<PAGE>
[Logo]
INVESTMENT MANAGEMENT
We invented the mutual fund(SM)
MFS(R) WORLD
GOVERNMENTS FUND
SEMIANNUAL REPORT o MAY 31, 1998
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Now two MFS(R) IRA choices (see page 36)
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<PAGE>
IN MEMORIAM
A. KEITH BRODKIN
1935 - 1998
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
MFS(R) INVESTMENT MANAGEMENT(SM)
- --------------------------- On February 2, 1998, Keith Brodkin, a friend and
leader to everyone at MFS, died unexpectedly a
age 62. His thoughtful letters to shareholders
[Photo of A. Keith Brodkin] on the markets and economy have been an integral
part of MFS shareholder reports like this one
- --------------------------- for many years.
Keith joined MFS in 1970 as the firm's first fixed-income manager, managing the
bond portion of MFS(R) Total Return Fund. He went on to manage our first pure
bond fund, MFS(R) Bond Fund, when it was introduced in 1974, and he was
considered a pioneer in the art of active bond management.
Keith was named President and Chief Investment Officer of MFS in 1987 and four
years later became Chairman and Chief Executive Officer. During his stewardship,
MFS has achieved significant growth in total assets under management, rising
from some $25 billion in 1991 to the over $80 billion today entrusted to us by
three million individual and institutional investors worldwide. Under Keith's
leadership, MFS has carefully but steadily built its domestic and international
investment capabilities through the introduction of a range of new products and
a still-growing staff that now numbers over 100 equity and fixed-income
professionals.
Throughout his career, Keith was very active in a wide range of charitable
endeavors. He is survived by his wife and three children.
His leadership, friendship, and wise counsel will be sorely missed.
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 2
Management Review and Outlook ............................................. 4
Performance Summary ....................................................... 8
Portfolio of Investments .................................................. 11
Financial Statements ...................................................... 16
Notes to Financial Statements ............................................. 24
Independent Auditors' Report .............................................. 33
Trustees and Officers ..................................................... 37
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HIGHLIGHTS
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o FOR THE SIX MONTHS ENDED MAY 31, 1998, CLASS A SHARES OF THE FUND PROVIDED A
TOTAL RETURN AT NET ASSET VALUE OF 3.27%, CLASS B SHARES 2.92%, CLASS C
SHARES 2.92%, AND CLASS I SHARES 3.40%. (SEE PERFORMANCE SUMMARY FOR MORE
INFORMATION.)
o WE BELIEVE THE FUND'S FLEXIBLE MANAGEMENT STYLE HELPS US RESPOND TO CHANGES
IN THE GLOBAL INVESTMENT CLIMATE. AS A RESULT, WE FEEL THE FUND CAN TAKE
BETTER ADVANTAGE OF THE CHANGING OPPORTUNITIES PRESENT IN DEBT INVESTING
WORLDWIDE.
o WE REMAIN EXTREMELY OPTIMISTIC ABOUT THE ENVIRONMENT FOR U.S. HIGH-YIELD
CORPORATE BONDS AND EXPECT ROBUST PERFORMANCE FROM THIS SECTOR UNTIL THERE
IS A DEVALUATION IN THE U.S. EQUITY MARKET.
o WE ARE OPTIMISTIC ABOUT THE ECONOMIC OUTLOOK IN KEY EMERGING MARKETS SUCH AS
BRAZIL, MEXICO, PANAMA, AND RUSSIA. WE ALSO FEEL THAT ASIA IS BEST AVOIDED
FOR NOW BUT MAY REPRESENT A BUYING OPPORTUNITY IN SIX MONTHS OR SO.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders:
With the U.S. stock market well into its fourth year of record-breaking
advances, it is necessary to take a cautious outlook. By most commonly accepted
measures, equity valuations appear to have risen to a point at which the stock
market has become more vulnerable to changes in the investment environment such
as rising inflation and interest rates or a slowing economy. As a result, while
we continue to hold a favorable long-term outlook for the equity markets, we
also believe that a market correction is possible in the near term. In such a
correction, equity prices would remain relatively flat or decline, possibly for
an extended period.
Currently, equity investors seem to be primarily focused on interest rates,
which have been relatively stable for several months as inflation has remained
low. In an environment of low interest rates, stocks become more attractive than
most fixed-income investments, while low inflation helps control companies'
costs, such as for raw materials, wages, and benefits. The near-term outlook for
a continuation of this environment appears relatively favorable. However, this
year has seen a marked slowdown in corporate earnings. This means that as equity
prices continue to rise, price-to-earnings (P/E) ratios, or the amount an
investor pays for a stock in relation to the company's earnings per share, also
go up. A year ago, the average P/E ratio for stocks in the unmanaged Standard &
Poor's 500 Composite Index stood at approximately 21; this spring, the average
P/E was 33% higher, at about 28. In some cases, such as with some of the newer
companies associated with the Internet, P/Es have soared to levels that are
unlikely to be sustained.
As long as interest rates remain low and the economy continues to grow, it is
possible that some of these valuations can be supported. We expect corporate
earnings to grow 8% to 10% this year. However, just as no one can predict market
cycles, so too no one can predict economic cycles -- except to say that these
cycles do exist and that an economic slowdown at some point is inevitable.
Given this reality, we believe it is prudent to remind investors of the need to
take a long-term view and to diversify their investments across a range of asset
classes, including mutual funds that focus on bonds and international
investments as well as on the U.S. stock market. The likelihood of an eventual
market correction also makes it important for us to use original, bottom-up
research to find companies that we think can keep growing or gain market share
in the face of the occasional downturn. To help achieve this, and to provide the
broadest possible coverage of industry sectors and individual companies, MFS
continues to increase its number of full-time research analysts. These analysts
thoroughly investigate each company's earnings potential and position in its
industry as well as the overall prospects for that industry.
MFS also uses active portfolio management on the fixed-income side, taking
advantage of our extensive research and credit analysis to help reduce the
potential for price declines and enhance the opportunity for appreciation. Every
year, both fixed-income and equity managers meet with thousands of credit
issuers and companies. They also attend many presentations, closely follow
sources of industry research, and keep track of competitors.
We believe that applying this discipline of thorough, bottom-up research to both
the equity and fixed-income markets is the best way to provide favorable
long-term performance for our shareholders -- regardless of changes in the
overall market environment.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/ Jeffrey Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management
June 12, 1998
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JEFFREY L. SHAMES, A GRADUATE OF WESLEYAN UNIVERSITY AND THE MASSACHUSETTS
INSTITUTE OF TECHNOLOGY SLOAN SCHOOL OF MANAGEMENT, JOINED MFS IN 1983. AFTER
FOUR YEARS AS AN INDUSTRY ANALYST AND PORTFOLIO MANAGER, HE WAS NAMED CHIEF
EQUITY OFFICER IN 1987 AND PRESIDENT AND A MEMBER OF THE BOARD OF DIRECTORS IN
1993. MR. SHAMES WAS APPOINTED CHAIRMAN AND CHIEF EXECUTIVE OFFICER IN FEBRUARY
1998.
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<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
[Photo of James T. Swanson]
James T. Swanson
For the six months ended May 31, 1998, Class A shares of the Fund provided a
total return of 3.27%, Class B shares 2.92%, Class C shares 2.92%, and Class I
shares 3.40%. These returns assume the reinvestment of distributions but exclude
the effects of any sales charges and compare to a 2.87% 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. HOW WOULD YOU ASSESS THE FUND'S PERFORMANCE OVER THE PAST SIX MONTHS?
A. It's been a very good six months. We have been more aggressive in making
asset allocation changes to take advantage of world economic opportunities.
Generally, the Fund did well through the first quarter of 1998, though
performance was recently set back due to the Asian turmoil. However, the
troubles in Asia have had a negative impact on all emerging markets. We are
very optimistic about the outlook for bonds and feel that the Fund's
flexible strategy helps us to respond to a changing world investment
climate.
Q. LET'S TALK SOME MORE ABOUT ASIA. HOW HAS THE TURMOIL IN THE ASIAN ECONOMIES
AND INVESTMENT MARKETS AFFECTED THE FUND?
A. We feel the economic contraction in Asia has a way to go before it bottoms
out. Therefore, we are avoiding investments in Asian economies at this
point. In the future, perhaps six months or more, there will be
opportunities to invest in corporate and government debt there. Despite the
troubles in Asia, we have increased the allocation to emerging markets from
20% to 25% to take advantage of cheap bond prices in Brazil, Mexico, Panama,
and Russia.
Q. RUSSIA IS EXPERIENCING ITS OWN ECONOMIC TURBULENCE. WHY ARE YOU BUYING
RUSSIAN BONDS NOW?
A. We believe Russia will overcome its current problems. Russia is too big to
fail and is making serious efforts to restructure and reform its economy. We
feel that Russia represents a buying opportunity.
Q. LET'S TALK ABOUT SOME OTHER MARKETS, STARTING WITH EUROPE.
A. Europe is showing economic strength right now, which is improving European
credit ratings but negatively impacting interest rates. The ongoing
convergence of countries into a single economic bloc has reduced much of the
yield spread opportunities between them, which has diminished the value of
government debt and has limited investment opportunities. Additionally, the
drive toward monetary union has limited the value of investing in local
currencies. As a result, the Fund has reduced its exposure to Organization
of Economic Cooperation and Development (OECD) countries such as Germany,
the Netherlands, Italy, and Spain.
Q. AND WHAT ABOUT THE UNITED STATES?
A. We feel the U.S. corporate bond market presents the best value in
fixed-income investing today. Specifically, we have seen exceptional
performance from high-yield corporate bonds, boosted by a surging U.S.
economy and improved balance sheets among U.S. companies. Twenty-six percent
of this portfolio is invested in U.S. high-yield bonds. In addition, we have
seen consolidation in several industries in which high-yielding companies
have been acquired by high-credit quality companies, which has benefited
bond holders. This trend has been especially apparent in the U.S.
telecommunications and media industries.
Q. WHAT HAS BEEN THE FUND'S REACTION TO THE LACK OF AN INTEREST RATE HIKE BY
THE U.S. FEDERAL RESERVE BOARD (THE FED)?
A. We had been concerned that due to the extreme inflation of the value of U.S.
assets, particularly stock prices and real estate prices, the Fed would
raise rates. The turmoil in Asia seems to have dissuaded it from taking
action at this time. As a result, we have increased the Fund's sensitivity
to interest rates, or duration, and we don't see much risk of a rate hike in
the near future, which could provide greater yield opportunities.
Q. WHAT HAS THE FUND BEEN DOING IN THE CURRENCY MARKETS?
A. While the Fund does not engage in currency speculation, it does hedge many
of its investments back to the U.S. dollar. By hedging, I mean that a bond
is bought in local currency and its value is converted to U.S. dollars,
sometimes at a premium. This reduces the currency risk of the investment. We
particularly favor the U.S. dollar in comparison to other global currencies,
and we keep that in mind when buying foreign bonds.
Q. WHAT KIND OF MARKET OR ECONOMIC ENVIRONMENT DO YOU ANTICIPATE FOR THE REST
OF 1998?
A. We are optimistic about the global environment for bonds. If we have a major
concern, it is that the world may have an excess of liquidity at the moment.
In other words, the availability and the price of money are very favorable
and have helped cause the run-up in equity markets. There is a possibility
that some of this liquidity will be withdrawn from world markets to help
combat the troubles in Asia. This will negatively impact the stock market.
If there is a contraction in equity prices, that will prove to be favorable
to the bond market.
/s/ James T. Swanson
James T. Swanson
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and are
only through the end of the period of the report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
<PAGE>
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PORTFOLIO MANAGER'S PROFILE
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JAMES T. SWANSON IS A SENIOR VICE PRESIDENT OF MFS(R) INVESTMENT MANAGEMENT(SM).
HE IS PORTFOLIO MANAGER OF MFS(R) WORLD ASSET ALLOCATION (SM) FUND, MFS(R)
STRATEGIC INCOME FUND, MFS(R) WORLD GOVERNMENTS FUND, MFS(R) MERIDIAN(SM)
CHARTER INCOME FUND, MFS(R) MERIDIAN(SM) GLOBAL GOVERNMENTS FUND, MFS(R)
AMERICAN(SM) CHARTER INCOME FUND, MFS(R) INSTITUTIONAL CORE FIXED INCOME FUND,
THE WORLD ASSET ALLOCATION(SM) SERIES OFFERED THROUGH MFS(R)/SUN LIFE ANNUITY
PRODUCTS, AND TWO CLOSED- END FUNDS -- MFS(R) CHARTER INCOME TRUST AND MFS(R)
MULTIMARKET INCOME TRUST.
MR. SWANSON JOINED MFS 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. MR. SWANSON IS A CHARTERED FINANCIAL ANALYST.
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus. A prospectus containing more information,
including the exchange privilege and all charges and expenses, for any other MFS
product is available from your financial adviser, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
<PAGE>
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FUND FACTS
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OBJECTIVE: SEEKS 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: $233.4 MILLION NET ASSETS AS OF MAY 31, 1998
PERFORMANCE SUMMARY
Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for the
applicable time periods. Investment results reflect the percentage change in net
asset value, including reinvestment of dividends.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN THROUGH MAY 31, 1998
<TABLE>
<CAPTION>
CLASS A
6 Months 1 Year 3 Years 5 Years 10 Years/Life
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return +3.27% +6.94% +13.27% +29.40% +108.61%
- --------------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +6.94% + 4.24% + 5.29% + 7.63%
- --------------------------------------------------------------------------------------------------------------------
SEC Results -- +1.86% + 2.56% + 4.27% + 7.11%
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<CAPTION>
CLASS B
6 Months 1 Year 3 Years 5 Years 10 Years/Life
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<S> <C> <C> <C> <C> <C>
Cumulative Total Return +2.92% +6.07% +10.55% +24.56% +100.80%
- --------------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +6.07% + 3.40% + 4.49% + 7.22%
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SEC Results -- +2.07% + 2.54% + 4.13% + 7.22%
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<CAPTION>
CLASS C
6 Months 1 Year 3 Years 5 Years 10 Years/Life
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return +2.92% +6.07% +10.71% +25.16% +101.74%
- --------------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +6.07% + 3.45% + 4.59% + 7.27%
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SEC Results -- +5.07% + 3.45% + 4.59% + 7.27%
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<CAPTION>
CLASS I
6 Months 1 Year 3 Years 5 Years 10 Years/Life
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<S> <C> <C> <C> <C> <C>
Cumulative Total Return +3.40% +7.17% +13.63% +29.77% +109.19%
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Average Annual Total Return -- +7.17% + 4.35% + 5.35% + 7.66%
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</TABLE>
Class A share ("A") SEC results include the maximum 4.75% sales charge. Class B
share ("B") SEC results reflect the applicable contingent deferred sales charge
(CDSC), which declines over six years from 4% to 0%. Class C shares ("C") have
no initial sales charge but, like B, have higher annual fees and expenses than
A. C SEC results reflect the 1% CDSC applicable to shares redeemed within 12
months. Class I shares ("I") have no sales charge or Rule 12b-1 fees and are
only available to certain institutional investors.
B and C results include the performance and the operating expenses (e.g., Rule
12b-1 fees) of A for periods prior to the inception of B and C. Because
operating expenses of B and C are higher than those of A, B and C performance
generally would have been lower than A performance. The A performance included
in the B and C SEC performance has been adjusted to reflect the CDSC generally
applicable to B and C rather than the initial sales charge generally applicable
to A.
I results include the performance and the operating expenses (e.g., Rule 12b-1
fees) of A for periods prior to the inception of I. Because operating expenses
of A are greater than those of I, I performance generally would have been higher
than A performance. The A performance included in the I performance has been
adjusted to reflect the fact that I have no initial sales charge.
Performance results reflect any applicable 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. 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.
Investments in foreign and emerging market securities may provide superior
returns but also involve greater risk than U.S. investments. Investments in
foreign and emerging market securities may be favorably or unfavorably affected
by changes in interest rates and currency exchange rates, market conditions, and
the economic and political conditions of the countries where investments are
made. These risks may increase share price volatility.
PORTFOLIO CONCENTRATION AS OF MAY 31, 1998
PORTFOLIO STRUCTURE
EMERGING MARKET 29%
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HIGH-YIELD CORPORATE 26%
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INTERNATIONAL 26%
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U.S. GOVERNMENT 8%
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HIGH-GRADE CORPORATE 7%
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MUNICIPAL 4%
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<PAGE>
PORTFOLIO OF INVESTMENTS -- May 31, 1998
<TABLE>
<CAPTION>
Bonds - 96.7%
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PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
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<S> <C> <C> <C> <C>
U.S. Bonds - 46.0%
Airlines - 0.9%
Continental Airlines, Inc., 9.5s, 2001 $ 2,009 $ 2,137,074
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Broadcasting - 0.4%
Jacor Communications Co., 8s, 2010 $ 1,000 $ 992,500
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Building - 1.1%
Building Materials Corp., 8.625s, 2006 $ 2,500 $ 2,575,000
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Computer Software - Services - 1.2%
Unisystem Corp., 7.875s, 2008 $ 2,900 $ 2,900,000
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Consumer Goods and Services - 4.2%
Hilfiger Tommy USA Incorporated, 6.85s, 2008 $ 1,000 $ 996,300
Revlon Consumer Products Corp., 8.125s, 2006## 2,900 2,885,500
Westpoint Stevens, Inc., 8.75s, 2001 3,400 3,591,250
Westpoint Stevens, Inc., 9.375s, 2005 2,200 2,332,000
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$ 9,805,050
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Containers - 3.2%
Owens Illinois Incorporated, 7.8s, 2018 $ 3,000 $ 3,050,160
Owens Illinois Incorporated, 8.1s, 2007 4,200 4,449,228
------------
$ 7,499,388
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Entertainment - 0.8%
AMC Entertainment, Inc., 9.5s, 2009 $ 1,750 $ 1,793,750
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Financial Services - 1.4%
APP Finance II Mauritius Limited, 12s, 2049 $ 2,000 $ 1,440,000
APP FinanceVII Mauritius Limited, 3.5s, 2003## 2,250 1,755,000
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$ 3,195,000
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Industrial - 1.3%
Mark IV Industries, Inc., 7.5s, 2007 $ 3,100 $ 3,107,750
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Media - 3.1%
Comcast Cellular Holdings, Inc., 9.5s, 2007 $ 2,400 $ 2,472,000
Comcast Corp., 9.375s, 2005 2,600 2,774,642
Jones Intercable, Inc., 9.625s, 2002 1,850 1,993,375
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$ 7,240,017
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Medical and Health Technology and Services - 2.4%
Tenet Healthcare Corporation, 7.625s, 2008## $ 2,250 $ 2,253,328
Tenet Healthcare Corporation, 8.625s, 2003 3,235 3,404,838
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$ 5,658,166
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Metal Fabrication - 0.2%
Ryerson Tull, Inc., 9.125s, 2006 $ 500 $ 538,750
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Restaurants and Lodging - 0.8%
Red Roof Inns, Inc., 9.625s, 2003 $ 1,800 $ 1,863,000
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Steel - 2.5%
Alaska Steel Holdings Corp., 9.125s, 2006 $ 2,900 $ 3,052,250
WCI Steel, Inc., 10s, 2004 2,650 2,716,250
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$ 5,768,500
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Telecommunications - 6.6%
Chancellor Radio Broadcasting, 8.125s, 2007## $ 3,100 $ 3,100,000
CSC Holdings Inc., 9.25s, 2005 2,500 2,643,750
Intermedia Communications Incorporated,
8.5s, 2008 3,100 3,115,500
Qwest Communications International, Inc.,
0s to 2003, 8.29s, 2008## 4,750 3,348,750
Turner Broadcasting Systems Incorporated,
7.4s, 2004 3,000 3,135,210
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$ 15,343,210
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Transportation - 2.4%
Massachusetts Bay Transport Authority, 5s, 2027 $ 5,750 $ 5,588,482
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Utilities - Electric - 1.2%
Calenergy Co., Inc., 7.63s, 2007 $ 1,750 $ 1,763,877
El Paso Electric Co., 8.9s, 2006 1,000 1,121,830
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$ 2,885,707
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Utilities - Telephone - 1.3%
Flag Limited, 8.25s, 2008## $ 2,900 $ 2,943,500
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Water and Sewer Utility Revenue - 2.1%
Metropolitan Water District South California,
5s, 2026 $ 5,000 $ 4,882,800
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U.S. Treasury Obligations - 8.9%
U.S. Treasury Bonds, 6.125s, 2027 $ 8,000 $ 8,358,720
U.S. Treasury Notes, 6.625s, 2002 12,000 12,416,280
------------
$ 20,775,000
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Total U.S. Bonds $107,492,644
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Foreign Bonds - 50.7%
Argentina - 2.6%
Argentina Republic, 8.726s, 2005 $ 5,000 $ 5,037,500
Autopistas Del Sol SA, 10.25s, 2009
(Industrial)## 1,000 950,000
------------
$ 5,987,500
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Brazil - 6.5%
Companhia Energetica de Minas, 9.125s, 2004
(Electric Utilities) $ 3,000 $ 2,878,500
Federal Republic of Brazil, 4.5s, 2014 7,831 6,069,349
Federal Republic of Brazil, 6.875s, 2001 1,750 1,686,650
The Federative Republic Brazil, 9.375s, 2008 4,800 4,490,400
------------
$ 15,124,899
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Bulgaria - 1.7%
Bulgaria National Republic, 6.563s, 2011 $ 5,100 $ 3,963,000
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Canada - 1.3%
Gulf Canada, 9.25s, 2004 (Oil Services) $ 2,900 $ 3,037,895
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Denmark - 1.9%
Nykredit, 6s, 2026 (Bank) DKK 15,510 $ 2,260,055
Nykredit, 7s, 2024 (Bank) 15,105 2,255,456
------------
$ 4,515,511
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Germany - 4.0%
Germany Federal Republic, 6.25s, 2006 DEM 8,553 $ 5,241,420
Treuhandanstalt, 6.625s, 2003 6,663 4,079,464
------------
$ 9,320,884
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Greece - 0.1%
Fage Dairy Industries SA, 9s, 2007
(Food and Beverage Products) $ 325 $ 316,062
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Hong Kong - 0.2%
Guangzhou Shenzhen, 10.25s, 2007 (Construction) $ 750 $ 555,000
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Italy - 4.1%
Republic of Italy, 5.75s, 2002 ITL 7,980,000 $ 4,710,095
Republic of Italy, 7.75s, 2006 7,070,000 4,759,133
------------
$ 9,469,228
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Mexico - 8.2%
Petroleos Mexicanos, 9.25s, 2018## (Oil Services) $ 5,400 $ 5,130,000
United Mexican States, 6.25s, 2019 3,250 2,713,750
United Mexican States, 9.875s, 2007 5,600 5,880,000
United Mexican States, 11.5s, 2026 4,700 5,480,200
------------
$ 19,203,950
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Panama - 1.0%
Republic of Panama, 8.25s, 2008 $ 2,400 $ 2,361,000
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Russia - 4.3%
Ministry of Finance, Russia, 10s, 2007 $ 5,000 $ 4,512,500
Russia Principal Loans, 3.359s, 2020+ 1,000 563,800
Vnesheconombank, 6.719s, 2015 (Bank) 7,500 4,856,250
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$ 9,932,550
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South Korea - 3.4%
Republic of Korea, 8.875s, 2008 $ 5,600 $ 5,222,504
Shinhan Bank, 7.25s, 2002 (Bank)## 3,368 2,670,656
------------
$ 7,893,160
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United Kingdom - 11.4%
Colt Telecom Group PLC, 8.875s, 2007
(Telecommunications) DEM 1,800 $ 1,099,036
United Kingdom Treasury, 7s, 2001 GBP 3,820 6,399,078
United Kingdom Treasury, 9s, 2008 5,633 11,546,840
United Kingdom Treasury, 9.75s, 2002 4,076 7,556,626
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$ 26,601,580
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Total Foreign Bonds $118,282,219
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Total Bonds (Identified Cost, $227,345,225) $225,774,863
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Warrant
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SHARES
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Republic of Venezuela, (Identified Cost, $0)* 12,500 $ 0
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Short-Term Obligation - 4.9%
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PRINCIPAL AMOUNT
(000 OMITTED)
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Federal Home Loan Mortgage, due 6/01/98,
at Amortized Cost $ 11,445 $ 11,445,000
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Call Options Purchased - 0.3%
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PRINCIPAL AMOUNT
OF CONTRACTS
ISSUER/EXPIRATION MONTH/STRIKE PRICE (000 OMITTED)
- -----------------------------------------------------------------------------------------------------
Japanese Government Bond/July/100.818 JPY 1,571,000 $ 429,433
Japanese Government Bond/June/102.121 1,693,300 306,540
Norwegian Krone/Deutsche Marks/June/4.2 DEM 180,261 45,426
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Total Call Options Purchased (Identified Cost, $281,544) $ 781,399
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Put Options Purchased - 0.1%
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Japanese Yen/U.S. Dollar/June/133
(Premiums Paid, $152,182) $3,588,687 $ 132,782
- -----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $239,223,951) $238,134,044
Call Options Written -- (0.2)%
- -----------------------------------------------------------------------------------------------------
DESCRIPTION/EXPIRATION MONTH/STRIKE PRICE
- -----------------------------------------------------------------------------------------------------
Japanese Government Bonds/June/104.247 JPY 1,693,300 $ (89,745)
Japanese Government Bonds/July/102.442 1,571,000 (251,360)
Japanese Yen/New Zealand Dollar/October/70 1,608,706 (162,479)
- -----------------------------------------------------------------------------------------------------
Total Call Options Written (Premiums Received, $561,929) $ (503,584)
- -----------------------------------------------------------------------------------------------------
Put Options Written - (0.2)%
- -----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
OF CONTRACTS
DESCRIPTION/EXPIRATION MONTH/STRIKE PRICE (000 OMITTED) VALUE
- -----------------------------------------------------------------------------------------------------
Japanese Government Bonds/August/101.8 JPY 1,636,400 $ (19,637)
Japanese Government Bonds/August/101.801 JPY 1,636,400 (18,000)
Canadian Dollars/July/1.43 CAD 34,973 (447,508)
Norwegian Krone/Deutsche Marks/June/4.252 DEM 182,493 (61,683)
- -----------------------------------------------------------------------------------------------------
Total Put Options Written (Premiums Received, $269,492) $ (546,828)
- -----------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (1.6)% (3,729,883)
- -----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $233,353,749
- -----------------------------------------------------------------------------------------------------
*Non-income producing security.
##SEC Rule 144A restriction.
+Restricted security.
</TABLE>
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.
CAD = Canadian Dollar HKD = Hong Kong Dollar
DEM = Deutsche Marks ITL = Italian Lire
DKK = Danish Kroner JPY = Japanese Yen
GBP = British Pounds NLG = Dutch Guilders
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
MAY 31, 1998
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $239,223,951) $238,134,044
Cash 64,860
Net receivable for forward foreign currency exchange
contracts to sell 2,596,177
Receivable for investments sold 5,282,945
Receivable for Fund shares sold 245,303
Interest receivable 4,269,196
Other assets 2,885
------------
Total assets $250,595,410
------------
Liabilities:
Payable for investments purchased $ 11,596,872
Payable for Fund shares reacquired 1,017,303
Written options outstanding, at value
(premiums received, $831,421) 1,050,412
Net payable for forward foreign currency exchange
contracts to purchase 2,367,980
Net payable for forward foreign currency exchange
contracts subject to master netting agreements 897,810
Payable to affiliates --
Management fee 14,941
Administrative fee 367
Distribution and service fee 115,876
Shareholder servicing agent fee 2,254
Accrued expenses and other liabilities 177,846
------------
Total liabilities $ 17,241,661
------------
Net assets $233,353,749
============
Net assets consist of:
Paid-in capital $231,757,569
Unrealized depreciation on investments and translation of
assets and liabilities in foreign currencies (1,971,816)
Accumulated undistributed net realized gain on
investments and foreign currency transactions 1,275,472
Accumulated undistributed net investment income 2,292,524
------------
Total $233,353,749
============
Shares of beneficial interest outstanding 20,917,730
==========
Class A shares:
Net asset value per share
(net assets of $157,369,935 / 14,039,965 shares of
beneficial interest outstanding) $11.21
======
Offering price per share (100 / 95.25 of net asset value
per share) $11.77
======
Class B shares:
Net asset value and offering price per share
(net assets of $66,704,297 / 6,042,452 shares of
beneficial interest outstanding) $11.04
======
Class C shares:
Net asset value and offering price per share
(net assets of $7,115,693 / 642,257 shares of
beneficial interest) $11.08
======
Class I shares:
Net asset value and offering price per share
(net assets of $2,163,824 / 193,056 shares of
beneficial interest outstanding) $11.21
======
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
- -------------------------------------------------------------------------------
SIX MONTHS ENDED MAY 31, 1998
- -------------------------------------------------------------------------------
Net investment income:
Interest income $ 8,718,833
------------
Expenses -
Management fee $ 943,591
Trustees' compensation 16,577
Shareholder servicing agent fee 145,433
Distribution and service fee (Class A) 194,488
Distribution and service fee (Class B) 357,669
Distribution and service fee (Class C) 38,187
Administration 16,546
Custodian fee 64,950
Printing 28,794
Postage 30,502
Auditing 21,715
Legal 4,850
Miscellaneous 136,344
-----------
Total expenses $ 1,999,646
Fees paid indirectly (26,904)
----------
Net expenses $ 1,972,742
-----------
Net investment income $ 6,746,091
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $(6,827,357)
Written option transactions 1,648,930
Foreign currency transactions 6,201,442
Futures contracts 29,045
Swap agreements 264,339
-----------
Net realized gain on investments and foriegn
currency transactions $ 1,316,399
-----------
Change in unrealized appreciation (depreciation) -
Investments $ 2,770,142
Written options (313,111)
Translation of assets and liabilities in
foreign currencies (1,818,728)
Futures contracts (51,046)
Swap agreements (464,491)
-----------
Net unrealized gain on investments and foreign
currency transactions $ 122,766
-----------
Net realized and unrealized gain on investments
and foreign currency $ 1,439,165
-----------
Increase in net assets from operations $ 8,185,256
===========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
Statement of Changes in Net Assets
<TABLE>
- --------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30, 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets:
From operations -
Net investment income $ 6,746,091 $ 18,285,167
Net realized gain (loss) on investments and foreign
currency transactions 1,316,399 (13,634,421)
Net unrealized gain (loss) on investments and foreign
currency translation 122,766 (9,405,445)
------------ -------------
Increase (decrease) in net assets from operations $ 8,185,256 $ (4,754,699)
------------ -------------
Distributions declared to shareholders -
From net investment income (Class A) $ (6,952,221) $ (5,825,293)
From net investment income (Class B) (2,402,143) (1,489,354)
From net investment income (Class C) (224,741) (222,681)
From net investment income (Class I) (84,491) --
From net realized gain on investments and foreign
currency transactions (Class A) (900,629) (1,408,600)
From net realized gain on investments and foreign
currency transactions (Class B) (392,688) (527,589)
From net realized gain on investments and foreign
currency transactions (Class C) (41,406) (75,309)
From net realized gain on investments and foreign
transactions (Class I) (10.151) --
Inexcess of net realized gain on investments and
foreign currency transactions (Class A) -- (175,818)
Inexcess of net realized gain on investments and
foreign currency transactions (Class B) -- (65,852)
Inexcess of net realized gain on investments and
foreign currency transactions (Class C) -- (9,400)
------------ -------------
Total distributions declared to shareholders $(11,008,470) $ (9,799,896)
------------ -------------
Net decrease in net assets from Fund share transactions $(40,493,951) $(109,749,292)
------------ -------------
Total decrease in net assets $(43,317,165) $(124,303,887)
Net assets:
At beginning of period 276,670,914 400,974,801
------------ -------------
At end of period (including accumulated undistributed net
investment income of $2,292,524 and $5,210,029,
respectively) $233,353,749 $276,670,914
============ ============
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended November 30,
SIX MONTHS ENDED -----------------------------------------------------------------------------
MAY 31, 1998 1997 1996 1995 1994 1993***
- -----------------------------------------------------------------------------------------------------------------------------------
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 $11.34 $11.70 $12.46 $11.39 $13.37 $11.50
------ ------ ------ ------ ------ ------
Income from investment operations# --
Net investment income $ 0.31 $ 0.64 $ 0.65 $ 0.76 $ 0.63 $ 0.58
Net realized and unrealized
gain (loss) on investments
and foreign currency transactions 0.06 (0.68) 0.17 0.76 (1.17) 1.29
------ ------ ------ ------ ------ ------
Total from investment operations $ 0.37 $(0.04) $ 0.82 $ 1.52 $(0.54) $ 1.87
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.44) $(0.25) $(1.58) $ -- $(1.15) $ --
From net realized gain on
investments and foreign
currency transactions (0.06) (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 $(0.50) $(0.32) $(1.58) $(0.45) $(1.44) --
------ ------ ------ ------ ------ ------
Net asset value - end of period $11.21 $11.34 $11.70 $12.46 $11.39 $13.37
====== ====== ====== ====== ------ ------
Total return(+) 3.27%** (0.29)% 7.36% 13.93% (4.63)% 17.77%*
Ratios (to average net assets)/
Supplemental data:
Expenses## 1.34%* 1.35% 1.42% 1.51% 1.54% 1.54%*
Net investment income 5.58%* 5.75% 5.70% 6.42% 5.45% 5.66%*
Portfolio turnover 226% 335% 370% 277% 358% 179%
Net assets at end of period
(000 omitted) $157,370 $187,152 $283,770 $343,188 $370,110 $443,304
*Annualized.
**Not 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
Financial Highlights - continued
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
<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>
<CAPTION>
Financial Highlights - continued
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
SIX MONTHS ENDED ---------------------------------------------------------------------------
MAY 31, 1998 1997 1996 1995 1994 1993***
- -----------------------------------------------------------------------------------------------------------------------------------
Class B
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value -- beginning of period $11.13 $11.50 $12.28 $11.32 $13.35 $13.22
------ ------ ------ ------ ------ ------
Income from investment operations# --
Net investment income $ 0.26 $ 0.55 $ 0.54 $ 0.65 $ 0.56 $ 0.07
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions 0.06 (0.68) 0.17 0.76 (1.19) 0.06
------ ------ ------ ------ ------ ------
Total from investment operations $ 0.32 $(0.13) $ 0.71 $ 1.41 $(0.63) $ 0.13
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $(0.35) $(0.17) $(1.49) $ -- $(1.11) $ --
From net realized gain on investments
and foreign currency transactions (0.06) (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 $(0.41) $(0.24) $(1.49) $(0.45) $(1.40) --
------ ------ ------ ------ ------ ------
Net asset value - end of period $11.04 $11.13 $11.50 $12.28 $11.32 $13.35
====== ====== ====== ====== ====== ======
Total return 2.92%** (1.08)% 6.39% 13.01% (5.39)% 4.32%*
Ratios (to average net assets)/
Supplemental data:
Expenses## 2.11%* 2.10% 2.27% 2.33% 2.38% 2.48%*
Net investment income 4.80%* 5.03% 4.89% 5.59% 4.81% 4.72%*
Portfolio turnover 226% 335% 370% 277% 358% 179%
Net assets at end of period
(000 omitted) $66,704 $77,962 $102,717 $90,978 $73,458 $24,590
*Annualized.
**Not annualized.
***For the period from the inception of Class B, 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>
<CAPTION>
Financial Highlights - continued
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
SIX MONTHS ENDED --------------------------------------------------------------
MAY 31, 1998 1997 1996 1995 1994***
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS C
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout
each period):
Net asset value - beginning of period $11.13 $11.51 $12.29 $11.31 $12.30
------ ------ ------ ------ ------
Income from investment operations# --
Net investment income $ 0.26 $ 0.55 $ 0.55 $ 0.66 $ 0.50
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 0.06 (0.68) 0.17 0.77 (1.35)
------ ------ ------ ------ ------
Total from investment operations $ 0.32 $(0.13) $ 0.72 $ 1.43 $(0.85)
------ ------ ------ ------ ------
Less distributions declared to shareholders --
From net investment income $(0.31) $(0.18) $(1.50) $ -- $(0.14)
From net realized gain on investments and
foreign currency transactions (0.06) (0.06) -- (0.45) --
In excess of net realized gain on investments
and foreign currency transactions -- (0.01) -- -- --
------ ------ ------ ------ ------
Total distributions declared to shareholders $(0.37) $(0.25) $(1.50) $(0.45) $(0.14)
------ ------ ------ ------ ------
Net asset value - end of period $11.08 $11.13 $11.51 $12.29 $11.31
====== ====== ====== ====== ======
Total return 2.92%** (1.10)% 6.56% 13.11% (6.92)%**
Ratios (to average net assets)/Supplemental data:
Expenses## 2.12%* 2.10% 2.20% 2.26% 2.32%*
Net investment income 4.79%* 5.02% 4.97% 5.67% 5.06%*
Portfolio turnover 226% 335% 370% 277% 358%
Net assets at end of period (000 omitted) $7,116 $9,534 $14,487 $11,813 $8,687
*Annualized.
**Not annualized.
***For the period from the inception of Class C, 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
<TABLE>
<CAPTION>
Financial Highlights - continued
- -----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
MAY 31, 1998 NOVEMBER 30, 1997***
- -----------------------------------------------------------------------------------------------------------------------
CLASS I
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $11.37 $11.24
------ ------
Income from investment operations# --
Net investment income $ 0.33 $ 0.61
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 0.04 (0.48)
------ ------
Total from investment operations $ 0.37 $ 0.13
------ ------
Less distributions declared to shareholders --
From net investment income $(0.47) $ --
From net realized gain on investments and foreign currency
transactions (0.06) --
------ ------
Total distributions declared to shareholders $(0.53) $ --
------ ------
Net asset value - end of period $11.21 $11.37
====== ======
Total return 3.40%** 1.16%**
Ratios (to average net assets)/Supplemental data:
Expenses## 1.11%* 0.99%*
Net investment income 5.87%* 5.54%*
Portfolio turnover 226% 335%
Net assets at end of period (000 omitted) $2,164 $2,023
*Annualized.
**Not annualized.
***For the period from the inception of Class I, January 2, 1997, through November 30, 1997. #Per share data are
based on average shares outstanding.
##The Fund's expenses are calculated without reduction for fees paid indirectly.
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
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 swap agreements, 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. Options 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 results from fluctuations in foreign currency exchange rates is not
separately disclosed.
Written Options -- The Fund may 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 with the broker either in cash or securities an amount equal to a
certain percentage of the contract amount. Subsequent payments are made or
received by the Fund each day, depending on the daily fluctuations in the value
of the contract, and are recorded for financial statement purposes as unrealized
gains or losses by the Fund. The Fund's investment in futures contracts is
designed to hedge against anticipated future changes in interest or 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 realize 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 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.
Fees Paid Indirectly -- The Fund's custody fee is calculated as a percentage of
the Fund's month end net assets. The fee is reduced according to an arrangement
that measures the value of cash deposited with the custodian by the Fund. This
amount is shown as a reduction of expenses on the Statement of Operations.
Tax Matters and Distributions -- The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
The Fund files a tax return annually using tax accounting methods required under
provisions of the Code, which may differ from generally accepted accounting
principles, the basis on which these financial statements are prepared.
Accordingly, the amount of net investment income and net realized gain reported
on these financial statements may differ from that reported on the Fund's tax
return and, consequently, the character of distributions to shareholders
reported in the financial highlights may differ from that reported to
shareholders on Form 1099-DIV.
Distributions to shareholders are recorded on the ex-dividend date. The Fund
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits 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 net realized gains.
Multiple Classes of Shares of Beneficial Interest -- The Fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the Fund based on average
daily net assets of each class, without distinction between share classes.
Dividends are declared separately for each class. No class has preferential
dividend rights; differences in per share dividend rates are generally due to
differences in separate class expenses. Class B shares will convert to Class A
shares approximately eight years after purchase.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities.
The management fee is computed daily and paid monthly at the following annual
rates:
First $500 million of average net assets 0.75%
Average net assets in excess of $500 million 0.70%
Administrator - The Fund has an administrative services agreement with MFS to
provide the Fund with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Fund pays MFS an administrative fee at
the following annual percentages of the Fund's average daily net assets:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
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 $5,792 for the period ended
May 31, 1998.
Distributor -- MFD, a wholly owned subsidiary of MFS, as distributor, received
$11,799 for the period ended May 31, 1998, as its portion of the sales charge on
sales of Class A shares of the Fund. The Trustees have adopted a distribution
plan for Class A, Class B, and Class C shares pursuant to Rule 12b-1 of the
Investment Company Act of 1940 as follows:
The Fund's distribution plan provides that the Fund will pay MFD up to 0.35% per
annum of its average daily net assets attributable to Class A shares in order
that MFD may pay expenses on behalf of the Fund related to the distribution and
servicing of its shares. These expenses include a service fee paid to each
securities dealer that enters into a sales agreement with MFD of up to 0.25% per
annum (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 and 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. MFD retains the service fee for
accounts not attributable to a securities dealer, which amounted to $61,754 for
the period ended May 31, 1998. Payment of the 0.10% per annum Class A
distribution fees will commence on such date as the Trustees of the fund may
determine. Fees incurred under the distribution plan during the period ended May
31, 1998, were 0.23% 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 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 $8,659 and $5,157 for Class B and Class C shares, respectively, for
the period ended May 31, 1998. Fees incurred under the distribution plan during
the period ended May 31, 1998, were 1.00% of average daily net assets
attributable to both Class B and Class C shares.
Certain Class A shares and Class C shares are subject to a contingent deferred
sales charge in the event of a shareholder redemption within 12 months following
purchase. A contingent deferred sales charge is imposed on shareholder
redemptions of Class B shares in the event of a shareholder redemption within
six years of purchase. MFD receives all contingent deferred sales charges.
Contingent deferred sales charges imposed during the period ended May 31, 1998,
were $248, $28,343, and $1,477 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
0.1125%. Prior to January 1, 1998, the fee was calculated as a percentage of the
average daily net assets at an effective annual rate of 0.13%.
(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 $110,109,906 $ 90,805,590
------------ ------------
Investments (non-U.S. government securities) $388,218,136 $410,863,717
------------ ------------
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 $239,223,951
------------
Gross unrealized appreciation $ 2,540,213
Gross unrealized depreciation (3,630,120)
------------
Net unrealized appreciation (depreciation) $ (1,089,907)
============
(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:
Class A Shares
<TABLE>
<CAPTION>
SIX MONTHS ENDED MAY 31, 1998 YEAR ENDED NOVEMBER 30, 1997
----------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 910,162 $ 10,150,229 4,755,823 $ 52,604,737
Shares issued to shareholders
in reinvestment of
distributions 597,978 6,524,050 522,118 5,884,106
Shares reacquired (3,969,079) (44,356,196) (13,022,309) (144,732,586)
---------- -------------- ----------- ------------
Net decrease (2,460,939) $ (27,681,917) (7,744,368) $(86,243,743)
========== ============== =========== ============
<CAPTION>
Class B Shares
SIX MONTHS ENDED MAY 31, 1998 YEAR ENDED NOVEMBER 30, 1997
----------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 482,436 $ 5,312,848 1,493,539 $ 16,347,711
Shares issued to shareholders
in reinvestment of
distributions 207,897 2,241,130 148,179 1,649,221
Shares reacquired (1,651,616) (18,157,987) (3,571,362) (39,111,702)
---------- -------------- ----------- ------------
Net decrease (961,283) $ (10,604,009) (1,929,644) $(21,114,770)
========== ============== =========== ============
<CAPTION>
Class C Shares
SIX MONTHS ENDED MAY 31, 1998 YEAR ENDED NOVEMBER 30, 1997
----------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 40,379 $ 444,696 205,041 $ 2,248,641
Shares issued to shareholders
in reinvestment of
distributions 15,866 171,670 18,690 208,014
Shares reacquired (270,461) (2,989,948) (626,423) (6,857,032)
---------- -------------- ----------- ------------
Net decrease (214,216) $ (2,373,582) (402,692) $ (4,400,377)
========== ============== =========== ============
<CAPTION>
Class I Shares
SIX MONTHS ENDED MAY 31, 1998 PERIOD ENDED NOVEMBER 30, 1997*
----------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 11,550 $ 128,142 271,159 $ 3,046,422
Shares issued to shareholders
in reinvestment of
distributions 8,683 94,640 -- --
Shares reacquired (5,168) (57,225) (93,168) (1,036,824)
---------- -------------- ----------- ------------
Net increase 15,065 $ 165,557 177,991 $ 2,009,598
========== ============== =========== ============
*For the period from the inception of Class I, January 2, 1997, through November 30, 1997.
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in a $805 million unsecured line
of credit provided by a syndication of banks under a line of credit agreement.
Borrowings may be made to temporarily finance the repurchase of Fund shares.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the bank's base rate. In addition, a commitment fee, based on the average daily
unused portion of the line of credit, is allocated among the participating funds
at the end of each quarter. The commitment fee allocated to the Fund for the
period ended May 31, 1998, was $481.
(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, swap agreements, 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.
Written Option Transactions
<TABLE>
<CAPTION>
1998 CALLS 1998 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 50,527 $253,192 55,721 $ 228,787
Japanese Yen 3,388,098 534,693
Japanese Yen/Deutsche Marks 2,093,519 164,978
OPTIONS WRITTEN -
Canadian Dollars 34,973 130,841
Deutsche Marks 46,213 236,612
Deutsche Marks/British Pounds 24,658 136,551
Japanese Government Bonds 3,264,300 56,335 6,537,100 197,005
Japanese Yen 7,110,736 463,513
Japanese Yen/New Zealand Dollar 1,608,706 505,594
182,493 64,185
Norwegian Krone/Deutsche Marks
OPTIONS TERMINATED IN CLOSING TRANSACTIONS -
Deutsche Marks (46,213) (236,612)
Deutsche Marks/British Pounds (80,379) (365,338)
Japanese Government Bonds (3,264,300) (122,539)
Japanese Yen (7,110,736) (463,513)
OPTIONS EXPIRED -
Deutsche Marks/British Pounds (50,527) (253,192)
Japanese Yen (3,388,098) (534,693)
Japanese Yen/Deutsche Marks (2,093,519) (164,978)
--------- ---------
OUTSTANDING, END OF PERIOD $ 561,929 $ 269,492
========= =========
OPTIONS OUTSTANDING AT END OF PERIOD
CONSIST OF:
Canadian Dollars 34,973 130,841
Japanese Government Bonds 3,264,300 56,335 3,272,800 74,466
Japanese Yen/New Zealand Dollar 1,608,706 505,594
Norwegian Krone/Deutsche Marks 182,493 64,185
--------- ---------
OUTSTANDING, END OF PERIOD $ 561,929 $ 269,492
========= =========
</TABLE>
At May 31, 1998, the Fund had sufficient cash and/or securities at least equal
to the value of the written options.
<PAGE>
<TABLE>
<CAPTION>
Forward Foreign Currency Exchange Contracts
NET
UNREALIZED
CONTRACTS TO CONTRACTS APPRECIATION
SETTLEMENT DATE DELIVER/RECEIVE IN EXCHANGE FOR AT VALUE (DEPRECIATION)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales 9/25/98 DKK 30,445,028 $ 4,479,845 $ 4,498,392 $ (18,547)
5/03/99 HKD 95,000,000 11,952,693 11,842,707 109,986
9/25/98 JPY 7,242,413,538 55,618,888 53,115,171 2,503,717
9/25/98 NLG 380,367 191,331 190,310 1,021
----------- ------------- -----------
$72,242,757 $ 69,646,580 $ 2,596,177
=========== ============= ===========
Purchases 9/25/98 CAD 24,198,329 $16,905,003 $ 16,654,965 $ (250,038)
9/25/98 ITL 1,789,686,236 1,028,260 1,019,282 (8,978)
9/25/98 JPY 6,100,524,641 46,849,631 44,740,667 (2,108,964)
----------- ------------- -----------
$64,782,894 $ 62,414,914 $(2,367,980)
=========== ============= ===========
</TABLE>
Forward foreign currency purchases and sales under master netting agreements
excluded above amounted to a net payable of $88,981 with Bankers Trust,
$453,181 with Deutsche Bank, $988,749 with C.S. First Boston, and a net
receivable of $461,297 with Merrill Lynch and $171,804 with Swiss Bank at May
31, 1998.
At May 31, 1998, the Fund had sufficient cash and/or securities to cover any
commitments under these contracts.
<TABLE>
<CAPTION>
Swap Agreements
Index Swaps
CASH FLOWS UNREALIZED
NOTIONAL PRINCIPAL CASH FLOWS PAID RECEIVED BY APPRECIATION
EXPIRATION AMOUNT OF CONTRACT BY THE TRUST THE TRUST (DEPRECIATION)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3/01/99 11,000,000 Lehman High Yield Index Floating - 1M Libor $0
</TABLE>
(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 May 31, 1998,
the Fund owned the following restricted securities (constituting 0.2% 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 furnished by dealers
or by
a pricing service, or if not available, are valued at fair value as determined
in
good faith by or at the direction of the Trustees.
DATE OF SHARE
DESCRIPTION ACQUISITION AMOUNT COST VALUE
- ------------------------------------------------------------------------------
Russia Principal Loans 1/14/98 1,000,000 $649,754 $563,800
--------
$563,800
========
<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, 1998, and the related statement of operations for the six month period
ended May 31, 1998, the statement of changes in net assets for the six month
period ended May 31, 1998 and for the year ended November 30, 1997, and the
financial highlights for the six month period ended May 31, 1998, and for each
of the four years in the period ended November 30, 1997. 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, 1998, 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, 1998, the results of its operations for the
six month period ended May 31, 1998, the changes in its net assets for the six
month period ended May 31, 1998, and for the year ended November 30, 1997, and
the financial highlights for the six month period ended May 31, 1998, and for
each of the four years in the period ended November 30, 1997, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
July 7, 1998
<PAGE>
MFS(R) World Governments Fund
<TABLE>
<S> <C>
Trustees Custodian
Richard B. Bailey* - Private Investor; State Street Bank and Trust Company
Former Chairman and Director (until 1991),
MFS Investment Management Auditors
Ernst & Young LLP
Peter G. Harwood - Private Investor
Investor Information For MFS stock and bond
J. Atwood Ives - Chairman and Chief Executive market outlooks, call toll free:
Officer, Eastern Enterprises (diversified 1-800-637-4458 anytime from a touch-tone
services company) telephone.
Lawrence T. Perera - Partner, Hemenway For information on MFS mutual funds, call your
& Barnes (attorneys) financial adviser or, for an information kit,
call toll free: 1-800-637-2929 any business
William J. Poorvu - Adjunct Professor, Harvard day from 9 a.m. to 5 p.m. Eastern time (or
University Graduate School of Business leave a message anytime).
Administration
Investor Service
Charles W.Schmidt - Private Investor MFS Service Center, Inc.
P.O. Box 2281
Arnold D. Scott* - Senior Executive Boston, MA 02107-9906
Vice President, Director, and Secretary,
MFS Investment Management For general information, call toll free:
1-800-225-2606 any business day from
Jeffrey L. Shames* - Chairman, Chief 8 a.m. to 8 p.m. Eastern time.
Executive Officer, and Director,
MFS Investment Management For service to speech- or hearing-impaired,
call toll free: 1-800-637-6576 any business
Elaine R. Smith - Independent Consultant day from 9 a.m. to 5 p.m. Eastern time. (To
use this service, your phone must be equipped
David B. Stone - Chairman and Director, with a Telecommunications Device for the
North American Management Corp. Deaf.)
(investment advisers)
For share prices, account balances, and
Investment Adviser exchanges, call toll free: 1-800-MFS-TALK
Massachusetts Financial Services Company (1-800-637-8255) anytime from a touch-tone
500 Boylston Street telephone.
Boston, MA 02116-3741
World Wide Web
Distributor www.mfs.com
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116-3741 For the fourth year in a row,
MFS earned a #1 ranking in the
Portfolio Manager [Dalbar Logo] DALBAR, Inc. Broker/Dealer
James T. Swanson* Survey, Main Office Operations
Service Quality Category. The
Treasurer firm achieved a 3.42 overall score on a scale
W. Thomas London* of 1 to 4 in the 1997 survey. A total of 111
firms responded, offering input on the quality
Assistant Treasurers of service they received from 29 mutual fund
Mark E. Bradley* companies nationwide. The survey contained
Ellen Moynihan* questions about service quality in 11
James O. Yost* categories, including "knowledge of operations
contact," "keeping you informed," and "ease of
Secretary doing business" with the firm.
Stephen E. Cavan*
Assistant Secretary
James R. Bordewick, Jr.*
</TABLE>
*Affiliated with the Investment Adviser
<PAGE>
MFS(R) WORLD GOVERNMENTS FUND -----------------
Bulk Rate
U.S. Postage
Paid
[Logo] M F S(SM) MFS
INVESTMENT MANAGEMENT -----------------
We invented the mutual fund(SM)
500 Boylston Street
Boston, MA 02116-3741
[DALBAR LOGO]
(C)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MWG-3 7/98 34M 20/220/320/820
