<PAGE>
[Logo] M F S(R)
INVESTMENT MANAGEMENT
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
[graphic omitted]
MFS(R) GLOBE
GOVERNMENTS FUND
ANNUAL REPORT O NOVEMBER 30, 1998
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 3
Performance Summary ....................................................... 7
Portfolio of Investments .................................................. 11
Financial Statements ...................................................... 16
Notes to Financial Statements ............................................. 23
Independent Auditors' Report .............................................. 33
MFS(R) Prepares for the Year 2000 ......................................... 35
Trustees and Officers ..................................................... 37
MFS CELEBRATES ITS DIAMOND ANNIVERSARY!
MARCH 21, 1999, MARKS THE 75TH ANNIVERSARY OF MFS' INVENTION OF
THE MUTUAL FUND. THE MUTUAL FUND INDUSTRY HAS BROUGHT THE POWER
OF INVESTING TO EVERY AMERICAN, OFFERING THEM THE OPPORTUNITY FOR
COLLEGE DEGREES, HOME OWNERSHIP, AND COMFORTABLE RETIREMENT.
IMAGINE TODAY'S WORLD WITHOUT MUTUAL
FUNDS. WE COULDN'T. AND WHILE THE MFS 75 YEARS
YEARS AHEAD WILL BRING A NUMBER OF [graphic omitted]
CHALLENGES, OUR 75 YEARS OF EXPERIENCE EXPERIENCE THE FUTURE(SM)
WILL HELP GUIDE A NEW GENERATION OF
INVESTORS INTO THE FUTURE.
- ------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- ------------------------------------------------------------------------------
<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders,
In 1999, MFS celebrates its 75th anniversary. The nation's first mutual fund --
our Massachusetts Investors Trust (MIT) -- was introduced to the public on March
21, 1924. Since then, MFS Investment Management(R), the company that grew out of
that original fund, has helped guide shareholders through many economic and
investment cycles, primarily by focusing on the long-term opportunities created
by an expanding global economy. As of November 30, 1998, MFS manages over $90
billion, and the firm's 2,000 people serve 3.9 million investors and their
financial advisers worldwide. Meanwhile, MIT's assets have grown to over $10
billion, and 56 mutual funds are offered in the MFS Family of Funds(R).
One of the elements in the success of MIT did not exist before our founders
invented it in 1924. That is daily redemption. This innovation means that if you
want to sell your investment in any MFS mutual fund, you have the security of
knowing that you may do so immediately by exchanging into another MFS fund. Or,
if you need your money for other purposes, it can quickly be wired or mailed to
you. This daily redemption feature, through which new shares were created when
people invested in MIT and were redeemed when people sold, brought another
important change to the industry. Now, the price of a mutual fund's shares
wasn't determined by supply and demand, but by the value of the securities owned
by each portfolio.
Another factor in our growth was the development of one of the industry's
first in-house research departments in 1932. Unlike companies that rely on
Wall Street research reports, which can be used by many investors at the same
time, MIT's managers built its long-term track record by visiting companies,
talking to managers and competitors, and "kicking the tires" so they could
judge the quality and potential of each company's products and services for
themselves. Today, MFS has more than 100 full-time portfolio managers, stock
analysts, and credit analysts who track the equity and bond markets. That
number includes over 35 equity analysts who specialize in industries such as
aviation, media, technology, automobiles, and utilities.
While MIT introduced liquidity, that was not our only invention. We also
established the nation's first global bond fund, first high-yield municipal
bond fund, and first high-yield municipal closed-end bond fund.
We are proud of the record of MIT and of the funds in the MFS Family of Funds,
but we are also proud of our long-standing relationship with financial
advisers. Not only do we believe investors can benefit from the advice of
these experts but, as was shown during the market volatility of 1998, people
who work with financial advisers are less likely to abandon their carefully
designed, long-term investment strategies.
Our ability to service your investment and information needs is also extremely
important to us. The MFS Service Center handles millions of transactions and
phone calls every year. Supporting the work of financial advisers, promptly
sending out statements and confirmations, and answering hundreds of investors'
questions every day are crucial elements in maintaining long-term relationships
with our fund shareholders. That link to our investors has also been enhanced by
our site on the World Wide Web: WWW.MFS.COM. Since 1996, this site has given
investors and the general public access to up-to- date information about MFS
products and services, as well as market outlooks and retirement information.
The site has rapidly become one of our primary vehicles for communicating with
our investors and educating the public about mutual funds in general and MFS in
particular.
If there is a common thread running through these milestones, it is our
always-increasing commitment to providing you with the best possible
investment management and shareholder service, just as we have done for the
past 75 years.
As we celebrate this anniversary, it is also a time for MFS to look ahead and
build on our 75 years of innovation and experience to help meet your
investment needs in the next century. We appreciate your confidence and
welcome any questions or comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
December 15, 1998
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
[Photo of James T. Swanson]
James T. Swanson
For the 12 months ended November 30, 1998, Class A shares of the Fund provided
a total return of 3.27%, Class B and Class C shares 2.46%, and Class I shares
3.49%. These returns assume the reinvestment of distributions but exclude the
effects of any sales charges and compare to a 13.06% 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. Effective August 24,
1998, the name of the Fund was changed from MFS(R) World Governments Fund to
MFS(R) Global Governments Fund.
Q. WHAT WERE SOME OF THE FACTORS THAT CONTRIBUTED TO THE FUND'S PERFORMANCE OVER
THE PAST 12 MONTHS?
A. The Fund was helped by strong performances in U.S. Treasury bonds, whose
prices have appreciated as interest rates have declined. Investors continue
to seek them out in a flight to quality created by the stock market's
volatility in the late summer. Our investments in the credits of the United
Kingdom have also done very well. The country has decided against
participating in the conversion of its currency to the unified European
Currency (the Euro) and has been working to control inflation by pursuing a
tight monetary policy, which has slowed its economy to a point at which
rates have fallen and bond prices have risen. The Fund has profited as a
result.
Q. IN WHAT REGIONS OF THE WORLD AND IN WHAT TYPES OF BONDS ARE YOU FINDING THE
BEST INVESTMENTS TODAY?
A. We are finding value in all areas of the bond markets thanks to the global
trend toward disinflation, which is helping push interest rates lower and
bond prices higher. We've found particularly good value in U.S. dollar-
denominated bonds of countries in the emerging markets where yields are
high and where countries are doing a good job navigating through the global
economic troubles. Good examples here are the bonds of Argentina and
Mexico. As I mentioned, we've also found value in the United Kingdom.
Finally, the U.S. government bond market is still extremely cheap, while
the trends of disinflation and slow economic growth continue to bring
yields down.
Q. WHAT WILL BE THE IMPACT OF UNIFIED INTEREST-RATE CUTS BY SEVERAL OF THE
COUNTRIES INVOLVED IN EUROPEAN ECONOMIC AND MONETARY UNION?
A. We believe they won't have much of an impact on the portfolio, except for a
psychological boost to the global markets because they underscore the
continuing trend toward lower interest rates around the world. The bond
markets, particularly in Germany and France, had been expecting the rate
cuts since earlier in 1998, when the European central bank was formed.
Q. WHAT WILL BE THE IMPACT ON THE FUND OF THE EURO, WHICH IS SET TO KICK OFF IN
JANUARY 1999?
A. As the eleven countries have begun to unify around the euro, the Fund's
investment choices have narrowed. Historically, we had been able to select
bond investments from among the various European countries and trade one
country against another, depending on the prevailing market conditions.
With a single currency and interest rate, those options will evaporate. We
will, however, be involved in the new European bonds. We also see a
positive development in the growth of European corporate bonds as a result
of economic union. To date, the corporate bond market in Europe has not
developed as it has in the United States. As economic union causes trade
barriers between the European countries to fall, companies will be able to
serve the European market as a whole. We believe this will eliminate
corporate redundancies between countries, increase cost savings, boost
company profits and stock prices, encourage the efficient distribution of
capital, and spur European companies to tap into the world's bond markets.
Q. WHAT ARE THE TOP FIVE COUNTRIES IN WHICH THE FUND IS INVESTED?
A. The top five countries in which we invested during the year are the United
States, the United Kingdom, Mexico, Canada, and Brazil.
Q. THE EMERGING MARKETS STILL SEEM TO BE HAVING DIFFICULTY RIGHTING THEMSELVES.
COULD YOU DISCUSS THE PROGNOSIS FOR THESE MARKETS?
A. Russia is an economic catastrophe, and its bonds reflect that. The country
is a long way from resolving its problems. We don't believe Brazil is a
likely candidate for default because its government has continued to pursue
economic reform as a means of lowering its budget deficits. The country
also has an International Monetary Fund package that should help its
economy, though we do feel that Brazil will face a recession next year and
that there will be pressure on its currency. But we're guardedly optimistic
that it will pull through and return to growth. Emerging market credits
that we like best are Argentina's, because its currency board helps
stabilize the value of its currency, and Mexico, because it has a resilient
economy that is closely tied to that of the United States, which continues
to grow.
Q. WHAT IS YOUR OPINION OF JAPAN'S LATEST EFFORTS TO JUMP START ITS ECONOMY?
A. We view Japan as remaining in a state of economic contraction, and we don't
see this reversing in the near term. The government's attempts at reform
are not sufficient to reverse the tide, and the Japanese economic structure
is not amenable to rapid change. The Fund has a very underweighted position
in Japan.
Q. THIS FUND IS AMERICA'S FIRST GLOBAL BOND FUND. AS THIS IS ALSO MFS' 75th
ANNIVERSARY, PLEASE DISCUSS THE IMPORTANCE OF THE COMPANY'S HISTORY AND
PIONEERING HERITAGE AS WE ENTER THE 21st CENTURY.
A. Because we were the first global bond fund, we feel we have a
responsibility to uphold the corporate traditions of MFS Investment
Management. We look to our Massachusetts Investors Trust for our
inspiration. That fund, the nation's first mutual fund, has never missed a
quarterly dividend in 75 years through all manner of worldwide events such
as war, economic depression, oil crises, and radical social change. I view
the management of our bond funds through the same prism. They should have
an enduring quality and be able to carry investors through times of
uncertainty. Therefore, we look at our investments from a conservative,
research-driven point of view and are very deliberate in what we buy and in
our long-term decision making. We want our investors to benefit over the
long term, and we view our stewardship of their assets as a critical
responsibility.
/s/ James T. Swanson
James T. Swanson
Portfolio Manager
Note to Shareholders: Effective January 1, 1999, Christopher D. Piros will join
Mr. Swanson as a portfolio manager of the Fund.
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.
- -------------------------------------------------------------------------------
PORTFOLIO MANAGER'S PROFILE
- -------------------------------------------------------------------------------
JAMES T. SWANSON IS A SENIOR VICE PRESIDENT OF MFS INVESTMENT MANAGEMENT(R). HE
IS PORTFOLIO MANAGER OF MFS(R) GLOBAL ASSET ALLOCATION FUND, MFS(R) STRATEGIC
INCOME FUND, MFS(R) GLOBAL GOVERNMENTS FUND, MFS(R) MERIDIAN(SM) CHARTER INCOME
FUND, MFS(R) MERIDIAN(SM) GLOBAL GOVERNMENTS FUND, MFS(R) AMERICAN CHARTER
INCOME FUND, MFS(R) INSTITUTIONAL CORE FIXED INCOME FUND, THE WORLD ASSET
ALLOCATION(SM) SERIES AND THE WORLD GOVERNMENTS 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>
- --------------------------------------------------------------------------------
FUND FACTS
- --------------------------------------------------------------------------------
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: $206.3 MILLION NET ASSETS AS OF NOVEMBER 30, 1998
PERFORMANCE SUMMARY
The following information illustrates the historical performance of the Fund's
original share class in comparison to various market indicators. Performance
results include the deduction of the maximum applicable sales charge and
reflect the percentage change in net asset value, including reinvestment of
dividends. 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. (See Notes to Performance Summary for more information.)
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, 1998)
MFS Global J.P. Morgan Salomon Brothers Consumer
Governments Global World Price
Fund Government Government Index
- Class A Bond Index Bond Index - U.S.
- --------------------------------------------------------------------
11/93 $ 9,523 $10,000 $10,000 $10,000
11/94 9,082 10,208 10,290 10,268
11/95 10,347 12,058 12,156 10,531
11/96 11,108 12,834 12,833 10,878
11/97 11,076 12,938 12,799 11,077
11/98 11,438 14,627 14,422 11,262
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 10-year period ended November 30, 1998)
MFS Global J.P. Morgan Salomon Brothers Consumer
Governments Global World Price
Fund Government Government Index
- Class A Bond Index Bond Index - U.S.
- --------------------------------------------------------------------
11/88 $ 9,527 $10,000 $10,000 $10,000
11/90 11,900 11,736 11,452 11,122
11/92 13,686 14,189 14,054 11,804
11/94 15,223 16,247 16,343 12,444
11/96 18,619 20,428 20,383 13,184
11/98 19,172 23,282 22,906 13,649
AVERAGE ANNUAL TOTAL RETURNS THROUGH NOVEMBER 30, 1998
CLASS A
10 Years/
1 Year 3 Years 5 Years Life
- ------------------------------------------------------------------------------
Average Annual Total Return +3.27% +3.40% +3.73% +7.24%
- ------------------------------------------------------------------------------
SEC Results -1.64% +1.73% +2.73% +6.72%
- ------------------------------------------------------------------------------
CLASS B
10 Years/
1 Year 3 Years 5 Years Life
- ------------------------------------------------------------------------------
Average Annual Total Return +2.46% +2.54% +2.89% +6.79%
- ------------------------------------------------------------------------------
SEC Results -1.49% +1.68% +2.59% +6.79%
- ------------------------------------------------------------------------------
CLASS C
10 Years/
1 Year 3 Years 5 Years Life
- ------------------------------------------------------------------------------
Average Annual Total Return +2.46% +2.59% +2.95% +6.84%
- ------------------------------------------------------------------------------
SEC Results +1.47% +2.59% +2.95% +6.84%
- ------------------------------------------------------------------------------
CLASS I
10 Years/
1 Year 3 Years 5 Years Life
- ------------------------------------------------------------------------------
Average Annual Total Return +3.49% +3.53% +3.81% +7.29%
- ------------------------------------------------------------------------------
COMPARATIVE INDICES
10 Years/
1 Year 3 Years 5 Years Life
- ------------------------------------------------------------------------------
Salomon Brothers World Government
Bond Index+* +12.61% +5.86% +7.60% +8.64%
- ------------------------------------------------------------------------------
J.P. Morgan Global Government
Bond Index** +13.06% +6.65% +7.90% +8.82%
- ------------------------------------------------------------------------------
Consumer Price Index+# + 1.67% +2.26% +2.41% +3.16%
- ------------------------------------------------------------------------------
+ Source: CDA/Wiesenberger.
* The Salomon Brothers World Government Bond Index is unmanaged and consists of
the universe of government bonds with remaining maturities of at least five
years.
** Source: Lipper Analytical Services, Inc.
# The Consumer Price Index is published by the U.S. Bureau of Labor Statistics
and measures the cost of living (inflation).
<PAGE>
NOTES TO PERFORMANCE SUMMARY
Class A share ("A") SEC results include the maximum 4.75% sales charge. Class
B share ("B") SEC results reflect the applicable contingent deferred sales
charge (CDSC), which declines over six years from 4% to 0%. Class 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.
<PAGE>
PORTFOLIO CONCENTRATION AS OF NOVEMBER 30, 1998
PORTFOLIO STRUCTURE
Source: Standard & Poor's and Moody's
High-Yield Corporates 27.8%
International 25.1%
Emerging markets 22.2%
U.S. Treasuries 15.0%
High-Grade Corporates 4.4%
Cash 4.0%
Yankee 1.5%
Portfolio information is as of November 30, 1998. The portfolio is actively
managed, and current holdings may be different.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS -- November 30, 1998
<CAPTION>
Bonds - 94.3%
- ----------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Foreign Bonds - 50.4%
Argentina - 3.6%
Argentina Republic, 9.015s, 2005 $ 5,000 $ 4,750,000
Argentina Republic, 11s, 2005 2,000 2,010,000
Autopistas Del Sol SA, 10.25s, 2009 (Industrial)## 1,000 720,000
------------
$ 7,480,000
- ----------------------------------------------------------------------------------------------------------
Brazil - 4.2%
Banco Nacional De Desenvolvime, 10.8s, 2008
(Bank)## $ 2,300 $ 1,972,250
Federal Republic of Brazil, 5s, 2014 1,472 971,536
Federal Republic of Brazil, 5.5s, 2024 378 247,136
Federal Republic of Brazil, 6.125s, 2024 4,990 3,218,550
Federal Republic of Brazil, 9.375s, 2008 2,795 2,215,038
------------
$ 8,624,510
- ----------------------------------------------------------------------------------------------------------
Bulgaria - 1.8%
Bulgaria National Republic, 6.688s, 2011 $ 5,100 $ 3,751,650
- ----------------------------------------------------------------------------------------------------------
Canada - 5.0%
Canada Government, 6s, 2008 CAD 6,420 $ 4,500,497
Canada Government, 5.25s, 2008 2,745 2,753,345
Gulf Canada Resources, 9.25s, 2004 (Oil Services) 2,900 2,978,387
------------
$ 10,232,229
- ----------------------------------------------------------------------------------------------------------
Colombia - 0.8%
Colombia Republic, 8.625s, 2008 $ 1,800 $ 1,570,500
- ----------------------------------------------------------------------------------------------------------
Denmark - 0.9%
Kingdom of Denmark, 7s, 2007 DKK 10,027 $ 1,851,725
- ----------------------------------------------------------------------------------------------------------
Germany - 2.6%
Bundesrepublik Deutschland, 6.5s, 2027 DEM 1,721 $ 1,265,232
Germany Federal Republic, 6s, 2007 6,104 4,089,846
------------
$ 5,355,078
- ----------------------------------------------------------------------------------------------------------
Greece - 3.0%
Fage Dairy Industries SA, 9s, 2007
(Food and Beverage Products) $ 575 $ 500,250
Hellenic Republic, 5.75s, 2008 XEU 1,331 1,636,922
Hellenic Republic, 8.9s, 2003 GRD 1,110,000 3,992,988
------------
$ 6,130,160
- ----------------------------------------------------------------------------------------------------------
Hong Kong - 0.2%
Guangzhou Shenzhen, 10.25s, 2007 (Construction) $ 750 $ 330,000
- ----------------------------------------------------------------------------------------------------------
Italy - 2.6%
Republic of Italy, 5.75s, 2002 ITL 8,550,000 $ 5,469,658
- ----------------------------------------------------------------------------------------------------------
Mexico - 5.6%
Petroleos Mexicanos, 9.25s, 2018 (Oil Services)## $ 2,000 $ 1,720,000
Petroleos Mexicanos, 9.375s, 2008 (Oil Services)## 2,000 2,000,000
United Mexican States, 6.25s, 2019 1,000 770,000
United Mexican States, 6.25s, 2019 9,300 7,161,000
------------
$ 11,651,000
- ----------------------------------------------------------------------------------------------------------
Morocco - 1.2%
Morocco Restructuring & Consolidating Agreement
6.063s, 2009+ $ 2,980 $ 2,417,674
- ----------------------------------------------------------------------------------------------------------
New Zealand - 1.8%
Government of New Zealand, 8s, 2004 NZD 6,166 $ 3,623,989
- ----------------------------------------------------------------------------------------------------------
Panama - 1.1%
Republic of Panama, 8.25s, 2008 $ 2,400 $ 2,292,000
- ----------------------------------------------------------------------------------------------------------
Peru - 0.4%
Republic of Peru, 4s, 2017 $ 1,500 $ 937,500
- ----------------------------------------------------------------------------------------------------------
Russia - 0.3%
Ministry of Finance, 10s, 2007 $ 598 $ 164,450
Ministry of Finance, 12.75s, 2028## 1,310 386,450
------------
$ 550,900
- ----------------------------------------------------------------------------------------------------------
South Korea - 2.4%
Republic of Korea, 8.875s, 2008 $ 2,305 $ 2,303,871
Shinhan Bank, 7.25s, 2002 (Bank)## 3,368 2,664,795
------------
$ 4,968,666
- ----------------------------------------------------------------------------------------------------------
Spain - 1.4%
Government of Spain, 6s, 2008 ESP 382,520 $ 2,997,843
- ----------------------------------------------------------------------------------------------------------
United Kingdom - 11.5%
Colt Telecom Group PLC, 8.875s, 2007
(Telecommunications) DEM 1,800 $ 1,051,645
Middleweb PLC Bankers Trust Lux, 10.5s, 2008
(Media)## GBP 1,175 1,762,339
U.K. Treasury, 8.5s, 2005 7,233 14,538,196
U.K. Treasury, 7.25s, 2007 1,604 3,146,021
U.K. Treasury, 9s, 2008 1,461 3,221,933
------------
$ 23,720,134
- ----------------------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS $103,955,216
- ----------------------------------------------------------------------------------------------------------
U.S. Bonds - 43.9%
Airlines - 1.0%
Continental Airlines, Inc., 9.5s, 2001 $ 2,009 $ 2,127,029
- ----------------------------------------------------------------------------------------------------------
Building - 1.3%
Building Materials Corp., 8.625s, 2006 $ 2,500 $ 2,600,000
- ----------------------------------------------------------------------------------------------------------
Computer Software - Services - 1.5%
Unisystem Corp., 7.875s, 2008 $ 2,900 $ 3,045,000
- ----------------------------------------------------------------------------------------------------------
Consumer Goods and Services - 1.4%
Revlon Consumer Products Corp., 8.125s, 2006 $ 2,900 $ 2,856,500
- ----------------------------------------------------------------------------------------------------------
Containers - 3.6%
Owens Illinois, Inc., 7.8s, 2018 $ 3,000 $ 3,011,520
Owens Illinois, Inc., 8.1s, 2007 4,200 4,427,850
------------
$ 7,439,370
- ----------------------------------------------------------------------------------------------------------
Entertainment - 0.9%
AMC Entertainment, Inc., 9.5s, 2009 $ 1,750 $ 1,793,750
- ----------------------------------------------------------------------------------------------------------
Financial Services - 1.3%
APP Finance II Mauritius Limited, 12s, 2004 $ 2,000 $ 1,200,000
APP Finance VII Mauritius Limited, 3.5s, 2003## 2,250 1,501,875
------------
$ 2,701,875
- ----------------------------------------------------------------------------------------------------------
Industrial - 1.4%
Mark IV Industries, Inc., 7.5s, 2007 $ 3,100 $ 3,005,140
- ----------------------------------------------------------------------------------------------------------
Information, Paging and Technology - 1.7%
Qwest Communications International, Inc.,
0s to 2003, 8.29s, 2008 $ 4,750 $ 3,574,375
- ----------------------------------------------------------------------------------------------------------
Media - 3.8%
Comcast Cellular Holdings, Inc., 9.5s, 2007 $ 1,900 $ 2,052,000
Comcast Corp., 9.375s, 2005 2,600 2,783,014
Jacor Communications Co., 8s, 2010 1,000 1,045,000
Jones Intercable, Inc., 9.625s, 2002 1,850 1,988,750
------------
$ 7,868,764
- ----------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 2.8%
Tenet Healthcare Corp., 7.625s, 2008## $ 2,250 $ 2,283,750
Tenet Healthcare Corp., 8.625s, 2003 3,235 3,429,100
------------
$ 5,712,850
- ----------------------------------------------------------------------------------------------------------
Metals and Minerals - 0.3%
Ryerson Tull, Inc., 9.125s, 2006 $ 500 $ 540,000
- ----------------------------------------------------------------------------------------------------------
Restaurants and Lodging - 0.9%
Red Roof Inns, Inc., 9.625s, 2003 $ 1,800 $ 1,800,000
- ----------------------------------------------------------------------------------------------------------
Telecommunications - 4.2%
Chancellor Media Corp., Louisiana, 8.125s, 2007 $ 3,100 $ 3,100,000
CSC Holdings, Inc., 9.25s, 2005 2,500 2,675,000
Intermedia Communications Inc., 8.5s, 2008 3,100 3,007,000
------------
$ 8,782,000
- ----------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 15.0%
U.S. Treasury Bonds, 5.25s, 2028 $ 6,200 $ 6,372,422
U.S. Treasury Notes, 4s, 2000 6,200 6,137,008
U.S. Treasury Notes, 4.25s, 2003 12,400 12,264,344
U.S. Treasury Notes, 4.75s, 2008 6,200 6,209,672
------------
$ 30,983,446
- ----------------------------------------------------------------------------------------------------------
Utilities - Electric - 1.4%
Calenergy Co., Inc., 7.63s, 2007 $ 1,750 $ 1,772,995
El Paso Electric Co., 8.9s, 2006 1,000 1,103,600
------------
$ 2,876,595
- ----------------------------------------------------------------------------------------------------------
Utilities - Telephone - 1.4%
Flag Ltd., 8.25s, 2008 $ 2,900 $ 2,914,500
- ----------------------------------------------------------------------------------------------------------
TOTAL U.S. BONDS $ 90,621,194
- ----------------------------------------------------------------------------------------------------------
TOTAL BONDS (IDENTIFIED COST, $195,024,895) $194,576,410
- ----------------------------------------------------------------------------------------------------------
Warrants
- ----------------------------------------------------------------------------------------------------------
SHARES
- ----------------------------------------------------------------------------------------------------------
Republic of Venezuela* (Identified Cost, $0) 12,500 $ 0
- ----------------------------------------------------------------------------------------------------------
Call Options Purchased
- ----------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
OF CONTRACTS
ISSUER/EXPIRATION MONTH/STRIKE PRICE (000 OMITTED)
- ----------------------------------------------------------------------------------------------------------
Deutsche Marks/ British Pounds/January/2.637
(Premiums Paid, $126,084) $ 19,047 $ 4,210
- ----------------------------------------------------------------------------------------------------------
Put Options Purchased - 0.2%
- ----------------------------------------------------------------------------------------------------------
Deutsche Marks/November/1.95 $ 1,353 $ 79,811
Deutsche Marks/November/1.95 732 40,815
Deutsche Marks/British Pounds/January/2.8065 20,271 100,789
Japanese Yen/December/120 992,170 179,583
Japanese Yen/Deutsche Marks/May/85 2,740,776 68,519
- ----------------------------------------------------------------------------------------------------------
Total Put Options Purchased (Premiums Paid, $440,319) $ 469,517
- ----------------------------------------------------------------------------------------------------------
Short-Term Obligations - 6.7%
- ----------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- ----------------------------------------------------------------------------------------------------------
Federal National Mortgage Association Discount
Notes, due 12/16/98 $ 9,315 $ 9,296,292
Student Loan Marketing Assn., due 12/01/98 4,455 4,455,000
- ----------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS, AT AMORTIZED COST $ 13,751,292
- ----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $209,342,590) $208,801,429
- ----------------------------------------------------------------------------------------------------------
Call Options Written - (0.1)%
- ----------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
OF CONTRACTS
DESCRIPTION/EXPIRATION MONTH/STRIKE PRICE (000 OMITTED)
- ----------------------------------------------------------------------------------------------------------
Canadian Dollar/December/1.535 $ 8,814 $ (53,110)
Japanese Yen/Deutsche Marks/May/64.82 836,034 (83,603)
Australian Dollar/January/0.63 9,101 (105,535)
- ----------------------------------------------------------------------------------------------------------
TOTAL CALL OPTIONS WRITTEN (PREMIUMS RECEIVED, $346,192) $ (242,248)
- ----------------------------------------------------------------------------------------------------------
Put Options Written
- ----------------------------------------------------------------------------------------------------------
Deutsche Marks/British Pounds/December/2.816 $ 20,340 $ (30,388)
Hong Kong Dollar/June/8.5 44,272 (133)
Hong Kong Dollar/June/9 44,000 0
- ----------------------------------------------------------------------------------------------------------
TOTAL PUT OPTIONS WRITTEN (PREMIUMS RECEIVED, $383,026) $ (30,521)
- ----------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (1.1)% (2,271,303)
- ----------------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $206,257,357
- ----------------------------------------------------------------------------------------------------------
* Non-income producing security.
## SEC Rule 144A restriction.
+ Restricted security.
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 HKD = Hong Kong Dollars
CAD = Canadian Dollars ITL = Italian Lire
CHF = Swiss Francs JPY = Japanese Yen
DEM = Deutsche Marks NLG = Dutch Guilders
DKK = Danish Kroner NOK = Norwegian Krone
ESP = Spanish Pesetas NZD = New Zealand Dollars
GBP = British Pounds SGD = Singapore Dollars
GRD = Greek Drachma XEU = European Currency Unit
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- -------------------------------------------------------------------------------
NOVEMBER 30, 1998
- -------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $209,342,590) $208,801,429
Cash 4,899
Net receivable for forward foreign currency exchange
contracts to sell 528,447
Net receivable for forward foreign currency exchange
contracts to purchase 807,533
Receivable for investments sold 1,742,550
Receivable for Fund shares sold 121,183
Interest receivable 3,492,901
Other assets 1,218
------------
Total assets $215,500,160
------------
Liabilities:
Payable for investments purchased $ 6,361,814
Payable for Fund shares reacquired 975,171
Written options outstanding, at value (premiums received,
$729,218) 272,769
Net payable for forward foreign currency exchange
contracts subject to master netting agreements 1,287,738
Payable to affiliates -
Management fee 13,342
Distribution and service fee 95,748
Shareholder servicing agent fee 2,014
Payable for interest rate swap agreements 30,250
Accrued expenses and other liabilities 203,957
------------
Total liabilities $ 9,242,803
------------
Net assets $206,257,357
============
Net assets consist of:
Paid-in capital $204,473,329
Unrealized depreciation on investments and translation
of assets and liabilities in foreign currencies (26,544)
Accumulated undistributed net realized loss on
investments and foreign currency transactions (9,028,353)
Accumulated undistributed net investment income 10,838,925
------------
Total $206,257,357
============
Shares of beneficial interest outstanding 18,519,284
==========
Class A shares:
Net asset value per share
(net assets of $139,647,938 / 12,464,740 shares of
beneficial interest outstanding) $11.20
======
Offering price per share (100 / 95.25) of net asset value
per share $11.76
======
Class B shares:
Net asset value and offering price per share
(net assets of $58,646,300 / 5,335,690 shares of
beneficial interest outstanding) $10.99
======
Class C shares:
Net asset value and offering price per share
(net assets of $5,952,643 / 539,603 shares of
beneficial interest) $11.03
======
Class I shares:
Net asset value and offering price per share
(net assets of $2,010,476 / 179,251 shares of
beneficial interest outstanding) $11.22
======
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, 1998
- -------------------------------------------------------------------------------
Net investment income:
Interest income $ 17,830,504
------------
Expenses -
Management fee $ 1,753,003
Trustees' compensation 36,880
Shareholder servicing agent fee 266,845
Distribution and service fee (Class A) 363,211
Distribution and service fee (Class B) 670,627
Distribution and service fee (Class C) 69,989
Administrative fee 30,204
Custodian fee 133,892
Printing 68,227
Postage 51,456
Auditing 54,231
Legal 7,247
Miscellaneous 220,171
------------
Total expenses $ 3,725,983
Fees paid indirectly (71,931)
------------
Net expenses $ 3,654,052
------------
Net investment income $ 14,176,452
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $(17,510,092)
Written option transactions 2,045,155
Foreign currency transactions 6,163,457
Futures contracts 32,324
Swap agreements 264,339
------------
Net realized loss on investments and foreign currency
transactions $ (9,004,817)
------------
Change in unrealized appreciation (depreciation) -
Investments $ 3,318,888
Written options 362,329
Translation of assets and liabilities in foreign currencies (1,097,642)
Futures contracts (51,046)
Swap agreements (464,491)
------------
Net unrealized gain on investments and foreign currency
transactions $ 2,068,038
------------
Net realized and unrealized loss on investments and
foreign currency $ (6,936,779)
------------
Increase in net assets from operations $ 7,239,673
============
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Statement of Changes in Net Assets
<CAPTION>
- --------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets:
From operations -
Net investment income $ 14,176,452 $ 18,285,167
Net realized loss on investments and foreign currency
transactions (9,004,817) (13,634,421)
Net unrealized gain (loss) on investments and foreign
currency translation 2,068,038 (9,405,445)
------------ -------------
Increase (decrease) in net assets from operations $ 7,239,673 $ (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
currency transactions (Class I) (10,151) --
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 $(11,008,470) $ (9,799,896)
------------ -------------
Net decrease in net assets from Fund share transactions $(66,644,760) $(109,749,292)
------------ -------------
Total decrease in net assets $(70,413,557) $(124,303,887)
Net assets:
At beginning of year 276,670,914 400,974,801
------------ -------------
At end of year (including accumulated undistributed net
investment income of $10,838,925 and $5,210,029,
respectively) $206,257,357 $ 276,670,914
============ =============
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of year $11.34 $11.70 $12.46 $11.39 $13.37
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.70 $ 0.64 $ 0.65 $ 0.76 $ 0.63
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions (0.34) (0.68) 0.17 0.76 (1.17)
------ ------ ------ ------ ------
Total from investment operations $ 0.36 $(0.04) $ 0.82 $ 1.52 $(0.54)
------ ------ ------ ------ ------
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 year $11.20 $11.34 $11.70 $12.46 $11.39
====== ====== ====== ====== ======
Total return(+) 3.27% (0.29)% 7.36% 13.93% (4.63)%
Ratios (to average net assets)/Supplemental data:
Expenses## 1.35% 1.35% 1.42% 1.51% 1.54%
Net investment income 6.28% 5.75% 5.70% 6.42% 5.45%
Portfolio turnover 334% 335% 370% 277% 358%
Net assets at end of year (000 omitted) $139,648 $187,152 $283,770 $343,188 $370,110
# 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.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
CLASS B
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of year $11.13 $11.50 $12.28 $11.32 $13.35
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.60 $ 0.55 $ 0.54 $ 0.65 $ 0.56
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (0.33) (0.68) 0.17 0.76 (1.19)
------ ------ ------ ------ ------
Total from investment operations $ 0.27 $(0.13) $ 0.71 $ 1.41 $(0.63)
------ ------ ------ ------ ------
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 year $10.99 $11.13 $11.50 $12.28 $11.32
====== ====== ====== ====== ======
Total return 2.46% (1.08)% 6.39% 13.01% (5.39)%
Ratios (to average net assets)/Supplemental data:
Expenses## 2.12% 2.10% 2.27% 2.33% 2.38%
Net investment income 5.53% 5.03% 4.89% 5.59% 4.81%
Portfolio turnover 334% 335% 370% 277% 358%
Net assets at end of year (000 omitted) $58,646 $77,962 $102,717 $90,978 $73,458
# 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.
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED NOVEMBER 30, 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 $ 0.60 $ 0.55 $ 0.55 $ 0.66 $ 0.50
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions (0.33) (0.68) 0.17 0.77 (1.35)
------ ------ ------ ------ ------
Total from investment operations $ 0.27 $(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 $11.03 $11.13 $11.51 $12.29 $11.31
====== ====== ====== ====== ======
Total return 2.46% (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 5.52% 5.02% 4.97% 5.67% 5.06%+
Portfolio turnover 334% 335% 370% 277% 358%
Net assets at end of period (000 omitted) $5,953 $9,534 $14,487 $11,813 $8,687
* For the period from the inception of Class C, January 3, 1994, through November 30, 1994.
+ Annualized.
++ Not annualized.
# 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.
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
PERIOD ENDED NOVEMBER 30, 1998 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 $ 0.73 $ 0.61
Net realized and unrealized gain (loss) on investments and
foreign currency transactions (0.35) (0.48)
------ ------
Total from investment operations $ 0.38 $ 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 $11.22 $11.37
====== ======
Total return 3.49% 1.16%++
Ratios (to average net assets)/Supplemental data:
Expenses## 1.12% 0.99%+
Net investment income 6.58% 5.54%+
Portfolio turnover 334% 335%
Net assets at end of period (000 omitted) $2,010 $2,023
** For the period from the inception of Class I, January 2, 1997, through November 30, 1997.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid indirectly.
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Global Governments Fund (the Fund) (formerly MFS World Governments 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. Futures contracts and 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.
Repurchase Agreements - The Fund may enter into repurchase agreements with
institutions that the Fund's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The Fund requires
that the securities collateral in a repurchase transaction be transferred to
the custodian in a manner sufficient to enable the Fund to obtain those
securities in the event of a default under the repurchase agreement. The Fund
monitors, on a daily basis, the value of the collateral to ensure that its
value, including accrued interest, is greater than amounts owed to the Fund
under each such repurchase agreement. The Fund, along with other affiliated
entities of Massachusetts Financial Services Company (MFS), may utilize a
joint trading account for the purpose of entering into one or more repurchase
agreements.
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 may 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. During
the year ended November 30, 1998, $1,133,431 was reclassified from paid-in-
capital and $1,116,040 to undistributed net investment income and $17,391 to
accumulated net realized loss on investments 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, 1998, 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.
At November 30, 1998, the Fund, for federal income tax purposes, had a capital
loss carryforward of $8,156,127 which may be applied against any net taxable
realized gains of each succeeding year until the earlier of its utilization or
expiration on November 30, 2006.
Multiple Classes of Shares of Beneficial Interest - The Fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the Fund based on average
daily net assets of each class, without distinction between share classes.
Dividends are declared separately for each class. No class has preferential
dividend rights; differences in per share dividend rates are generally due to
differences in separate class expenses. Class B shares will convert to Class A
shares approximately eight years after purchase.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75%
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 funds
then-current fiscal year.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive
remuneration for their services to the Fund from MFS. Certain officers and
Trustees of the Fund are officers or directors of MFS, MFS Fund Distributors,
Inc. (MFD), and MFS Service Center, Inc. (MFSC). The Fund has an unfunded
defined benefit plan for all of its independent Trustees and Mr. Bailey.
Included in Trustees' compensation is a net periodic pension expense of
$11,720 for the year ended November 30, 1998.
Administrator - The Fund has an administrative services agreement with MFS to
provide the Fund with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Fund pays MFS an administrative fee
at the following annual percentages of the Fund's average daily net assets:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$21,215 for the year ended November 30, 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 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 $93,451 for the year
ended November 30, 1998. 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, 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 $16,171 and $9,441 for
Class B and Class C shares, respectively, for the year ended November 30,
1998. Fees incurred under the distribution plan during the year ended November
30, 1998, were 1.00% of average daily net assets attributable to both Class B
and Class C.
Certain Class A and Class C are subject to a contingent deferred sales charge
in the event of a shareholder redemption within 12 months following purchase.
A contingent deferred sales charge is imposed on shareholder redemption's of
Class B shares in the event of a shareholder redemption within six years of
purchase. MFD receives all contingent deferred sales charges. Contingent
deferred sales charges imposed during the year ended November 30, 1998, were
$395, $280,863, and $1,906 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 Fund's daily net assets at an effective annual rate
of 0.13%.
(4) Portfolio Securities
PURCHASES SALES
- --------------------------------------------------------------------------------
U.S. government securities $157,894,871 $146,499,131
------------ ------------
Investments (non-U.S. government
securities) $557,313,935 $595,190,106
------------ ------------
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 $210,235,937
------------
Gross unrealized appreciation $ 5,438,564
Gross unrealized depreciation (6,873,072)
------------
Net unrealized depreciation $ (1,434,508)
============
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares
YEAR ENDED NOVEMBER 30, 1998 YEAR ENDED NOVEMBER 30, 1997
-------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,693,765 $ 18,654,349 4,755,823 $ 52,604,737
Shares issued to shareholders
in reinvestment of
distributions 598,017 6,524,492 522,118 5,884,106
Shares reacquired (6,327,946) (70,140,851) (13,022,309) (144,732,586)
---------- ------------- ---------- -------------
Net decrease (4,036,164) $(44,962,010) (7,744,368) $ (86,243,743)
========== ============= ========== =============
<CAPTION>
Class B Shares
YEAR ENDED NOVEMBER 30, 1998 YEAR ENDED NOVEMBER 30, 1997
-------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,120,857 $ 12,158,372 1,493,539 $ 16,347,711
Shares issued to shareholders
in reinvestment of
distributions 207,895 2,241,109 148,179 1,649,221
Shares reacquired (2,996,797) (32,622,270) (3,571,362) (39,111,702)
---------- ------------- ---------- -------------
Net decrease (1,668,045) $ (18,222,789) (1,929,644) $ (21,114,770)
========== ============= ========== =============
<CAPTION>
Class C Shares
YEAR ENDED NOVEMBER 30, 1998 YEAR ENDED NOVEMBER 30, 1997
-------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 92,283 $ 1,004,163 205,041 $ 2,248,641
Shares issued to shareholders
in reinvestment of
distributions 15,866 171,670 18,690 208,014
Shares reacquired (425,019) (4,649,784) (626,423) (6,857,032)
---------- ------------- ---------- -------------
Net decrease (316,870) $ (3,473,951) (402,692) $ (4,400,377)
========== ============= ========== =============
<CAPTION>
Class I Shares
YEAR ENDED NOVEMBER 30, 1998 PERIOD ENDED NOVEMBER 30, 1997*
-------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 16,150 $ 178,874 271,159 $ 3,046,422
Shares issued to shareholders
in reinvestment of
distributions 8,683 94,640 -- --
Shares reacquired (23,573) (259,524) (93,168) (1,036,824)
---------- ------------- ---------- -------------
Net increase 1,260 $ 13,990 177,991 $ 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 an $805 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made to temporarily finance the repurchase of
Fund shares. Interest is charged to each fund, based on its borrowings, at a
rate equal to the bank's base rate. In addition, a commitment fee, based on
the average daily unused portion of the line of credit, is allocated among the
participating funds at the end of each quarter. The commitment fee allocated
to the Fund for the year ended November 30, 1998, was $1,479.
(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.
<PAGE>
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 -
Australian Dollars 12,382 214,011 8,002 99,032
British Pounds 6,197 47,638
Canadian Dollars 38,782 198,166 34,973 130,841
Deutsche Marks 45,001 67,520 46,213 236,612
Deutsche Marks/British Pounds 19,116 91,753 44,998 228,304
Hong Kong Dollars 88,272 291,273
Japanese Government Bonds 3,264,300 56,335 6,537,100 197,005
Japanese Yen 12,145,127 797,666 21,093,384 849,133
Japanese Yen/Deutsche Marks 836,034 100,078
Japanese Yen/New Zealand Dollars 3,263,375 693,275
Norwegian Krone/Deutsche Marks 182,493 64,185
United Kingdom Treasury 4,362 59,079
Options terminated in closing transactions -
Australian Dollars (3,281) (42,826) (8,002) (99,032)
British Pounds (6,197) (47,638)
Canadian Dollars (10,324) (80,465) (34,973) (130,841)
Deutsche Marks (45,001) (67,520) (46,213) (236,612)
Deutsche Marks/British Pounds (19,116) (91,753) (80,379) (365,338)
Japanese Government Bonds (3,264,300) (56,335) (6,537,100) (197,005)
Japanese Yen (12,145,127) (797,666) (19,033,874) (740,339)
Japanese Yen/New Zealand Dollars (3,263,375) (693,275)
Norwegian Krone/Deutsche Marks (182,493) (64,185)
United Kingdom Treasury (4,362) (59,079)
Options expired -
Canadian Dollars (19,644) (42,772)
Deutsche Marks/British Pounds (50,527) (253,192)
Japanese Yen (3,388,098) (534,693) (2,059,510) (108,794)
Japanese Yen/Deutsche Marks (2,093,519) (164,978)
---------- ----------
Outstanding, end of period $ 346,192 $ 383,026
========== ==========
Options outstanding at end of
period consist of:
Australian Dollars 9,101 $ 171,185
Canadian Dollars 8,814 74,929
Deutsche Marks/British Pounds 20,340 $ 91,753
Hong Kong Dollars 88,272 291,273
Japanese Yen/Deutsche Marks 836,034 100,078
---------- ----------
Outstanding, end of period $ 346,192 $ 383,026
========== ==========
At November 30, 1998, the Fund had sufficient cash and/or securities at least equal to the value of the
written options.
</TABLE>
<PAGE>
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
NET
UNREALIZED
CONTRACTS TO CONTRACTS APPRECIATION
SETTLEMENT DATE DELIVER/RECEIVE IN EXCHANGE FOR AT VALUE (DEPRECIATION)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales 12/15/98 DEM $32,917,278 $32,184,906 $ 732,372
12/15/98 DKK 4,782,712 4,791,201 (8,489)
05/03/99 HKD 11,952,693 12,206,874 (254,181)
12/15/98 NLG 199,856 199,042 814
12/15/98 NOK 184,231 186,727 (2,496)
12/15/98 SGD 6,579,347 6,518,920 60,427
----------- ----------- ----------
$56,616,117 $56,087,670 $ 528,447
=========== =========== ==========
Purchases 12/15/98 AUD $ 4,520,208 $ 4,695,844 $ 175,636
12/15/98 CHF 8,848,391 8,630,304 (218,087)
12/15/98 DKK 2,726,700 2,632,816 (93,884)
05/03/99 HKD 11,621,332 12,206,874 585,542
12/15/98 JPY 10,478,803 10,718,019 239,216
12/15/98 NZD 5,106,489 5,225,599 119,110
----------- ----------- ----------
$43,301,923 $44,109,456 $ 807,533
=========== =========== ==========
</TABLE>
Forward foreign currency purchases and sales under master netting agreements
excluded above amounted to a net payable of $1,035,329 with Deutsche Bank and
$406,629 with Merrill Lynch Bank and a net receivable of $154,220 at November
30, 1998.
At November 30, 1998, the Fund had sufficient cash and/or securities to cover
any commitments under these contracts.
(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,
1998, the Fund owned the following restricted securities (constituting 1.17%
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/PAR
DESCRIPTION ACQUISITION AMOUNT COST VALUE
- --------------------------------------------------------------------------------
Morocco Restructuring &
Consolidating Agreement 11/19/1998 2,980,000 $ 2,394,475 $ 2,417,674
-----------
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees of MFS Series Trust VII and Shareholders of MFS Global
Governments Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Global Governments Fund, including the schedule of portfolio investments as of
November 30, 1998, 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 five 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.
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, 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 the
MFS Global Governments Fund at November 30, 1998, 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 five years in the period then ended, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
January 8, 1999
<PAGE>
- --------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
- --------------------------------------------------------------------------------
IN JANUARY 1999, SHAREHOLDERS WERE MAILED A FORM 1099 REPORTING THE
FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE CALENDAR YEAR
1998.
<PAGE>
<TABLE>
MFS(R) GLOBAL GOVERNMENTS FUND
<S> <C>
TRUSTEES SECRETARY
Richard B. Bailey* - Private Investor; Stephen E. Cavan*
Former Chairman and Director (until 1991),
MFS Investment Management ASSISTANT SECRETARY
James R. Bordewick, Jr.*
Peter G. Harwood - Private Investor
CUSTODIAN
J. Atwood Ives - Chairman and Chief Executive State Street Bank and Trust Company
Officer, Eastern Enterprises (diversified
services company) AUDITORS
Ernst & Young LLP
Lawrence T. Perera - Partner, Hemenway
& Barnes (attorneys) INVESTOR INFORMATION
William J. Poorvu - Adjunct Professor, Harvard For MFS stock and bond market outlooks, call toll
University Graduate School of Business free: 1-800-637-4458 anytime from a touch-tone
Administration telephone.
Charles W.Schmidt - Private Investor For information on MFS mutual funds, call your
financial adviser or, for an information kit, call
Arnold D. Scott* - Senior Executive Vice toll free: 1-800-637-2929 any business day from 9
President, Director, and Secretary, a.m. to 5 p.m. Eastern time (or leave a message
MFS Investment Management anytime).
Jeffrey L. Shames* - Chairman, Chief Executive INVESTOR SERVICE
Officer, and Director, MFS Investment Management MFS Service Center, Inc.
P.O. Box 2281
Elaine R. Smith - Independent Consultant Boston, MA 02107-9906
David B. Stone - Chairman and Director, For general information, call toll free:
North American Management Corp. 1-800-225-2606 any business day from 8 a.m. to
(investment advisers) 8 p.m. Eastern time.
INVESTMENT ADVISER For service to speech- or hearing-impaired, call
Massachusetts Financial Services Company toll free: 1-800-637-6576 any business day from
500 Boylston Street 9 a.m. to 5 p.m. Eastern time. (To use this service,
Boston, MA 02116-3741 your phone must be equipped with a
Telecommunications Device for the Deaf.)
DISTRIBUTOR
MFS Fund Distributors, Inc. For share prices, account balances, and exchanges,
500 Boylston Street call toll free: 1-800-MFS-TALK (1-800-637-8255)
Boston, MA 02116-3741 anytime from a touch-tone telephone.
PORTFOLIO MANAGER WORLD WIDE WEB
James T. Swanson* www.mfs.com
TREASURER
W. Thomas London*
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
----------------
MFS(R) GLOBAL GOVERNMENTS FUND Bulk Rate
U.S. Postage
Paid
MFS
----------------
[Logo] M F S(R)
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
500 Boylston Street
Boston, MA 02116-3741
(c)1999 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MWG-2 1/99 31M 20/220/320/820
