<PAGE>
[Logo] ANNUAL REPORT FOR
THE FIRST NAME IN MUTUAL FUNDS YEAR ENDED
JUNE 30, 1996
MFS(R) INSTITUTIONAL WORLDWIDE FIXED INCOME FUND
[graphic omitted: two men sitting in front of a window]
<PAGE>
MFS(R) INSTITUTIONAL WORLDWIDE FIXED INCOME FUND
TRUSTEES INVESTMENT ADVISER
A. KEITH BRODKIN* Massachusetts Financial Services Company
Chairman and President 500 Boylston Street
Boston, MA 02116-3741
Nelson J. Darling, Jr.
Trustee, Eastern Enterprises DISTRIBUTOR
(diversified holding company) MFS Fund Distributors, Inc.
500 Boylston Street
William R. Gutow Boston, MA 02116-3741
Vice Chairman
Capital Entertainment PORTFOLIO MANAGER
(Blockbuster Video Franchise) Richard Hawkins*
SHAREHOLDER SERVICE CENTER TREASURER
MFS Service Center, Inc. W. Thomas London*
P.O. Box 2281
Boston, MA 02107-9906 ASSISTANT TREASURER
James O. Yost*
For general information,
call toll free: 1-800-637-2262 SECRETARY
Stephen E. Cavan*
CUSTODIAN
State Street Bank and Trust Company ASSISTANT SECRETARY
James R. Bordewick, Jr.*
AUDITORS
Deloitte & Touche LLP
*Affiliated with the Investment Adviser
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
For the year ended June 30, 1996, the Fund provided a total return of 1.51%
(including the reinvestment of distributions), which compares to a -1.16%
return for the J.P. Morgan Global Government Bond Index (the Morgan Index), an
aggregate index of actively traded government bonds issued from 13 countries,
including the United States, with remaining maturities of at least one year.
Our decision to keep average maturities in the Fund shorter than the Morgan
Index contributed to performance, as did underweighted positions in the U.S.
market and in the European currency bloc. A discussion of factors which
affected the Fund's performance may be found in the Portfolio Performance and
Strategy section of this letter.
Economic Outlook
Real (inflation-adjusted) economic growth in the first quarter of 1996 was
2.3% on an annualized basis, and it appears that second-quarter growth could
be even stronger. Thus, real growth in gross domestic product has started the
year at a rate exceeding our expectations. While we continue to believe that
growth from quarter to quarter will be uneven, it is now our expectation that
growth for all of 1996 could exceed 2.5%. Although individual consumers appear
to be carrying a heavy debt load, the consumer sector itself, which represents
two-thirds of the economy, continues to show strength as the auto and housing
markets remain resilient. Consumer spending has also been positively impacted
by widespread job growth. At the same time, however, the economies of Europe
and Japan continue to be in the doldrums, weakening U.S. export markets while
subduing the capital spending plans of American corporations. Finally, due to
the pickup in economic activity and increasing job growth, it appears that
inflation may accelerate slightly this year, and the Federal Reserve Board is
expected to continue its diligent anti-inflationary stance.
Bond Markets
In U.S. bond markets, persistent signs of economic weakness led to decreases
in short-term interest rates by the Federal Reserve in late 1995 and early
1996. However, should signs of economic growth and, particularly, of higher
inflation continue, we would expect the Fed to maintain its anti-inflationary
stance. In the beginning of the year, bond markets were trading in a narrow
range as investors shifted between concern about the lack of a budget
resolution in Washington and hopes that sluggish economic reports and low
inflation might lead to lower interest rates. Later, fixed-income markets
began reacting to conflicting signals regarding the strength of the economy
with more-volatile trading patterns marked by an upward bias in interest
rates. Interest rates may move even higher over the coming months, but we
believe the current rise in bond yields is reaching a point where fixed-income
markets are becoming attractively valued.
Portfolio Performance and Strategy
The most important factor for the international fixed-income market in recent
months has been the better-than-expected strength of the U.S. economy. Market
expectations for further interest rate reductions by the Federal Reserve have
swung to concerns of possible interest rate increases later this year if
growth remains in an above-trend pattern. Long-term interest rates have also
risen, reflecting increased concerns about inflation and disappointment with
the failed attempt to reach an accord on the federal budget. The rise in U.S.
rates has helped push up rates worldwide, although foreign rates have
generally risen less than in the United States. The overperformance versus the
United States has been most pronounced in some of the higher-yielding European
bond markets.
During this challenging period, the Fund's overweighting in European
markets generally and, in particular, the higher-yielding markets, contributed
to performance against the benchmark. In addition, the Fund's average maturity
was shortened in the first quarter to reduce sensitivity to changes in
interest rates. Within Europe, our weightings have been concentrated in the
markets where central banks have been reducing short-term interest rates.
Earlier in the period, Germany was leading the way and represented a
significant exposure for the Fund. More recently, with German rate cuts
nearing an end, the weightings have shifted in favor of the higher-yielding
markets such as Italy, Spain, and Sweden. Growth in these countries is
falling, bringing inflation down with it and allowing the central bankers to
drop their official rates quite considerably.
Within the dollar bloc, our concerns for U.S. growth and inflation risks
have led us to overweight the other markets in the bloc, especially Canada and
Australia. Canadian growth and inflation are both running below the U.S.
levels, while fiscal consolidation is well on track to significantly reduce
the budget deficits at the federal and provincial levels. Australian bonds
offer a yield advantage which we believe more than adequately compensates for
the economic risks, especially since the new government entered office. New
Zealand, where we have often been overweighted over the past several years, is
approaching a crossroads. In October, voters will face a new proportional
voting system. In addition, polls show strong support for parties wishing to
unravel the fiscal gains of the past decade. Until the risks are reduced, we
expect to have little, if any, exposure to New Zealand in the portfolio.
The stronger-than-expected U.S. economy was also a major factor in the
currency markets. As the rise in U.S. interest rates coincided with further
reductions in short-term rates in Europe, the yield advantage of U.S. dollars
over German marks grew even larger. The weakening of the mark also helped the
performance of some of the higher-yielding European currencies. The Fund has
been overweighted in dollars against the mark and has benefited from the
improvement in certain other European currencies. Our underweighted yen
position has benefited from its weakening trend.
Overall, the combination of rising interest rates and a stronger dollar
has translated into negative performance for international bonds. Looking
forward, we believe the dollar strength may continue until growth in Europe,
and especially in Germany, rebounds, which we expect to occur in the second
half of this year. We believe the outlook for world growth is continuing to
improve and, thus, some caution regarding bond markets is probably warranted.
Given our outlook, we expect the portfolio to emphasize shorter-maturity and
higher-yielding issues.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
/s/ A. Keith Brodkin /s/ Richard O. Hawkins
A. Keith Brodkin Richard O. Hawkins
Chairman and President Portfolio Manager
July 12, 1996
PORTFOLIO MANAGER PROFILE
Richard Hawkins joined MFS in 1988 as a member of the Fixed Income Department.
A graduate of Brown University and the University of Pennsylvania's Wharton
School of Business, he was named Vice President in 1991 and Senior Vice
President in 1994. On January 1, 1996, Mr. Hawkins was named Director of the
International Fixed Income Department as well as Portfolio Manager of the
Fund.
<PAGE>
PERFORMANCE SUMMARY
The information below illustrates the historical performance of MFS
Institutional Worldwide Fixed Income Fund in comparison to various market
indicators. Benchmark comparisons are unmanaged and do not reflect any fees or
expenses. You cannot invest in an index. All results reflect the reinvestment
of all dividends and capital gains.
GROWTH OF A HYPOTHETICAL $5,000,000 INVESTMENT
(For the Period from September 30, 1992* to June 30, 1996)
MFS WORLDWIDE SALOMON
FIXED J.P. MORGAN BROTHERS
INCOME GLOBAL GOVT. WORLD GOVT.
YEAR FUND BD IX BD IX CPI
---- ------------- ------------ ----------- ---
1992 5000.00 5000.00 5000.00 5000.00
1993 5250.00 5202.00 5221.00 5110.00
1994 5220.00 5407.00 5491.00 5237.00
1995 6008.00 6350.00 6523.00 5397.00
1996 6099.00 6481.00 6547.00 5545.00
AVERAGE ANNUAL TOTAL RETURNS
9/30/92*-
1 Year 3 Years 6/30/96
- -------------------------------------------------------------------------------
MFS Institutional Worldwide Fixed Income Fund +1.51% +5.12% +5.44%
- -------------------------------------------------------------------------------
J.P. Morgan Global Government Bond Index +2.05% +7.60% +7.16%
- -------------------------------------------------------------------------------
Salomon Brothers World Government Bond Index** +0.37% +7.84% +7.45%
- -------------------------------------------------------------------------------
Consumer Price Index+ +2.75% +2.76% +2.80%
- -------------------------------------------------------------------------------
All results are historical and, therefore, are not an indication of future
results. The principal value and income return of an investment in a mutual
fund will vary with changes in market conditions, and shares, when redeemed,
may be worth more or less than their original cost. 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 by MFS at any time.
*Commencement of offering of shares.
+The Consumer Price Index is a popular measure of change in prices.
**An unmanaged index which consists of complete universes of government bonds
with remaining maturities of at least five years.
<PAGE>
PORTFOLIO OF INVESTMENTS - June 30, 1996
Bonds - 75.3%
- -------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -------------------------------------------------------------------------------
U.S. Treasury Obligations - 6.2%
U.S. Treasury Notes, 0s, 2006
(Identified Cost, $3,799,209) $ 7,600 $ 3,899,408
- -------------------------------------------------------------------------------
Foreign Denominated - 69.1%
Australia - 8.8%
Commonwealth of Australia, 7s, 1998 AUD 2,700 $ 2,079,215
Commonwealth of Australia, 7s, 2000 800 600,953
Commonwealth of Australia, 9.75s, 2002 800 660,136
Commonwealth of Australia, 9.5s, 2003 2,700 2,206,709
-----------
$ 5,547,013
- -------------------------------------------------------------------------------
Belgium - 2.5%
Kingdom of Belgium, 9s, 1998 BEF 15,000 $ 523,211
Kingdom of Belgium, 8.75s, 2002 10,000 363,079
Kingdom of Belgium, 7.25s, 2004 10,000 334,504
Kingdom of Belgium, 8.5s, 2007 10,000 359,120
-----------
$ 1,579,914
- -------------------------------------------------------------------------------
Canada - 8.8%
Government of Canada, 7.5s, 2001 CAD 1,500 $ 1,121,840
Government of Canada, 7.5s, 2003 2,300 1,692,342
Government of Canada, 8.75s, 2005 2,100 1,656,761
Government of Canada, 9.5s, 2010 1,300 1,077,061
-----------
$ 5,548,004
- -------------------------------------------------------------------------------
Denmark - 4.9%
Kingdom of Denmark, 8s, 2001 DKK 16,743 $ 3,049,113
- -------------------------------------------------------------------------------
Germany - 10.9%
German Unity Fund, 8.5s, 2001 2,550 $ 1,873,719
Republic of Germany, 6.375s, 1999 DEM 7,220 4,947,090
-----------
$ 6,820,809
- -------------------------------------------------------------------------------
Italy - 9.7%
Republic of Italy, 8.5s, 1999 ITL 3,720,000 $ 2,442,145
Republic of Italy, 9.5s, 1999 3,165,000 2,121,562
Republic of Italy, 9.5s, 2006 2,340,000 1,551,147
-----------
$ 6,114,854
- -------------------------------------------------------------------------------
Netherlands - 2.1%
Netherlands
Government, 6s, 2006 NLG 2,220 $ 1,263,330
- -------------------------------------------------------------------------------
Spain - 8.7%
Government of Spain, 8.3s, 1998 ESP 273,100 $ 2,166,465
Government of Spain, 10.1s, 2001 394,200 3,311,465
-----------
$ 5,477,930
- -------------------------------------------------------------------------------
Sweden - 5.8%
Kingdom of Sweden, 10.25s, 2000 SEK 21,800 $ 3,635,088
- -------------------------------------------------------------------------------
<PAGE>
United Kingdom - 6.9%
United Kingdom Treasury, 9s, 2000 GBP 1,895 $ 3,121,070
United Kingdom Treasury, 7s, 2001 800 1,221,354
-----------
$ 4,342,424
- -------------------------------------------------------------------------------
Total Foreign Denominated
(Identified Cost, $43,055,038) $43,378,479
- -------------------------------------------------------------------------------
Total Bonds (Identified Cost, $46,854,247) $47,277,887
- -------------------------------------------------------------------------------
<PAGE>
Short-Term Obligations - 23.0%
- -------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -------------------------------------------------------------------------------
Federal Home Loan Bank, due 7/08/96 $2,100 $ 2,097,860
Federal Home Loan Bank, due 7/16/96 1,510 1,506,678
Federal Home Loan Mortgage Corp., due 7/01/96 1,505 1,505,000
Federal Home Loan Mortgage Corp., due 7/03/96 2,000 1,999,415
Federal Home Loan Mortgage Corp., due 7/10/96 2,990 2,986,053
Federal Home Loan Mortgage Corp., due 7/12/96 2,000 1,996,792
Federal Home Loan Mortgage Corp., due 7/19/96 2,350 2,343,796
- -------------------------------------------------------------------------------
Total Short-Term Obligations, at
Amortized Cost and Value $14,435,594
- -------------------------------------------------------------------------------
Call Options Purchased - 0.3%
- -------------------------------------------------------------------------------
Principal Amount
Description/Expiration of Contracts
Month/Strike Price (000 Omitted)
- -------------------------------------------------------------------------------
Australian Dollars
July/0.80 AUD 3,186 $ 1,290
Canadian Dollars
October/1.332 CAD 5,122 7,929
Deutsche Marks
July/1.52 DEM 9,130 52,856
Japanese Bonds
July/98.207 JPY 223,000 10,566
July/108.277 60,000 12,240
August/113.318 245,000 37,730
August/113.3606 143,000 17,732
September/96.324 244,000 11,956
September/108.659 186,000 23,436
Spanish Pesetas/Deutsche Marks
August/83.65 ESP 451,710 3,614
- -------------------------------------------------------------------------------
Total Call Options Purchased (Premiums
Paid, $197,585) $ 179,349
- -------------------------------------------------------------------------------
Put Options Purchased - 0.2%
- -------------------------------------------------------------------------------
Deutsche Marks
July/1.55 DEM 15,595 $ 374
Deutsche Marks/British Pounds
August/2.3316 9,597 86,543
French Francs/Deutsche Marks
July/3.60 FRF 32,571 --
Swiss Francs/Deutsche Marks
July/0.805 CHF 3,162 53,554
- -------------------------------------------------------------------------------
Total Put Options Purchased (Premiums
Paid, $177,715) $ 140,471
- -------------------------------------------------------------------------------
Total Investments (Identified Cost,
$61,665,141) $62,033,301
- -------------------------------------------------------------------------------
<PAGE>
Put Options Written - (0.1)%
- -------------------------------------------------------------------------------
Principal Amount
Description/Expiration of Contracts
Date/Strike Price (000 Omitted) Value
- -------------------------------------------------------------------------------
Canadian Dollars
October/1.3858 CAD 5,329 $ (10,637)
Japanese Bonds
September/96.324 JPY 244,000 (25,132)
September/108.659 186,000 (16,554)
July/98.207 223,000 (10,566)
July/108.277 60,000 --
August/113.318 245,000 (1,470)
August/113.3606 143,000 (4,004)
Spanish Pesetas/Deutsche Marks
August/86.0 ESP 464,400 (929)
- -------------------------------------------------------------------------------
Total Put Options Written (Premiums
Received, $116,436) $ (69,292)
- -------------------------------------------------------------------------------
Other Assets, Less Liabilities - 1.3% $ 842,888
- -------------------------------------------------------------------------------
Net Assets - 100.0% $62,806,897
- -------------------------------------------------------------------------------
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 FRF = French Francs
BEF = Belgian Francs GBP = British Pounds
CAD = Canadian Dollars IEP = Irish Punts
CHF = Swiss Francs ITL = Italian Lire
DEM = Deutsche Marks JPY = Japanese Yen
DKK = Danish Kroner NLG = Dutch Guilders
ESP = Spanish Pesetas NZD = New Zealand Dollars
FIM = Finnish Markkaa SEK = Swedish Kronor
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
June 30, 1996
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $61,665,141) $62,033,301
Cash 3,450
Net receivable for forward foreign currency exchange
contracts sold 1,365,199
Net receivable for forward foreign currency exchange contracts 1,508,210
Receivable for investments sold 7,391,826
Interest receivable 1,380,660
Premium receivable on options written 10,566
Receivable from investment adviser 210,968
Deferred organization expenses 1,752
Other assets 765
-----------
Total assets $73,906,697
-----------
Liabilities:
Payable for investments purchased $ 7,460,017
Written options outstanding, at value (premiums received,
$116,436) 69,292
Net payable for forward foreign currency exchange contracts
purchased 3,500,307
Payable to affiliate for management fee 3,345
Accrued expenses and other liabilities 66,839
-----------
Total liabilities $11,099,800
-----------
Net assets $62,806,897
===========
Net assets consist of:
Paid-in capital $66,138,581
Unrealized depreciation on investments and translation of
assets and liabilities in foreign currencies (216,236)
Accumulated net realized loss on investments and foreign
currency transactions (6,868,393)
Accumulated undistributed net investment income 3,752,945
-----------
Total $62,806,897
===========
Shares of beneficial interest outstanding 6,769,302
===========
Net asset value, redemption price and offering price per share
(net assets of $62,806,897 / 6,769,302 shares of beneficial
interest outstanding) $9.28
=====
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ------------------------------------------------------------------------------
Year Ended June 30, 1996
- ------------------------------------------------------------------------------
Net investment income:
Interest income $ 4,989,732
-----------
Expenses -
Management fee $ 452,908
Trustees' compensation 5,733
Shareholder servicing agent fee 5,203
Custodian fee 68,666
Auditing fees 66,328
Registration fees 38,001
Printing 12,916
Legal fees 4,767
Amortization of organization expenses 1,869
Miscellaneous 7,485
-----------
Total expenses $ 663,876
Reduction of expenses by investment adviser (210,968)
-----------
Net expenses $ 452,908
-----------
Net investment income $ 4,536,824
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 2,301,437
Written option transactions 156,803
Foreign currency transactions (5,142,993)
-----------
Net realized loss on investments $(2,684,753)
-----------
Change in unrealized appreciation (depreciation) - $
Investments (996,201)
Written options (151,334)
Translation of assets and liabilities in foreign currencies 378,353
-----------
Net unrealized loss on investments $ (769,182)
-----------
Net realized and unrealized loss on investments and
foreign currency $(3,453,935)
-----------
Increase in net assets from operations $ 1,082,889
===========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------
Year Ended June 30, 1996 1995
- ------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment income $ 4,536,824 $ 3,508,113
Net realized gain (loss) on investments and
foreign currency transactions (2,684,753) 2,407,671
Net unrealized loss on investments and foreign
currency translation (769,182) (195,007)
------------ -----------
Increase in net assets from operations $ 1,082,889 $ 5,720,777
------------ -----------
Distributions declared to shareholders -
From net investment income $ (3,328,966) $(1,092,709)
From net realized gain on investments and
foreign currency transactions (2,149,194) (2,993,073)
In excess of net realized gain on investments
and foreign currency transactions (1,526,539) --
------------ -----------
Total distributions declared to shareholders $ (7,004,699) $(4,085,782)
------------ -----------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 13,866,245 $31,100,133
Net asset value of shares issued to
shareholders in reinvestment of distributions 6,002,734 3,030,706
Cost of shares reacquired (27,218,552) (2,051,722)
------------ -----------
Increase (decrease) in net assets from Fund
share transactions $ (7,349,573) $32,079,117
------------ -----------
Total increase (decrease) in net assets $(13,271,383) $33,714,112
Net assets:
At beginning of period 76,078,280 42,364,168
------------ -----------
At end of period (including accumulated
undistributed net investment income of
$3,752,945 and accumulated distributions in
excess of net investment income of $112,014,
respectively) $ 62,806,897 $76,078,280
============ ===========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended June 30, 1996 1995 1994 1993*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.13 $ 9.64 $10.50 $10.00
------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.64 $ 0.65 $ 0.63 $ 0.17
Net realized and unrealized gain (loss) on investments (0.48) 0.70 (0.63) 0.33
------ ------ ------ ------
Total from investment operations $ 0.16 $ 1.35 $ -- $ 0.50
------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.48) $(0.23) $(0.31) $ --
In excess of net investment income -- -- (0.55) --
From net realized gain on investments (0.31) (0.63) -- --
In excess of net realized gains on investments (0.22) -- -- --
------ ------ ------ ------
Total distributions declared to shareholders $(1.01) $(0.86) $(0.86) $ --
------ ------ ------ ------
Net asset value - end of period $ 9.28 $10.13 $ 9.64 $10.50
====== ====== ====== ======
Total return 1.51% 15.10% (0.57)% 5.00%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 0.65% 0.72% 0.75% 0.80%+
Net investment income 6.52% 6.66% 6.09% 5.53%+
Portfolio turnover 425% 279% 212% 73%
Net assets at end of period (000 omitted) $62,807 $76,078 $42,364 $23,966
*For the period from the commencement of investment operations, September 30, 1992 to June 30, 1993.
+ Annualized.
++ Not annualized.
# Per share data for the periods subsequent to June 30, 1993 is based on average shares outstanding.
(S) The investment adviser voluntarily waived 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 $ 0.61 $ 0.61 $ 0.58 $ 0.15
Ratios (to average net assets):
Expenses 0.95% 1.14% 1.23% 1.48%+
Net investment income 6.22% 6.23% 5.61% 4.85%+
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Institutional Worldwide Fixed Income Fund (the Fund), formerly known as
MFS Worldwide Fixed Income 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
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 and forward
contracts, are valued on the basis of valuations furnished by dealers or by a
pricing service with consideration to factors such as institutional-size
trading in similar groups of securities, yield, quality, coupon rate,
maturity, type of issue, trading characteristics and other market data,
without exclusive reliance upon exchange or over-the-counter prices. Short-
term obligations, which mature in 60 days or less, are valued at amortized
cost, which approximates market value. Non-U.S. dollar denominated short-term
obligations are valued at amortized cost as calculated in the base currency
and translated into U.S. dollars at the closing daily exchange rate. Futures
contracts, options and options on futures contracts listed on commodities
exchanges are valued at closing settlement prices. Over-the-counter options
are valued by brokers through the use of a pricing model which takes into
account closing bond valuations, implied volatility and short-term repurchase
rates. Securities for which there are no such quotations or valuations are
valued at fair value as determined in good faith by or at the direction of the
Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that 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.
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 security 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.
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.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and original issue discount are amortized or accreted for financial statement
and tax reporting purposes as required by federal income tax regulations.
Fees Paid Indirectly - The Fund's custodian bank calculates its fee based on
the Fund's average daily net assets. The fee is reduced according to a fee
arrangement, which provides for custody fees to be reduced based on a formula
developed to measure the value of cash deposited with the custodian by the
Fund. This amount is shown as a reduction of expenses on the Statement of
Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code which may differ from generally accepted accounting principles, the basis
on which these financial statements are prepared. Accordingly, the amount of
net investment income and net realized gain reported on these financial
statements may differ from that reported on the Fund's tax return, and
consequently, the character of distributions to shareholders reported in the
financial highlights may differ from that reported to shareholders on Form
1099-DIV. Foreign taxes have been provided for on interest and dividend income
earned on foreign investments in accordance with the applicable country's tax
rates and to the extent unrecoverable are recorded as a reduction of
investment income. Distributions to shareholders are recorded on the ex-
dividend date.
The Fund distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a tax return
of capital. Differences in the recognition or classification of income between
the financial statements and tax earnings and profits which result in
temporary over-distributions for financial statement purposes, are classified
as distributions in excess of net investment income or accumulated net
realized gains. During the year ended June 30, 1996, $2,657,101 was
reclassified from accumulated net realized loss on investments and foreign
currency transactions to undistributed net investment income due to
differences between book and tax accounting for currency transactions. This
change had no effect on net assets or net asset value per share.
At June 30, 1996, the Fund, for federal income tax purposes, had a capital
loss carryforward of $6,768,015 which may be applied against any net taxable
realized gains of each succeeding year until the earlier of its utilization or
expiration on June 30, 2004.
(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 0.65%
of average daily net assets.
The investment adviser has voluntarily agreed to waive its management fee and/
or pay expenses of the Fund in order to maintain total expenses at no more
than 0.65% of the Fund's average daily net assets.
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).
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the average daily net assets at an effective annual rate of up
to 0.0075%.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
Purchases Sales
- ------------------------------------------------------------------------------
U.S. government securities $ 84,236,425 $102,671,166
============ ============
Investments (non-U.S. government securities) $141,945,777 $126,245,471
============ ============
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 $61,665,141
===========
Gross unrealized appreciation $ 1,010,312
Gross unrealized depreciation (664,758)
-----------
Net unrealized appreciation $ 345,554
===========
(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:
1996 1995
--------------------------------------------------
Year Ended June 30, Shares Amount Shares Amount
- ------------------------------------------------------------------------------
Shares sold 1,392,424 $13,866,245 2,994,435 $31,100,133
Shares issued to
shareholders in
reinvestment of
distributions 642,004 6,002,734 335,998 3,030,706
Shares reacquired (2,773,858) (27,218,552) (214,803) (2,051,722)
--------- ----------- --------- -----------
Net increase (decrease) (739,430) $(7,349,573) 3,115,630 $32,079,117
========= =========== ========= ===========
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS in an unsecured line of credit with a bank which permits
borrowings up to $350 million, collectively. Borrowings may be made to
temporarily finance the repurchase of Fund shares. Interest is charged to each
fund, based on its borrowings, at a rate equal to the bank's base rate. In
addition, a commitment fee, based on the average daily unused portion of the
line of credit, is allocated among the participating funds at the end of each
quarter. The commitment fee allocated to the Fund for the year ended June 30,
1996 was $1,128.
(7) Financial Instruments
The Fund trades financial instruments with off-balance sheet risk in the
normal course of its investing activities in order to manage exposure to
market risks such as interest rates and foreign currency exchange rates. These
financial instruments include written options, forward foreign currency
exchange contracts and 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. A summary of obligations under these financial
instruments at June 30, 1996, is as follows:
<TABLE>
Written Option Transactions
<CAPTION>
1996 Calls 1996 Puts
----------------------------------- -------------------------------------
Principal Amounts Principal Amounts
of Contracts of Contracts
(000 Omitted) Premiums (000 Omitted) Premiums
----------------------------------- -------------------------------------
<S> <C> <C> <C> <C>
Outstanding, beginning of period -
Australian Dollars - $ - $ 3,279 $ 39,069
British Pounds - - 2,626 44,337
Deutsche Marks - - 25,147 151,956
Italian Lire/Deutsche Marks - - 1,964,000 15,773
Japanese Yen 1,747,927 423,385 992,656 161,285
Options written -
Australian Dollars 7,216 63,269 3,343 33,926
Canadian Dollars 8,416 11,088 11,030 34,834
Deutsche Marks 39,667 188,925 24,260 123,235
Deutsche Marks/British Pounds 20,646 88,863 - -
Italian Lire/Deutsche Marks 23,839,063 252,345 15,022,034 447,958
Japanese Yen 1,597,517 181,354 9,962,614 999,719
Japanese Yen/Deutsche Marks - - 1,654,495 58,983
New Zealand Dollars - - 4,306 6,404
Spanish Pesetas/Deutsche Marks - - 795,400 19,762
Swedish Kronor/Deutsche Marks 51,612 33,337 - -
Options terminated in closing transactions
Australian Dollars (7,216) (63,269) (4,611) (47,213)
Canadian Dollars (2,289) (4,800) (2,698) (9,654)
Deutsche Marks (21,306) (130,496) (28,642) (188,030)
Deutsche Marks/British Pounds (17,479) (74,780) - -
Italian Lire/Deutsche Marks (18,146,216) (234,003) (10,493,476) (386,380)
Japanese Yen (2,577,520) (539,946) (9,515,487) (1,058,621)
Japanese Yen/Deutsche Marks - - (1,654,495) (58,983)
New Zealand Dollars - - (4,306) (6,404)
Swedish Kronor/Deutsche Marks (51,612) (33,337) - -
Options exercised -
Italian Lire/Deutsche Marks - - (4,528,558) (61,578)
Options expired -
Australian Dollars - - (2,011) (25,782)
British Pounds - - (2,626) (44,337)
Canadian Dollars (6,127) (6,288) (3,003) (6,721)
Deutsche Marks (18,361) (58,429) (20,765) (87,161)
Deutsche Marks/British Pounds (3,167) (14,083) - -
Italian Lire/Deutsche Marks (5,692,847) (18,342) (1,964,000) (15,773)
Japanese Yen (767,924) (64,793) (338,783) (16,161)
Spanish Pesetas/Deutsche Marks - - (331,000) (8,007)
------------ ----------- ------------ -----------
Outstanding, end of period - $ - 1,570,729 $ 116,436
============ =========== ============ ===========
Options outstanding at end of period
consist of -
Canadian Dollars - $ - 5,329 $ 18,459
Japanese Yen - - 1,101,000 86,222
Spanish Pesetas/Deutsche Marks - - 464,400 11,755
------------ ----------- ------------ -----------
Outstanding, end of period - $ - 1,570,729 $ 116,436
============ =========== ============ ===========
</TABLE>
At June 30, 1996, the Fund had sufficient cash and/or securities at least
equal to the value of the written options.
<PAGE>
<TABLE>
Forward Foreign Currency Exchange Contracts
<CAPTION>
Net Unrealized
Contracts to Contracts Appreciation
Settlement Date Deliver/Receive In Exchange for at Value (Depreciation)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales 8/22/96 BEF 51,450,892 $ 1,642,224 $ 1,647,818 $ (5,594)
8/30/96 - 11/01/96 CAD 8,276,477 6,061,066 6,075,788 (14,722)
7/31/96 - 8/15/96 CHF 82,935,534 67,665,749 66,471,845 1,193,904
7/05/96 - 4/27/97 DEM 93,579,432 61,474,890 61,764,859 (289,969)
9/09/96 DKK 18,327,197 3,103,149 3,134,702 (31,553)
8/13/96 ESP 509,487,995 3,975,587 3,968,909 6,678
8/02/96 FIM 13,868,476 2,872,569 2,997,616 (125,047)
8/09/96 GBP 5,710,509 8,749,979 8,862,007 (112,028)
9/23/96 IEP 1,877,262 2,968,703 2,997,444 (28,741)
7/24/96 - 4/28/97 ITL 38,646,081,620 24,591,318 25,088,578 (497,260)
7/25/96 - 8/01/96 JPY 4,541,404,061 42,997,293 41,631,032 1,366,261
8/01/96 NLG 2,207,938 1,293,992 1,296,713 (2,721)
10/18/96 NZD 3,751,055 2,530,762 2,540,215 (9,453)
8/02/96 SEK 19,323,246 2,831,245 2,915,801 (84,556)
============ ============ ===========
$232,758,526 $231,393,327 $ 1,365,199
============ ============ ===========
Purchases 8/20/96 AUD 2,988,758 $ 2,365,313 $ 2,345,601 $ (19,712)
7/31/96 - 8/15/96 CHF 78,203,953 63,830,761 62,677,780 (1,152,981)
7/05/96 - 4/28/97 DEM 91,852,621 60,424,536 60,642,988 218,452
8/02/96 FIM 22,518,003 4,788,067 4,867,178 79,111
9/09/96 FRF 23,897,054 4,618,681 4,657,894 39,213
8/09/96 GBP 3,812,471 5,820,400 5,916,486 96,086
9/23/96 IEP 1,877,262 2,935,025 2,997,444 62,419
7/24/96 - 4/27/97 ITL 39,615,077,384 25,428,125 25,710,962 282,837
7/25/96 - 8/29/96 JPY 7,836,580,168 74,981,832 71,876,100 (3,105,732)
============ ============ ===========
$245,192,740 $241,692,433 $(3,500,307)
============ ============ ===========
</TABLE>
Forward foreign currency purchases and sales under master netting arrangements
and closed forward foreign currency exchange contracts excluded above amounted
to a net receivable of $1,508,210 at June 30, 1996.
At June 30, 1996, the Fund had sufficient cash and/or securities to cover any
commitments under these contracts.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Institutional Trust and Shareholders of MFS
Institutional Worldwide Fixed Income Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Institutional Worldwide Fixed
Income Fund (a series of MFS Institutional Trust) as of June 30, 1996, the
related statement of operations for the year then ended, the statement of
changes in net assets for the years ended June 30, 1996 and 1995, and the
financial highlights for each of the years in the four-year period ended June
30, 1996. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
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 June 30, 1996 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. 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 Institutional
Worldwide Fixed Income Fund at June 30, 1996, 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
August 2, 1996
--------------------------------------------
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.
