<PAGE>
[MFS LOGO]
THE FIRST NAME IN MUTUAL FUNDS
MFS(R) WORLDWIDE
FIXED INCOME FUND
Semiannual Report
December 31, 1994
<PAGE>
MFS(R) WORLDWIDE FIXED
INCOME FUND
TRUSTEES INVESTMENT ADVISER
A. Keith Brodkin* Massachusetts Financial Services Company
Chairman and President 500 Boylston Street
Nelson J. Darling, Jr. Boston, Massachusetts 02116-3741
Trustee, Eastern Enterprises PORTFOLIO MANAGER
William R. Gutow Leslie J. Nanberg*
Private Investor; TREASURER
Senior Vice President, W. Thomas London*
Capitol Entertainment ASSISTANT TREASURER
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
INVESTOR SERVICE
MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
For general information, call toll free:
1-800-637-2262
CUSTODIAN
State Street Bank and Trust Company
AUDITORS
Deloitte & Touche LLP
*Affiliated with the Investment Adviser
<PAGE>
LETTER TO CLIENTS
Dear Client:
From the perspective of the fixed-income investor, 1994 certainly will be
remembered as a most unusual year. Bond markets sold off sharply early in the
year, triggered by the initiation of a series of tightening moves by the Federal
Reserve Board in its effort to restrain anticipated inflationary pressures.
These actions by the Federal Reserve had a dramatic rippling effect as bond
markets throughout the world followed the U.S. In fact, many countries sustained
rate increases that were greater than those in the U.S., despite the fact that
they were in very different stages of the business cycle.
Even after the sharp fall in bond prices in February and March, which was
greatly magnified by the unwinding of large leveraged positions in many markets,
fixed-income investors continued to be concerned about the rapid pace of
economic growth in many areas of the world. In the dollar-bloc countries of
Australia, Canada, New Zealand and the U.S., economic momentum has continued to
build. Despite the fact that inflation has remained very subdued in these
countries, investors are skeptical as to the ability of central banks to control
inflation and, as a result, investors have been requiring higher interest rate
premiums to be in these markets. In all the dollar-bloc countries, central banks
have started to tighten monetary policy, a trend we expect to continue.
Therefore, we have reduced overall exposure to these countries.
The reaction of European bond markets to stronger economic growth and
Federal Reserve tightening was most surprising because growth in Europe was in
its early stages. In retrospect, many of those countries rebounded from their
recessions more quickly than had been anticipated. However, since we have seen
the traditional pattern of increasing growth leading to higher productivity and
declining unit labor costs, we have continued to maintain a large portion of the
portfolio (45%) in Europe. We have, however, reduced our duration, or
sensitivity to interest rate changes, reflecting the continued nervousness of
investors with fixed-income markets generally.
We have also changed the composition of our European holdings. Earlier in
the year, we had emphasized some of the higher-yielding markets such as Italy,
Spain and Sweden. All three of these countries devalued their currencies in
1992, greatly stimulating export demand. While domestic demand remained
sluggish, industrial production to meet foreign demand rose rapidly. The rapid
growth of one sector of the economy, while other sectors remain weak, has
created imbalances which we feel will make it difficult for central banks to act
aggressively to control potential inflation. As a result, we have shifted a
portion of our holdings out of the higher-yielding markets back to some of the
core countries such as Germany, the Netherlands and the United Kingdom, where we
think progress on inflation will be more positive.
Finally, in Japan, we have seen an end to the recession, but few signs of a
significant pickup in economic activity. There is still a problem with serious
weakness in the Japanese banking system. Consumer spending is uncertain because
unemployment is rising, and the strength of the yen has caused Japanese
manufacturers to continue to shift production facilities to lower-cost
locations. We look for this trend to continue and, because we are beginning to
see negative consumer price trends (or deflation) in Japan, we have begun to
rebuild our Japanese bond exposure.
Portfolio Performance and Strategy
For the six months ended December 31, 1994, the Fund provided a total return of
+2.04% (including the reinvestment of distributions). During this period,
European markets generally rebounded and our overweighting in this sector, as
well as our strategy of shortening maturities in the portfolio and reducing our
exposure to the U.S. bond markets, was beneficial. By increasing our exposure to
the European currencies and the yen between May and October, the Fund was also
able to benefit from the weakness of the U.S. dollar.
<PAGE>
LETTER TO CLIENTS - continued
We will continue to maintain a cautious view of bond markets until we see a
more moderate economic growth trend becoming more apparent. From a longer-term
perspective, we believe fixed-income prices are becoming very attractive. In
looking for value, we tend to focus on markets with the highest real interest
rates -- that is, where interest rates are high relative to the inflation risk.
In most countries, interest rates have risen between 200 and 400 basis points
(2% and 4%) with no commensurate rise in inflation. Thus, the premium that
investors received from being in fixed-income markets has risen dramatically,
reflecting investors' concern over the commitment of the world's central banks
to fighting inflation in a growth environment. We see no change in the resolve
of these central banks, nor do we see any wavering on the part of most countries
to reduce their budget deficits. As a result, we believe that the fixed-income
markets are beginning to offer investors very attractive long-term value.
Although the U.S. dollar continued to decline against most currencies
through October, it rebounded somewhat over the balance of the year. The
dollar's weakness was primarily a reflection of investor uneasiness with
Federal Reserve monetary policy and the U.S. administration's dollar policy.
For much of the year, investors questioned whether the Federal Reserve would
move aggressively enough to control U.S. inflation. The concern was that if
the Federal Reserve moved too gradually, inflation would increase, making U.S.
financial assets unattractive. At the same time, the U.S. administration was
willing to use a weak dollar to pressure the Japanese to reach an agreement in
trade negotiations. The combination of these two factors made foreign holders
of U.S. dollars uneasy and led to a liquidation of U.S. dollar holdings for
much of the year.
Currently, our dollar view is more positive. The last Federal Reserve move,
which increased interest rates 75 basis points (0.75%), seems to have restored
the bank's credibility. The Clinton administration has realized it erred in
using the dollar as a negotiating tool, and recent talk of tax cuts, which
should help the economy, should also be positive for the U.S. currency. As a
result, while we had reduced our currency hedging over the summer months, we
have again hedged many of our European bonds back into U.S. dollars.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
/s/ A. Keith Brodkin /s/ Leslie J. Nanberg
A. Keith Brodkin Leslie J. Nanberg
Chairman and President Portfolio Manager
January 20, 1995
<PAGE>
PORTFOLIO MANAGER PROFILE
Leslie Nanberg joined MFS in 1980 as a member of the Fixed Income Department. A
graduate of the University of Illinois, Northwestern University and the
Northwestern University Graduate School of Management, he was named Assistant
Vice President - Investments in 1981, Vice President - Investments in 1983 and
Senior Vice President in 1986. Mr. Nanberg has senior responsibility for all
fixed-income assets under MFS management and has served as Portfolio Manager for
MFS Worldwide Fixed Income Fund since its inception in 1992.
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks not only preservation, but also growth of capital, together with
moderate current income.
The Fund seeks to achieve its investment objective through a professionally
managed, internationally diversified portfolio consisting primarily (at least
80% under normal market conditions) of debt securities, and to a lesser extent
(up to 20%) of equity securities. Debt securities include bonds, debentures,
mortgage securities, notes, commercial paper, obligations issued or guaranteed
by a government or any of its political subdivisions, agencies or
instrumentalities, and certificates of deposit.
PERFORMANCE SUMMARY
Because mutual funds like MFS Worldwide Fixed Income Fund are designed for
investors with long-term goals, we have provided cumulative results as well as
the average annual total returns for the past 6-month and 1-year periods ended
December 31, 1994 and for the period from September 30, 1992+ to December 31,
1994, respectively.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
Investment Results
(net asset value change including reinvested distributions)
9/30/92+-
6 Months 1 Year 12/31/94
- --------------------------------------------------------------------------------
Cumulative Total Return +2.04% -5.06% +6.52%
- --------------------------------------------------------------------------------
Average Annual Total Return -- -5.06% +2.85%
- --------------------------------------------------------------------------------
All results represent past performance and are not necessarily an indication of
future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost. All
Fund results reflect the applicable expense subsidy which is explained in the
Notes to Financial Statements. Had the subsidy not been in effect, the results
would have been less favorable. The subsidy may be rescinded at any time.
+Commencement of offering of shares.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS - December 31, 1994
Bonds - 78.3%
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Obligations - 17.7%
U.S. Treasury Notes, 7.625s, 1996 $ 3,800 $ 3,806,536
U.S. Treasury Notes, 7.125s, 1999 3,080 2,991,450
U.S. Treasury Notes, 7.25s, 2004 1,250 1,199,800
- ---------------------------------------------------------------------------------------------------------------------
Total U.S. Treasury Obligations (Identified Cost, $8,183,408) $ 7,997,786
- ---------------------------------------------------------------------------------------------------------------------
Foreign - Non-U.S. Dollars - 56.5%
Australia - 4.5%
State Electric Company of Victoria, 12s, 1998 AUD 1,200 $ 977,446
Treasury Corp. of Victoria, 10.25s, 1999 1,360 1,048,748
-----------
$ 2,026,194
- ---------------------------------------------------------------------------------------------------------------------
Denmark - 4.9%
Kingdom of Denmark, 9s, 1998 DKK 7,770 $ 1,288,611
Kingdom of Denmark, 9s, 2000 5,520 910,014
-----------
$ 2,198,625
- ---------------------------------------------------------------------------------------------------------------------
France - 6.1%
Government of France, 6.5s, 1996 FRF 5,030 $ 928,513
Government of France, 8s, 1998 7,370 1,386,018
Government of France, 7s, 1999 2,570 462,127
-----------
$ 2,776,658
- ---------------------------------------------------------------------------------------------------------------------
Germany - 7.6%
Deutschland Republic, 6.5s, 2003 DEM 2,710 $ 1,624,635
Deutschland Republic, 6.75s, 2004 780 474,657
Treuhandanstalt Obligationen, 6.375s, 1999 2,095 1,303,288
-----------
$ 3,402,580
- ---------------------------------------------------------------------------------------------------------------------
Ireland - 2.2%
Republic of Ireland, 9s, 2001 IEP 650 $ 1,009,191
- ---------------------------------------------------------------------------------------------------------------------
Italy - 1.8%
Republic of Italy, 10s, 1996 ITL 765,000 $ 464,889
Republic of Italy, 11s, 1996 125,000 76,887
Republic of Italy, 8.5s, 1999 485,000 268,071
-----------
$ 809,847
- ---------------------------------------------------------------------------------------------------------------------
Japan - 5.4%
Italian Government Euro-Yen, 3.5s, 2001 JPY 42,000 $ 392,460
Japanese Development Bank, 5s, 1999 35,000 364,598
Sallie Mae Euro-Yen, 3.2s, 1997 40,000 401,043
World Bank Euro-Yen, 5.25s, 2002 124,000 1,297,935
-----------
$ 2,456,036
- ---------------------------------------------------------------------------------------------------------------------
Netherlands - 9.5%
Dutch State Loan, 6.25s, 1998 NLG 2,910 $ 1,623,378
Dutch State Loan, 7s, 1999 3,500 1,988,843
Dutch State Loan, 7.5s, 1999 1,200 695,381
-----------
$ 4,307,602
- ---------------------------------------------------------------------------------------------------------------------
New Zealand - 2.7%
Government of New Zealand, 8s, 1995 NZD 1,940 $ 1,225,616
- ---------------------------------------------------------------------------------------------------------------------
<PAGE>
PORTFOLIO OF INVESTMENTS - continued
Bonds - continued
- ---------------------------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- ---------------------------------------------------------------------------------------------------------------------
Foreign - Non-U.S. Dollars - continued
Spain - 2.7%
Government of Spain, 8.3s, 1998 ESP 173,000 $ 1,180,818
Government of Spain, 10.25s, 1998 5,000 36,381
-----------
$ 1,217,199
- ---------------------------------------------------------------------------------------------------------------------
United Kingdom - 9.1%
United Kingdom Gilts, 10.25s, 1999 GBP 850 $ 1,411,341
United Kingdom Gilts, 9s, 2000 1,700 2,697,019
-----------
$ 4,108,360
- ---------------------------------------------------------------------------------------------------------------------
Total Foreign - Non-U.S. Dollars (Identified Cost, $26,022,604) $25,537,908
- ---------------------------------------------------------------------------------------------------------------------
Foreign - U.S. Dollars - 2.1%
Greece
Republic of Greece, 9.75s, 1999 (Identified Cost, $948,518) $ 950 $ 946,732
- ---------------------------------------------------------------------------------------------------------------------
Indexed Securities - 2.0%
Finnish Export Credit Note, Finnish Markkaa
Swap Rate, 5.5s, 3/14/95 (Identified Cost, $327,895) FIM 1,819 $ 306,280
Sallie Mae Medium Term Note, Swedish Index
Linked Note, 0s, 8/15/95 (Identified Cost, $575,000) $ 575 575,287
- ---------------------------------------------------------------------------------------------------------------------
$ 881,567
- ---------------------------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $36,057,425) $35,363,993
- ---------------------------------------------------------------------------------------------------------------------
Short-Term Obligations - 23.2%
- ---------------------------------------------------------------------------------------------------------------------
Federal Farm Credit Bank, due 1/04/95 $ 2,025 $ 2,024,012
Federal Home Loan Bank, due 1/03/95 3,600 3,598,833
Federal Home Loan Bank, due 1/06/95 870 869,293
Federal Home Loan Bank, due 1/11/95 4,000 3,993,611
- ---------------------------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost and Value $10,485,749
- ---------------------------------------------------------------------------------------------------------------------
Call Options Purchased - 0.1%
- ---------------------------------------------------------------------------------------------------------------------
Principal Amount
of Contracts
Description/Expiration Month/Strike Price (000 Omitted)
- ---------------------------------------------------------------------------------------------------------------------
Deutsche Marks/March/1.55 DEM 15,478 $ 11,624
Japanese Bonds/January/96.5458 JPY 312,000 9,984
Japanese Bonds/February/104.19 217,000 37,975
- ---------------------------------------------------------------------------------------------------------------------
Total Call Options Purchased (Premiums Paid, $108,593) $ 59,583
- ---------------------------------------------------------------------------------------------------------------------
Put Options Purchased
- ---------------------------------------------------------------------------------------------------------------------
Deutsche Marks/January/1.5875 DEM 27,503 $ 2,888
Japanese Bonds/February/104.25 JPY 108,500 1,305
Swiss Francs/Deutsche Marks/March/0.85 CHF 2,165 5,724
- ---------------------------------------------------------------------------------------------------------------------
Total Put Options Purchased (Premiums Paid, $89,919) $ 9,917
- ---------------------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $46,741,686) $45,919,242
- ---------------------------------------------------------------------------------------------------------------------
<PAGE>
PORTFOLIO OF INVESTMENTS - continued
Call Options Written - (0.1)%
- ---------------------------------------------------------------------------------------------------------------------
Principal Amount
of Contracts
Description/Expiration Month/Strike Price (000 Omitted) Value
- ---------------------------------------------------------------------------------------------------------------------
Japanese Bonds/February/104.25 JPY 108,500 $ (19,204)
Swiss Francs/Deutsche Marks/March/0.8378 CHF 2,165 (6,902)
- ---------------------------------------------------------------------------------------------------------------------
Total Call Options Written (Premiums Received, $23,717) $ (26,106)
- ---------------------------------------------------------------------------------------------------------------------
Put Options Written - (0.1)%
- ---------------------------------------------------------------------------------------------------------------------
Canadian Dollars/March/1.38 CAD 1,394 $ (19,171)
Deutsche Marks/February/1.56 DEM 6,728 (38,796)
Japanese Bonds/February/104.19 JPY 217,000 (868)
- ---------------------------------------------------------------------------------------------------------------------
Total Call Options Written (Premiums Received, $68,117) $ (58,835)
- ---------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (1.4)% $ (659,421)
=====================================================================================================================
Net Assets - 100.0% $ 45,174,880
- ---------------------------------------------------------------------------------------------------------------------
Abbreviations have been used throughout this report to indicate amounts shown in
currencies other than the U.S. dollar. A list of abbreviations is shown below.
AUD = Australian Dollars ESP = Spanish Pesetas ITL = Italian Lire
CAD = Canadian Dollars FIM = Finnish Markkaa JPY = Japanese Yen
CHF = Swiss Francs FRF = French Francs NLG = Dutch Guilders
DEM = Deutsche Marks GBP = British Pounds NZD = New Zealand Dollars
DKK = Danish Kroner IEP = Irish Punts SEK = Swedish Kronor
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------------------
<CAPTION>
December 31, 1994
- ------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (identified cost, $46,741,686) $45,919,242
Foreign currency, at value (identified cost, $2,579) 2,996
Net receivable for forward foreign currency exchange contracts sold 448,622
Premium receivable on options written 9,883
Receivable for Fund shares sold 207,027
Interest receivable 775,361
Receivable from investment adviser 78,900
Deferred organization expenses 4,858
Other assets 431
-----------
Total assets $47,447,320
-----------
Liabilities:
Cash overdraft $ 1,569,791
Premium payable on options purchased 62,033
Written options outstanding, at value (premiums received, $91,834) 84,941
Net payable for forward foreign currency exchange contracts purchased 436,031
Net payable for forward foreign currency exchange contracts 72,465
Payable to affiliates -
Management fee 1,865
Shareholder servicing agent fee 170
Accrued miscellaneous liabilities 45,144
-----------
Total liabilities $ 2,272,440
-----------
Net assets $45,174,880
===========
Net assets consist of:
Paid-in capital $50,563,077
Unrealized depreciation on investments and translation of assets and
liabilities in foreign
currencies (875,522)
Accumulated undistributed net realized loss on investments and foreign
currency transactions (3,171,743)
Accumulated distributions in excess of net investment income (1,340,932)
-----------
Total $45,174,880
===========
Shares of beneficial interest outstanding 5,028,689
===========
Net asset value, redemption price and offering price per share
(net assets of $45,174,880 / 5,028,689 shares of beneficial interest
outstanding) $8.98
=====
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ------------------------------------------------------------------------------------------
<CAPTION>
Six Months Ended December 31, 1994
- ------------------------------------------------------------------------------------------
<S> <C>
Net investment income:
Interest income - $ 1,624,099
-----------
Expenses -
Management fee $ 169,890
Trustees' compensation 1,076
Shareholder servicing agent fee 174
Auditing fees 31,000
Custodian fee 19,108
Printing 14,633
Legal fees 3,325
Amortization of organization expenses 941
Postage 75
Miscellaneous 9,499
-----------
Total expenses $ 249,721
Preliminary reduction of expenses by investment adviser (78,900)
-----------
Net expenses $ 170,821
-----------
Net investment income $ 1,453,278
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ (919,173)
Written option transactions 423,137
Foreign currency transactions (64,824)
-----------
Net realized loss on investments $ (560,860)
-----------
Change in unrealized appreciation (depreciation) -
Investments $ (157,301)
Written options 206,139
Translation of assets and liabilities in foreign currencies 13,182
-----------
Net unrealized gain on investments $ 62,020
-----------
Net realized and unrealized loss on investments and foreign
currency $ (498,840)
-----------
Increase in net assets from operations $ 954,438
===========
See notes to financial statements
<PAGE>
</TABLE>
<TABLE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------------------------
<CAPTION>
Six Months Ended Year Ended
December 31, 1994 June 30, 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 1,453,278 $ 1,970,599
Net realized loss on investments and foreign currency
transactions (560,860) (1,082,332)
Net unrealized gain (loss) on investments and foreign
currency 62,020 (1,424,987)
----------- -----------
Increase in net assets from operations $ 954,438 $ (536,720)
----------- -----------
Distributions declared to shareholders -
From net investment income $ -- $ (954,455)
In excess of net investment income (1,092,709) (1,701,501)
From net realized gain on investment and foreign currency
transactions (382,190) --
In excess of net realized gain on investment and foreign
currency transactions (2,610,883) --
----------- -----------
Total distributions declared to shareholders $(4,085,782) $(2,655,956)
----------- -----------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 4,079,560 $21,150,123
Net asset value of shares issued to shareholders in
reinvestment of distributions 2,691,388 695,168
Cost of shares reacquired (828,892) (254,325)
----------- -----------
Increase in net assets from Fund share transactions $ 5,942,056 $21,590,966
----------- -----------
Total increase in net assets $ 2,810,712 $18,398,290
Net assets:
At beginning of period 42,364,168 23,965,878
----------- -----------
At end of period (including accumulated distributions in
excess of net investment income of $1,340,932 and
$1,701,501, respectively) $45,174,880 $42,364,168
=========== ===========
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------
Year Ended June 30,
Six Months Ended -------------------------------
December 31, 1994 1994 1993<F3>
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 9.64 $10.50 $10.00
------ ------ ------
Income from investment operations<F2> -
Net investment income<F5> $ 0.31 $ 0.63 $ 0.17
Net realized and unrealized gain (loss) on investments (0.11) (0.63) 0.33
------ ------ ------
Total from investment operations $ 0.20 $ -- $ 0.50
------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- $(0.31) $ --
In excess of net investment income (0.23) (0.55) --
From net realized gain on investments (0.08) -- --
In excess of net realized gain on investments (0.55) -- --
------ ------ ------
Total distributions declared to shareholders $(0.86) $(0.86) $ --
------ ------ ------
Net asset value - end of period $ 8.98 $ 9.64 $10.50
====== ====== ======
Total return 2.04%<F4> (0.57)% 5.00%<F4>
Ratios (to average net assets)/Supplemental data<F5>:
Expenses 0.75%<F1> 0.75% 0.80%<F1>
Net investment income 6.42%<F1> 6.09% 5.53%<F1>
Portfolio turnover 100% 212% 73%
Net assets at end of period (000 omitted) $45,175 $42,364 $23,966
<FN>
<F1>Annualized.
<F2>Certain of the per share data for the periods subsequent to June 30, 1993 is based on average shares outstanding.
<F3>For the period from the commencement of investment operations, September 30, 1992 to June 30, 1993.
<F4>Not annualized.
<F5>The investment adviser did not impose a portion of its management fee for the periods indicated. If this fee
had been incurred by the Fund, the net investment income per share and the ratios would have been:
Net investment income $ 0.29 $ 0.58 $ 0.15
Ratios (to average net assets):
Expenses 1.10%<F1> 1.23% 1.48%<F1>
Net investment income 6.07%<F1> 5.61% 4.85%<F1>
</FN>
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Worldwide Fixed Income Fund (the Fund) is a non-diversified series of MFS
Institutional Trust (the Trust). The Trust is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company.
(2) Significant Accounting Policies
Investment Valuations - Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues and forward contracts, are
valued on the basis of valuations furnished by dealers or by a pricing service
with consideration to factors such as institutional-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics and other market data, without exclusive reliance upon
exchange or over-the-counter prices. Short- term obligations, which mature in 60
days or less, are valued at amortized cost, which approximates value. Non-U.S.
dollar denominated short-term obligations are valued at amortized cost as
calculated in the base currency and translated into U.S. dollars at the closing
daily exchange rate. Futures contracts, options and options on futures contracts
listed on commodities exchanges are valued at closing settlement prices.
Over-the-counter options are valued by brokers through the use of a pricing
model which takes into account closing bond valuations, implied volatility and
short-term repurchase rates. Securities for which there are no such quotations
or valuations are valued at fair value as determined in good faith by or at the
direction of the Trustees.
Repurchase Agreements - The Fund may enter into repurchase agreements with
institutions that the Fund's investment adviser has determined are creditworthy.
Each repurchase agreement is recorded at cost. The Fund requires that the
securities purchased in a repurchase transaction be transferred to the custodian
in a manner sufficient to enable the Fund to obtain those securities in the
event of a default under the repurchase agreement. The Fund monitors, on a daily
basis, the value of the securities transferred to ensure that the value,
including accrued interest, of the securities under each repurchase agreement is
greater than amounts owed to the Fund under each such repurchase agreement.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments and income and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates of
such transactions. Gains and losses attributable to foreign currency exchange
rates on sales of securities are recorded for financial statement purposes as
net realized gains and losses on investments. Gains and losses attributable to
foreign exchange rate movements on income and expenses are recorded for
financial statement purposes as foreign currency transaction gains and losses.
That portion of both realized and unrealized gains and losses on investments
that results from fluctuations in foreign currency exchange rates is not
separately disclosed.
Deferred Organization Expenses - Costs incurred by the Fund in connection with
its organization have been deferred and are being amortized on a straight-line
basis over a five-year period beginning on the date of commencement of
operations of the Fund.
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
Written Options - The Fund may write covered call or put options for which
premiums are received and are recorded as liabilities, and are subsequently
adjusted to the current value of the options written. Premiums received from
writing options which expire are treated as realized gains. Premiums received
from writing options which are exercised or are closed are offset against the
proceeds or amount paid on the transaction to determine the realized gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
security purchased by the Fund. The Fund, as writer of an option, may have no
control over whether the underlying securities may be sold (call) or purchased
(put) and, as a result, bears the market risk of an unfavorable change in the
price of the securities underlying the written option. In general, written call
options may serve as a partial hedge against decreases in value in the
underlying securities to the extent of the premium received. Written options may
also be used as a part of an income-producing strategy reflecting the view of
the Fund's management on the direction of interest rates.
Futures Contracts - The Fund may enter into financial futures contracts for the
delayed delivery of securities, currency or contracts based on financial indices
at a fixed price on a future date. In entering into such contracts, the Fund is
required to deposit either in cash or securities an amount equal to a certain
percentage of the contract amount. Subsequent payments are made or received by
the Fund each day, depending on the daily fluctuations in the value of the
underlying security, and are recorded for financial statement purposes as
unrealized gains or losses by the Fund. The Fund's investment in financial
futures contracts is designed to hedge against anticipated future changes in
interest or exchange rates or securities prices. The Fund may also invest in
futures contracts for non-hedging purposes. For example, interest rate futures
may be used in modifying the duration of the portfolio without incurring the
additional transaction costs involved in buying and selling the underlying
securities. Should interest or exchange rates or securities prices move
unexpectedly, the Fund may not achieve the anticipated benefits of the financial
futures contracts and may realize a loss.
Security Loans - The Fund may lend its securities to member banks of the Federal
Reserve System and to member firms of the New York Stock Exchange or
subsidiaries thereof. The loans are collateralized at all times by cash or
securities with a market value at least equal to the market value of securities
loaned. As with other extensions of credit, the Fund may bear the risk of delay
in recovery or even loss of rights in the collateral should the borrower of the
securities fail financially. The Fund receives compensation for lending its
securities in the form of fees or from all or a portion of the income from
investment of the collateral. At December 31, 1994, the Fund had no securities
on loan.
Forward Foreign Currency Exchange Contracts - The Fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering these contracts from the potential inability of counterparties to meet
the terms of their contracts and from unanticipated movements in the value of a
foreign currency relative to the U.S. dollar. The Fund will enter into forward
contracts for hedging purposes as well as for non-hedging purposes. For hedging
purposes, the Fund may enter into contracts to deliver or receive foreign
currency it will receive from or require for its normal investment activities.
It may also use contracts in a manner intended to protect foreign
currency-denominated securities from declines in value due to unfavorable
exchange rate movements. For non-hedging purposes, the Fund may enter into
contracts with the intent of changing the relative exposure of the Fund's
portfolio of securities to different currencies to take advantage of anticipated
changes. The forward foreign currency exchange contracts are adjusted by the
daily exchange rate of the underlying currency and any gains or losses are
recorded for financial statement purposes as unrealized until the contract
settlement date.
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
original issue discount are amortized or accreted for both financial statement
and tax reporting purposes as required by federal income tax regulations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code which may differ from generally accepted accounting principles, the basis
on which these financial statements are prepared. Accordingly, the amount of net
investment income and net realized gain reported on these financial statements
may differ from that reported on the Fund's tax return and, consequently, the
character of distributions to shareholders reported in the financial highlights
may differ from that reported to shareholders on Form 1099-DIV. Foreign taxes
have been provided for on interest and dividend income earned on foreign
investments in accordance with the applicable country's tax rates and to the
extent unrecoverable are recorded as a reduction of investment income.
Distributions to shareholders are recorded on the ex- dividend date.
The Fund distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a return of
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains. During the year ended June 30, 1994, undistributed net investment income
decreased and accumulated undistributed realized gains and paid-in capital
increased by $1,415,100, $1,413,866 and $1,234, respectively, due to differences
between book and tax accounting for currency transactions. This change had no
effect on the net assets or net asset value per share.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee, computed daily and paid monthly at an effective annual rate of
0.75% of average daily net assets, amounted to $169,890. MFS has voluntarily
agreed to waive its fees and/or pay expenses of the Fund in order to maintain
total expenses for the Fund at no more than 0.75% through June 30, 1997.
Accordingly, the investment adviser did not impose $78,900 of its fee, which is
reflected as a reduction of expenses on the Statement of Operations.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive remuneration
for their services to the Fund from MFS. Certain of the officers and Trustees of
the Fund are officers or directors of MFS and MFS Service Center, Inc. (MFSC).
The Fund has an unfunded defined benefit plan for all of its independent
Trustees.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earned
$174 for its services as shareholder servicing agent. The fee is based on the
number of shareholder accounts of the Fund.
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, aggregated $43,817,332 and $46,693,527,
respectively.
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 $46,741,686
===========
Gross unrealized depreciation $ (931,285)
Gross unrealized appreciation 108,841
-----------
Net unrealized depreciation $ (822,444)
===========
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
December 31, 1994 June 30, 1994
----------------------------- -------------------------------
Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 423,417 $4,079,560 2,069,023 $21,150,123
Shares issued to shareholders in
reinvestment of distributions 298,380 2,691,388 66,972 695,168
Shares reacquired (86,210) (828,892) (26,444) (254,325)
------- ---------- --------- -----------
Net increase 635,587 $5,942,056 2,109,551 $21,590,966
======= ========== ========= ===========
</TABLE>
(6) Financial Instruments
The Fund regularly trades financial instruments with off-balance sheet risk in
the normal course of its investing activities in order to manage exposure to
market risks such as interest rates and foreign currency exchange rates. These
financial instruments include written options and forward foreign currency
exchange contracts.
The notional or contractual amounts of these instruments represent the
investment the Fund has in particular classes of financial instruments and does
not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered. A summary of
obligations under these financial instruments at December 31, 1994, is as
follows:
<PAGE>
Written Option Transactions
<TABLE>
<CAPTION>
Calls 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 20,727 $ 252,933 19,471 $ 69,418
Italian Lire/Deutsche
Marks -- -- 2,295,205 11,416
Japanese Yen 176,841 28,118 320,000 60,857
Spanish Pesetas/Deutsche
Marks -- -- 273,065 19,570
Options written -
Australian Dollars 801 5,691 -- --
British Pounds/Deutsche
Marks -- -- 2,721 17,391
Canadian Dollars -- -- 1,394 7,272
Deutsche Marks 19,900 93,386 29,814 185,251
Deutsche Marks/British
Pounds -- -- 6,286 21,489
Deutsche Marks/Italian
Lire 1,826,196 3,067 -- --
Italian Lire/Deutsche
Marks -- -- 1,844,458 3,126
Japanese Yen 530,568 64,781 217,000 23,321
Japanese Yen/Deutsche
Marks 393,254 90,448 -- --
Swedish Kronor/Deutsche
Marks 6,023 4,548 8,326 5,215
Swiss Francs/Deutsche
Marks 2,165 9,115 -- --
Options terminated in closing transactions -
Australian Dollars (801) (5,691) -- --
British Pounds/Deutsche
Marks -- -- (2,721) (17,391)
Deutsche Marks (6,740) (94,148) (22,779) (166,759)
Deutsche Marks/British
Pounds -- -- (6,286) (21,489)
Japanese Yen (422,068) (50,179) (320,000) (60,857)
Japanese Yen/Deutsche
Marks (393,254) (90,448) -- --
Italian Lire/Deutsche
Marks -- -- (2,295,205) (11,416)
Spanish Pesetas/Deutsche
Marks -- -- (273,065) (19,570)
Swedish Kronor/Deutsche
Marks (6,023) (4,548) -- --
Options exercised -
Deutsche Marks (33,887) (252,171) -- --
Italian Lire/Deutsche
Marks -- -- (1,844,458) (3,126)
Options expired -
Deutsche Marks -- -- (19,778) (50,387)
Italian Lire/Deutsche
Marks (1,826,196) (3,067) -- --
Japanese Yen (176,841) (28,118) -- --
Swedish Kronor/Deutsche
Marks -- -- (8,326) (5,214)
---------- --------- ----------- ----------
OUTSTANDING, END OF PERIOD
110,665 $ 23,717 225,122 $ 68,117
========== ========== =========== ==========
OPTIONS OUTSTANDING AT END
OF PERIOD CONSIST OF -
Canadian Dollars -- $ -- 1,394 $ 7,272
========== ========== =========== ==========
Deutsche Marks $
-- -- 6,728 $ 37,524
========== ========== =========== ==========
Japanese Yen 108,500 $ 14,601 217,000 $ 23,321
========== ========== =========== ==========
Swiss Francs/Deutsche $
Marks 2,165 $ 9,116 -- --
========== ========== =========== ==========
At December 31, 1994, the Fund had sufficient cash and/or securities at least
equal to the value of the written options.
</TABLE>
<TABLE>
<CAPTION>
Forward Foreign Currency Exchange Contracts
Net Unrealized
Settlement Contracts to Contracts at Appreciation
Date Deliver/Receive In Exchange for Value (Depreciation)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales 2/21/95 AUD 591,783 $ 443,243 $ 457,482 $ (14,239)
1/23/95 CAD 1,165,032 848,623 831,275 17,348
1/12/95 - 2/06/95 CHF 1,107,008 862,186 846,771 15,415
1/10/95 - 4/03/95 DEM 43,167,316 27,981,160 27,900,308 80,852
3/31/95 DKK 8,354,745 1,350,218 1,374,865 (24,647)
1/31/95 - 3/22/95 ESP 209,269,290 1,603,250 1,584,967 18,283
1/12/95 - 5/02/95 FRF 23,301,885 4,506,084 4,368,695 137,389
1/18/95 GBP 1,659,521 2,618,663 2,599,061 19,602
1/25/95 - 2/21/95 IEP 553,298 864,203 854,768 9,435
1/23/95 - 2/16/95 ITL 1,119,313,150 711,520 689,500 22,020
1/24/95 - 2/10/95 JPY 754,429,646 7,636,337 7,587,484 48,853
1/24/95 - 2/22/95 NLG 8,166,637 4,834,266 4,711,664 122,602
2/06/95 SEK 1,639,055 216,121 220,412 (4,291)
----------- ----------- ---------
$54,475,874 $54,027,252 $ 448,622
=========== =========== =========
Purchases 1/23/95 CAD 1,710,585 $ 1,265,312 $ 1,220,538 $ (44,774)
1/18/95 - 3/14/95 DEM 42,338,794 27,502,153 27,364,426 (137,727)
1/03/95 - 2/06/95 DKK 10,736,563 1,753,329 1,765,721 12,392
1/12/95 - 1/31/95 FRF 8,101,290 1,550,780 1,518,431 (32,349)
2/15/95 - 4/03/95 GBP 1,883,909 2,989,797 2,950,018 (39,779)
1/17/95 - 1/23/95 ITL 3,241,558,517 2,050,486 2,000,042 (50,444)
1/24/95 - 3/06/95 JPY 1,136,627,698 11,655,425 11,443,237 (212,188)
1/24/95 NLG 132,890 78,895 76,657 (2,238)
2/27/95 - 2/28/95 NZD 3,432,854 2,113,230 2,188,599 75,369
2/06/95 SEK 4,790,962 648,558 644,265 (4,293)
----------- ----------- ---------
$51,607,965 $51,171,934 $(436,031)
=========== =========== =========
</TABLE>
Forward foreign currency purchases and sales under master netting arrangements
and closed forward foreign currency exchange contracts, excluded above, amounted
to a net payable of $72,465 at December 31, 1994.
At December 31, 1994, the Fund had sufficient cash and/or securities to cover
any commitments under these contracts.
The Fund also invests in indexed securities whose value may be linked to foreign
currencies, interest rates, commodities, indices and other financial indicators.
Indexed securities are fixed-income securities whose proceeds at maturity
(principal-indexed securities) or interest rates (coupon-indexed securities)
rise and fall according to the change in one or more specified underlying
instruments. Indexed securities may be more volatile than the underlying
instrument itself. The following is a summary of such securities held at
December 31, 1994.
<TABLE>
<CAPTION>
Unrealized
Appreciation
Description Index Principal Value (Depreciation)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Finnish Export
Credit Note,
5.5s, 3/14/95 3-Year Finnish Swap Rate FIM 1,819,000 $306,280 $(21,615)
Sallie Mae Medium
Term Note, Swedish Index Linked
0s, 8/15/95 Note $575,000 575,287 287
--------
$(21,328)
========
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Institutional Trust and Shareholders of MFS Worldwide
Fixed Income Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Worldwide Fixed Income Fund (one of the
series of MFS Institutional Trust) as of December 31, 1994, the related
statement of operations for the six months then ended, the statement of changes
in net assets for the six months then ended and the year ended June 30, 1994,
and the financial highlights for the six months ended December 31, 1994, the
year ended June 30, 1994 and the period September 30, 1992 (commencement of
operations) to June 30, 1993. 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. Our procedures included confirmation of the securities owned at
December 31, 1994 by correspondence with the custodian. 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Worldwide Fixed
Income Fund at December 31, 1994, the results of its operations, the changes in
its net assets, and its financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 1, 1995
--------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
</TABLE>
