transactions $ (9,405,445)
------------
Net realized and unrealized loss on investments
and foreign currency $(23,039,866)
------------
Decrease in net assets from operations $ (4,754,699)
============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Statement of Changes in Net Assets
<CAPTION>
- ------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 18,285,167 $ 22,983,273
Net realized gain (loss) on investments and foreign
currency transactions (13,634,421) 11,526,142
Net unrealized loss on investments and foreign currency
translation (9,405,445) (7,130,943)
------------- ------------
Increase (decrease) in net assets from operations $ (4,754,699) $ 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)
------------- ------------
Net decrease in net assets from Fund share
transactions $(109,749,292) $(16,797,847)
------------- ------------
Total decrease in net assets $(124,303,887) $(45,004,493)
Net assets:
At beginning of year 400,974,801 445,979,294
------------- ------------
At end of year (including accumulated undistributed net
investment income of $5,210,029 and $11,463,806,
respectively) $ 276,670,914 $400,974,801
============= ============
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1997 1996 1995 1994 1993***
- --------------------------------------------------------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------------------------------------------------------
<S> <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
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.64 $ 0.65 $ 0.76 $ 0.63 $ 0.58
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (0.68) 0.17 0.76 (1.17) 1.29
------ ------ ------ ------ ------
Total from investment operations $(0.04) $ 0.82 $ 1.52 $(0.54) $ 1.87
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.25) $(1.58) $ -- $(1.15) $ --
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) $ --
------ ------ ------ ------ ------
Net asset value - end of period $11.34 $11.70 $12.46 $11.39 $13.37
====== ====== ====== ====== ======
Total return+ (0.29)% 7.36% 13.93% (4.63)% 17.77%*
Ratios (to average net assets)/Supplemental data:
Expenses## 1.35% 1.42% 1.51% 1.54% 1.54%*
Net investment income 5.75% 5.70% 6.42% 5.45% 5.66%*
Portfolio turnover 335% 370% 277% 358% 179%*
Net assets at end of period (000 omitted) $187,152 $283,770 $343,188 $370,110 $443,304
* Annualized.
*** 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.
+ 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.
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights - continued
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $12.63 $12.00 $11.45 $11.11 $11.87
------ ------ ------ ------ ------
Income from investment operations -
Net investment income $ 0.87 $ 0.94 $ 0.98 $ 1.07 $ 0.94
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (0.70) 0.67 1.07 (0.26) (0.42)
------ ------ ------ ------ ------
Total from investment operations $ 0.17 $ 1.61 $ 2.05 $ 0.81 $ 0.52
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(1.30) $(0.75) $(0.95) $(0.47) $(0.90)
From net realized gain on investments and
foreign currency transactions -- -- (0.50) -- (0.32)
From paid in capital -- (0.23) (0.05) -- (0.06)
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(1.30) $(0.98) $(1.50) $(0.47) $(1.28)
------ ------ ------ ------ ------
Net asset value - end of period $11.50 $12.63 $12.00 $11.45 $11.11
====== ====== ====== ====== ======
Total return+ 1.35% 13.42% 17.90% 7.27% 3.68%
Ratios (to average net assets)/Supplemental data:
Expenses 1.53% 1.61% 1.44% 1.42% 1.12%
Net investment income 6.78% 7.75% 8.06% 8.42% 7.91%
Portfolio turnover 163% 208% 220% 282% 232%
Net assets at end of period (000 omitted) $340,347 $286,089 $145,202 $124,935 $190,590
+ 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.
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights - continued
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 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 $ 0.55 $ 0.54 $ 0.65 $ 0.56 $ 0.07
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (0.68) 0.17 0.76 (1.19) 0.06
------ ------ ------ ------ ------
Total from investment operations $(0.13) $ 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 currency
transactions (0.01) -- -- -- --
------ ------ ------ ------ ------
$
Total distributions declared to
shareholders $(0.24) $(1.49) $(0.45) $(1.40) --
------ ------ ------ ------ ------
Net asset value - end of period $11.13 $11.50 $12.28 $11.32 $13.35
====== ====== ====== ====== ======
Total return (1.08)% 6.39% 13.01% (5.39)% 4.32%*
Ratios (to average net assets)/Supplemental data:
Expenses## 2.10% 2.27% 2.33% 2.38% 2.48%*
Net investment income 5.03% 4.89% 5.59% 4.81% 4.72%*
Portfolio turnover 335% 370% 277% 358% 179%*
Net assets at end of period (000 omitted) $77,962 $102,717 $90,978 $73,458 $24,590
* Annualized.
*** For the period from the inception of Class B shares, September 7, 1993, through 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.
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights - continued
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 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 $ 0.55 $ 0.55 $ 0.66 $ 0.50
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (0.68) 0.17 0.77 (1.35)
------ ------ ------ ------
Total from investment operations $(0.13) $ 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 $11.13 $11.51 $12.29 $11.31
====== ====== ====== ======
Total return (1.10)% 6.56% 13.11% (6.92)%
Ratios (to average net assets)/Supplemental data:
Expenses## 2.10% 2.20% 2.26% 2.32%*
Net investment income 5.02% 4.97% 5.67% 5.06%*
Portfolio turnover 335% 370% 277% 358%*
Net assets at end of period (000 omitted) $9,534 $14,487 $11,813 $8,687
* Annualized.
** For the period from the inception of Class C shares, January 3, 1994, through November 30, 1994.
# Per share data are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
- ------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1997****
- ------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------
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 $ 0.61
Net realized and unrealized loss on investments and
foreign currency transactions (0.48)
------
Total from investment operations $ 0.13
------
Net asset value - end of period $11.37
======
Total return 1.16%**
Ratios (to average net assets)/Supplemental data:
Expenses(S) 0.99%*
Net investment income 5.54%*
Portfolio turnover 335%
Net assets at end of period (000 omitted) $2,023
* Annualized.
** Not annualized.
**** For the period from the inception of Class I shares, January 2, 1997,
through November 30, 1997.
# Per share data are based on average shares outstanding.
(S) The Fund's expenses are calculated without reduction for fees paid
indirectly.
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
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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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, forward contracts,
and interest rate swaps, 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
foreign 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 reported at market value using closing
settlement prices. Over-the-counter options on securities are valued by
brokers. Over-the-counter currency options are valued through the use of a
pricing model which takes into account foreign currency exchange spot and
forward rates, 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 also write call or put options in exchange for
a premium. The premium is initially recorded as a liability which is
subsequently adjusted to the current value of the options contract. When a
written option expires, the Fund realizes a gain equal to the amount of the
premium received. When a written call option is exercised or closed, the
premium received is offset against the proceeds to determine the realized gain
or loss. When a written 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.
Futures Contracts - The Fund may enter into futures contracts for the delayed
delivery of securities or currency, or contracts based on financial indices at
a fixed price on a future date. In entering such contracts, the Fund is
required to deposit 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. Investments in interest rate futures
for purposes other than hedging may be made to modify the duration of the
portfolio without incurring the additional transaction costs involved in
buying and selling the underlying securities. Investments in currency futures
for purposes other than hedging may be made to change the Fund's relative
position in one or more currencies without buying and selling portfolio
assets. Investments in equity index contracts, or contracts on related
options, for purposes other than hedging may be made when the Fund has cash on
hand and wishes to participate in anticipated market appreciation while the
cash is being invested. Should interest or exchange rates or securities prices
move unexpectedly, the Fund may not achieve the anticipated benefits of the
futures contracts and may realized a loss.
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 as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains
or losses on foreign currency transactions.
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 is amortized or accreted for financial statement
and tax reporting purposes as required by federal income tax regulations.
Dividends received in cash are recorded on the ex-dividend date. 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. Some government securities may be purchased on a "when-issued"
or "forward delivery" basis, which means that the securities will be delivered
to the Fund at a future date, usually beyond customary settlement time.
Fees Paid Indirectly - The Fund's custody fee is calculated as a percentage of
the Fund's average daily net assets. The fee is reduced according to an
arrangement which measures the value of cash deposited with the custodian by
the Fund. This amount is shown as a reduction of expenses on the Statement of
Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code which may differ from generally accepted accounting principles, the basis
on which these financial statements are prepared. Accordingly, the amount of
net investment income and net realized gain reported on these financial
statements may differ from that reported on the Fund's tax return and,
consequently, the character of distributions to shareholders reported in the
financial highlights may differ from that reported to shareholders on Form
1099-DIV.
Distributions to shareholders are recorded on the ex-dividend date. The Fund
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits are reported in the financial statements as a 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. During the year ended November 30, 1997, $17,001,616 was reclassified
from accumulated undistributed net investment income and $15,189,438 and
$1,812,178 were reclassified to accumulated net realized gain and paid-in
capital, respectively, due to differences between book and tax accounting for
currency transactions. This change had no effect on the net assets or net
asset value per share. At November 30, 1997, accumulated undistributed net
investment income (realized gain on investments and foreign currency
transactions) under book accounting were different from tax accounting due to
temporary differences in accounting for currency transactions.
Multiple Classes of Shares of Beneficial Interest - The Fund offers multiple
classes of shares. The classes of shares differ in their respective
distribution and service fees. All shareholders bear the common expenses of
the Fund pro rata based on average daily net assets of each class, without
distinction between share classes. Dividends are declared separately for each
class. No class has preferential dividend rights; differences in per share
dividend rates are generally due to differences in separate class expenses.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an 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.
Administrator - Effective March 1, 1997, the Fund has an administrative
services agreement with MFS to provide the Fund with certain financial, legal,
shareholder servicing, compliance, and other administrative services. As a
partial reimbursement for the cost of providing these services, the Fund pays
MFS an administrative fee at the following annual percentages of the Fund's
average daily net assets, provided that the administrative fee is not assessed
on Fund assets that exceed $3 billion:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
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
$10,574 for the year ended November 30, 1997.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$41,941 for the year ended November 30, 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 (reduced to 0.15% per annum for assets sold prior to October
1, 1989) 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 (reduced to zero for an indefinite period) 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 $135,002 for the year ended November 30,
1997. Payment of the 0.10% per annum Class A distribution fee will commence on
such date as the Trustees of the Fund may determine. Fees incurred under the
distribution plan during the year ended November 30, 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 $17,803
and $15,030 for Class B and Class C shares, respectively, for the year ended
November 30, 1997. Fees incurred under the distribution plan during the year
ended November 30, 1997, were 1.00% and 1.00% of average daily net assets
attributable to Class B and Class C shares on an annualized basis,
respectively.
Purchases over $1 million of Class A shares and certain purchases by
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
12 months of purchase. MFD receives all contingent deferred sales charges.
Contingent deferred sales charges imposed during the year ended November 30,
1997, were $0, $286,497, and $5,531 for Class A, Class B, and Class C shares,
respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the Fund's average daily net assets at an effective annual
rate of 0.13%. 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 $281,238,041 $265,931,930
------------ ------------
Investments (non-U.S. government securities) $594,624,647 $717,763,157
------------ ------------
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 $272,197,553
------------
Gross unrealized appreciation $ 3,329,367
Gross unrealized depreciation (7,189,416)
------------
Net unrealized appreciation (depreciation) $ (3,860,049)
============
(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
YEAR ENDED NOVEMBER 30, 1997 YEAR ENDED NOVEMBER 30, 1996
---------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 4,755,823 $ 52,604,737 3,456,886 $ 38,473,626
Shares issued to shareholders
in reinvestment of distributions 522,118 5,884,106 3,084,576 33,899,680
Shares reacquired (13,022,309) (144,732,586) (9,837,787) (109,032,589)
---------- ------------- --------- ------------
Net decrease (7,744,368) $ (86,243,743) (3,296,325) $ (36,659,283)
========== ============= ========= ============
<CAPTION>
Class B Shares
YEAR ENDED NOVEMBER 30, 1997 YEAR ENDED NOVEMBER 30, 1996
---------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,493,539 $ 16,347,711 3,389,303 $ 37,175,577
Shares issued to shareholders
in reinvestment of distributions 148,179 1,649,221 799,999 8,704,007
Shares reacquired (3,571,362) (39,111,702) (2,665,621) (29,293,670)
---------- ------------- --------- ------------
Net increase (decrease) (1,929,644) $ (21,114,770) 1,523,681 $ 16,585,914
========== ============= ========= ============
<CAPTION>
Class C Shares
YEAR ENDED NOVEMBER 30, 1997 YEAR ENDED NOVEMBER 30, 1996
---------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 205,041 $ 2,248,641 663,887 $ 7,297,558
Shares issued to shareholders
in reinvestment of distributions 18,690 208,014 80,105 871,545
Shares reacquired (626,423) (6,857,032) (446,199) (4,893,581)
---------- ------------- --------- ------------
Net increase (decrease) (402,692 $ (4,400,377) 297,793 $ 3,275,522
========== ============= ========= ============
<CAPTION>
Class I Shares
PERIOD ENDED NOVEMBER 30, 1997*
------------------------------
SHARES AMOUNT
- -------------------------------------------------------------------
<S> <C> <C>
Shares sold 271,159 $ 3,046,422
Shares issued to shareholders
in reinvestment of
distributions -- --
Shares reacquired (93,168) (1,036,824)
---------- -------------
Net increase 177,991 $ 2,009,598
========== =============
* For the period from the inception of Class I shares, January 2, 1997, through
November 30, 1997.
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in a $400 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made to temporarily finance the repurchase of
Fund shares. Interest is charged to each fund, based on its borrowings, at a
rate equal to the bank's base rate. In addition, a commitment fee, based on
the average daily unused portion of the line of credit, is allocated among the
participating funds at the end of each quarter. The commitment fee allocated
to the Fund for the year ended November 30, 1997, was $3,079.
(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, interest rate swap contracts, and futures contracts. The
notional or contractual amounts of these instruments represent the investment
the Fund has in particular classes of financial instruments and does not
necessarily represent the amounts potentially subject to risk. The measurement
of the risks associated with these instruments is meaningful only when all
related and offsetting transactions are considered.
<TABLE>
Written Option Transactions
<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 23,932 123,192
British Pounds 20,450 154,304
Deutsche Marks/British Pounds 50,527 253,191 145,809 392,061
Japanese Government Bonds 6,824,000 123,804 21,425,624 1,492,956
Japanese Yen 21,154,476 2,503,678 5,940,789 376,754
Japanese Yen/Deutsche Marks 4,155,519 400,625 2,220,905 123,067
Swiss Francs/Deutsche Marks 57,887 738,072
Options terminated in closing transactions -
Australian Dollars (23,932) (123,191)
British Pounds (20,450) (154,304)
Deutsche Marks/British Pounds (143,250) (848,411)
Japanese Government Bonds (8,145,000) (219,032) (26,010,624) (1,873,611)
Japanese Yen (15,861,010) (1,891,926) (3,821,991) (261,332)
Japanese Yen/Deutsche Marks (2,220,905) (123,067)
Swiss Francs/Deutsche Marks (79,834) (984,928)
Options expired -
Deutsche Marks/British Pounds (51,387) (196,904)
Japanese Yen (1,905,368) (77,059) (2,118,798) (115,422)
Japanese Yen/Deutsche Marks (2,062,000) (235,647)
Swiss Francs/Deutsche Marks (35,076) (106,449)
--------- ---------- ---------- ----------
OUTSTANDING, END OF PERIOD 5,532,144 $ 952,863 55,721 $ 228,787
========= ========== ========== ==========
Outstanding, end of period consist of:
Deutsche Marks/British Pounds 50,527 253,192 55,721 228,787
Japanese Yen 3,388,098 534,693
Japanese Yen/Deutsche Marks 2,093,519 164,978
--------- ---------- ---------- ----------
5,532,144 $ 952,863 55,721 $ 228,787
========= ========== ========== ==========
</TABLE>
At November 30, 1997, 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>
Sales 1/07/98 CAD 23,728,449 $ 17,413,544 $ 16,710,808 $ 702,736
1/07/98 CHF 24,241,398 17,172,994 17,076,126 96,868
1/07/98 ESP 2,475,547,720 17,085,704 16,615,876 469,828
1/07/98 FRF 191,642,153 32,664,821 32,539,879 124,942
1/07/98 GBP 5,852,322 9,820,197 9,839,305 (19,108)
1/07/98 JPY 1,686,198,300 13,819,413 13,295,674 523,739
------------ ------------ -----------
$107,976,673 $106,077,668 $ 1,899,005
============ ============ ===========
Purchases 1/07/98 CAD 35,650,785 $ 26,070,957 $ 25,107,137 $ (963,821)
1/07/98 DEM 35,646,554 20,927,455 20,252,590 (674,865)
1/07/98 ESP 6,005,026,530 40,630,885 40,305,738 (325,147)
1/07/98 GBP 15,821,825 26,303,307 26,600,680 297,373
1/07/98 JPY 2,450,990,278 20,547,347 19,326,058 (1,221,289)
1/07/98 NLG 63,911,858 32,664,821 32,236,054 (428,767)
------------ ------------ -----------
$167,144,772 $163,828,257 $(3,316,515)
============ ============ ===========
</TABLE>
Forward foreign currency purchases and sales under master netting agreements
excluded above amounted to a net receivable of $5,243,647 with C.S. First
Boston, $3,110,698 with Merrill Lynch, and a net payable of $2,695,726 with
Bankers Trust, $73,578 with Deutsche Bank, and $2,735,155 with Swiss Bank at
November 30, 1997. Closed forward foreign currency exchange contracts excluded
above amount to a net payable $247,875 with Goldman Sachs at November 30,
1997.
At November 30, 1997, the Fund had sufficient cash and/or securities to cover
any commitments under these contracts.
Futures Contracts
UNREALIZED
APPRECIATION
DESCRIPTION EXPIRATION CONTRACTS POSITION (DEPRECIATION)
- --------------------------------------------------------------------------------
Japanese 10 yr Bond December 1997 11 Long $51,046
-------
At November 30, 1997, the Fund had sufficient cash and/or securities to cover
margin requirements on open futures contracts.
<TABLE>
Foreign Currency Swaps
<CAPTION>
CASH FLOWS UNREALIZED
NOTIONAL PRINCIPAL CASH FLOWS PAID RECEIVED APPRECIATION
EXPIRATION AMOUNT OF CONTRACT BY THE TRUST BY THE TRUST (DEPRECIATION)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9/18/00 ITL 54,517,000,000 DEM Fixed ITL Fixed $464,491
--------
DEM 55,886,212 4.565% 5.685%
</TABLE>
At November 30, 1997, the Fund had sufficient cash and/or securities to cover
margin requirements for open foreign currency swaps.
(8) Restricted Securities
The Fund may invest not more than 15% of its net assets in securities which
are subject to legal or contractual restrictions on resale. At November 30,
1997, the Fund owned the following restricted security (constituting 0.4% of
net assets) which may not be publicly sold without registration under the
Securities Act of 1933. The Fund does not have the right to demand that such
securities be registered. The value of these securities is determined by
valuations supplied by a pricing service of brokers, or if not available, in
good faith by or at the direction of the Trustees.
DATE OF
DESCRIPTION ACQUISITION PAR AMOUNT COST VALUE
- --------------------------------------------------------------------------------
CSFB Moscow Note 6/26/97 1,000,000 $947,535 $991,154
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 (the Fund), including the schedule of portfolio
investments as of November 30, 1997, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of
the two years in the period then ended, and the financial highlights for each
of the four years in the period then ended. 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 November 30, 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 November 30, 1997, the results of its operations for
the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the four
years in the period then ended, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
January 9, 1998
--------------------------------------------
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
TRUSTEES CUSTODIAN
A. Keith Brodkin* - Chairman and State Street Bank and Trust Company
President; Chairman and Director,
Massachusetts Financial Services AUDITORS
Company Ernst & Young LLP
Richard B. Bailey* - Private INVESTOR INFORMATION For MFS stock and
Investor; Former Chairman and bond market outlooks, call toll free:
Director (until 1991), Massachusetts 1-800-637-4458 anytime from a touch-tone
Financial Services Company telephone.
Peter G. Harwood - Private Investor For information on MFS mutual funds,
call your financial adviser or, for an
J. Atwood Ives - Chairman and Chief information kit, call toll free:
Executive Officer, Eastern 1-800-637-2929 any business day from 9
Enterprises a.m. to 5 p.m. Eastern time (or leave a
message anytime).
Lawrence T. Perera - Partner,
Hemenway & Barnes INVESTOR SERVICE
MFS Service Center, Inc.
William J. Poorvu - Adjunct P.O. Box 2281
Professor, Harvard University Boston, MA 02107-9906
Graduate School of Business
Administration For general information, call toll free:
1-800-225-2606 any business day from 8
Charles W. Schmidt - Private Investor a.m. to 8 p.m. Eastern time.
Arnold D. Scott* - Senior Executive For service to speech- or
Vice President, Director and hearing-impaired, call toll free:
Secretary, Massachusetts Financial 1-800-637-6576 any business day from 9
Services Company a.m. to 5 p.m. Eastern time. (To use
this service, your phone must be
Jeffrey L. Shames* - President and equipped with a Telecommunications
Director, Massachusetts Financial Device for the Deaf.)
Services Company
For share prices, account balances, and
Elaine R. Smith - Independent exchanges, call toll free:
Consultant David B. Stone - Chairman, 1-800-MFS-TALK (1-800-637-8255) anytime
North American Management Corp. from a touch-tone telephone.
(investment advisers)
WORLD WIDE WEB
INVESTMENT ADVISER Massachusetts www.mfs.com
Financial Services Company 500
Boylston Street Boston, MA 02116-3741 [Dalbar Logo] For the fourth year
in a row, MFS earned
DISTRIBUTOR a #1 ranking in the DALBAR, Inc.
MFS Fund Distributors, Inc. Broker/Dealer Survey, Main Office
500 Boylston Street Operations Service Quality Category. The
Boston, MA 02116-3741 firm achieved a 3.42 overall score on a
scale of 1 to 4 in the 1997 survey. A
PORTFOLIO MANAGER total of 111 firms responded, offering
Richard O. Hawkins* input on the quality of service they
received from 29 mutual fund companies
TREASURER nationwide. The survey contained
W. Thomas London* questions about service quality in 11
categories, including "knowledge of
ASSISTANT TREASURERS operations contact," "keeping you
Mark E. Bradley* informed," and "ease of doing business"
Ellen Moynihan* with the firm.
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
<PAGE>
----------------
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Paid
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Boston, MA 02116-3741 ----------------
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INVESTMENT MANAGEMENT
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