<PAGE>
[logo] MFS(SM)
INSTITUTIONAL ADVISORS, INC.
Annual Report
for Year Ended
June 30, 1997
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MFS(R) INSTITUTIONAL WORLDWIDE FIXED INCOME FUND
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[graphic omitted]
<PAGE>
MFS(R) INSTITUTIONAL WORLDWIDE FIXED INCOME FUND
<TABLE>
<CAPTION>
TRUSTEES INVESTMENT ADVISER
<S> <C>
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,
Capitol Entertainment Management Company INVESTOR SERVICE
(Blockbuster Video franchise) MFS Service Center, Inc.
P.O. Box 2281
PORTFOLIO MANAGER Boston, MA 02107-9906
Richard O. Hawkins*
For additional information,
TREASURER contact your financial adviser.
W. Thomas London*
CUSTODIAN
ASSISTANT TREASURERS State Street Bank and Trust Company
Mark E. Bradley*
Ellen Moynihan* AUDITORS
James O. Yost* Deloitte & Touche LLP
SECRETARY WORLD WIDE WEB
Stephen E. Cavan* www.mfs.com
ASSISTANT SECRETARY [DALBAR For the third year in a row,
James R. Bordewick, Jr.* LOGO] MFS earned a #1 ranking in the
TOP RATED DALBAR, Inc. Broker/Dealer
SERVICE Survey, Main Office Operations
Service Quality Category. The firm
achieved a 3.48 overall score on a scale of 1
to 4 in the 1996 survey. A total of 110 firms
responded, offering input on the quality of
service they received from 29 mutual fund
companies nationwide. The survey contained
questions about service quality in 15
categories, including "knowledge of phone
service contacts," "accuracy of transaction
processing," and "overall ease of doing
business with the firm."
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Shareholders:
An unprecedented combination of generally positive factors has helped the U.S.
economy enjoy a sustained period of relative stability and moderate growth in
which thousands of new jobs have been created every month, inflation remains
under control, and the investment climate -- at least until now -- has been
favorable. For example, the increased use of technology and other productivity
enhancements, as well as corporate restructuring and global competition, is
improving companies' balance sheets and helping control inflation. Meanwhile,
borrowing by corporations and governments continues to decline, while consumer
confidence is increasing, although consumer debt levels are still uncomfortably
high. While some lenders are beginning to tighten standards to address this
problem, consumer debt and personal bankruptcies continue to rise. Because of
this, plus slight declines in other indicators such as average hourly wages and
the corporate purchasing-managers index, we do not expect the rapid pace of
growth seen in the first quarter of 1997 to continue. While second-quarter
growth has slowed dramatically, we do expect the second half of the year to pick
up once again with real (inflation-adjusted) growth centering around 2 1/2%.
In the fixed-income markets, we have been encouraged by the Federal Reserve
Board's decision to not raise short-term interest rates at its July meeting. But
we cannot rule out the possibility of future monetary tightening in the second
half of the year if, as we now expect, the economy strengthens in the second
half of 1997. Therefore, our risk/reward outlook for the fixed-income markets is
neutral, and we believe that fixed-income investors should think in terms of
earning the coupon income from their investments rather than seeking possible
gains from price appreciation.
Internationally, increased liquidity has continued to support equity markets
this year, while disinflationary forces have continued despite somewhat stronger
world economic growth. While the strength of the U.S. dollar versus the Japanese
yen earlier this year resulted in stronger performance for Japanese exporters,
the value-added tax seems to have slowed the overall Japanese economy. In
Europe, meanwhile, uncertainty over European monetary union continues, although
stocks of some European companies have benefited from restructuring and the use
of technology to increase productivity. Perhaps the brightest international
story has been the performance of the emerging markets, all of which have seen
rapidly expanding economies and higher earnings, thanks in part to significant
shifts in their economic policies.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
/s/ A, Keith Brodkin
- -------------------------------
A. Keith Brodkin
Chairman and President
July 14, 1997
<PAGE>
PORTFOLIO MANAGER'S OVERVIEW
Dear Shareholders:
For the 12 months ended June 30, 1997, the Fund provided a total return of 3.40%
(including the reinvestment of distributions), which compares to a 3.86% 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, and
to a 3.86% return for the Salomon Brothers World Governments Bond Index, an
unmanaged index consisting of government bonds with remaining maturities of at
least five years.
Currency losses in the final quarter of the fiscal year have obscured what
had, until that point, been a year of outperformance by the Fund. The three main
investment themes we have emphasized over the past year -- currency weightings
favoring growth economies, including the United States; a neutral to
underweighted duration, or interest-rate sensitivity; and bond market selection
favoring noncore markets -- had produced a net performance over the Morgan Index
of approximately 150 basis points (1.5%) through the first nine months. In the
last quarter, the rally in global bond markets, the sudden and sharp
strengthening of the yen against all currencies, including the dollar, and
setbacks in certain European currency positions produced a negative swing in
performance versus the Morgan Index, although absolute performance improved.
Looking forward, we expect the major investment themes to prove profitable
once again, although further convergence of yield spreads from current,
historically tight levels may be limited, and the outlook for the dollar is more
mixed.
Bond yields have shifted up and down in a broad range, rather than trending
higher, as growth and inflation expectations have waxed and waned.
Quarter-to-quarter patterns of growth in the major economies have often
exhibited large swings, resulting in frequent reassessments of growth
expectations by the market. Generally, we have anticipated a more consistent
uptrend in global growth than has transpired. Our caution regarding duration has
helped performance during periods of rising growth expectation but has been a
drag on overall performance for the fiscal year. On the other hand, the market
trend toward convergence of yields has been consistent.
In Europe, the move toward a single currency and efforts to bring inflation
and budget deficits in line with Germany have allowed a steady compression of
yield spreads between core and peripheral markets. In the dollar bloc, lower
inflation has permitted noncore bond yields to trade tighter to, and even below,
U.S. yields. Fortunately, the overweighting of noncore markets overwhelmed the
effect of our duration posture and resulted in overall outperformance of the
bond portion of the Morgan Index.
On the currency side, the first nine months of the period saw a general rise
in the U.S. dollar against almost all currencies. This trend was driven by
relatively strong U.S. growth, relatively high and rising U.S. short-term
interest rates, and market concerns about structural problems in the economies
of Europe and Japan. These economic factors were reinforced by a perception that
a strong dollar was in the best interest of policymakers. The strong dollar
helped reduce U.S. inflation pressures by cutting import inflation and slowing
export growth. For the struggling economies of Japan and continental Europe,
weaker currencies meant export-led growth that could eventually help to
reinvigorate domestic demand. While this policy framework has been a valid one,
trade tensions flared up between the United States and Japan as Japanese goods
gained increasing market share in the United States. In a uniquely Japanese
manner, officials apparently used moral suasion to engineer an extraordinarily
sharp rise in the yen in May. Even though our underweighted position in the yen
was relatively modest at that point, the reversal was large and sudden enough to
significantly detract from our performance for the quarter. Nevertheless, the
structural problems of the Japanese and European economies still remain to be
solved.
Our general economic outlook has altered in some respects, but many themes
remain in place. Growth is expected to generally pick up in the second half of
1997, which has important implications for the United States, core Europe and,
to a lesser extent, Japan. Inflation is very low among the majority of countries
we follow, is unlikely to decline much further, and should gradually begin to
rise. Fiscal policies are generally in good shape, particularly among the
dollar-bloc countries, or are improving, as in much of Europe and even Japan. We
expect monetary policies to result in rising interest rates in the
stronger-growth countries, such as the United States, Canada, and the United
Kingdom. Rates are on hold in the majority of countries with lower growth levels
and may be cut further in Spain, Italy, Australia, and New Zealand.
A final key element to the outlook involves the move to create a single
currency in Europe. Our best guess as to how this politically driven process
will play out is that agreement will be reached next May to start with a fairly
broad group of participants as of January 1, 1999. Taking all these factors
together, we expect yields in stronger-growth economies to rise, yield
convergence to continue, and a less-robust dollar as Japan and Europe regain
some economic momentum.
Respectfully,
/s/ Richard O. Hawkins
- ---------------------------------
Richard O. Hawkins
Portfolio Manager
PORTFOLIO MANAGER'S PROFILE
Richard O. Hawkins joined MFS in 1988 and was named Vice President in 1991,
Senior Vice President in 1994, and International Fixed Income department head in
1995. He is a graduate of Brown University with a master's degree in Business
Administration from the University of Pennsylvania's Wharton School
of Business.
OBJECTIVE AND POLICIES
The Fund's investment objective is to seek not only preservation but also growth
of capital, together with moderate current income. The Fund seeks to achieve its
objective by investing, under normal market conditions, at least 80% of its
assets in an internationally diversified portfolio of fixed-income securities.
Shares of the Fund are purchased at net asset value. The minimum initial
investment is generally $3 million.
Commencement of investment operations: September 30, 1992.
TAX FORM SUMMARY
In January 1998, shareholders will be mailed a Tax Form Summary reporting the
federal tax status of all distributions paid during the calendar year 1997.
PERFORMANCE SUMMARY
The information below illustrates the historical performance of MFS
Institutional Worldwide Fixed Income Fund shares in comparison to various market
indicators. Benchmark comparisons are unmanaged and do not reflect any fees or
expenses. It is not possible to invest directly in an index.
GROWTH OF A HYPOTHETICAL $3,000,000 INVESTMENT
(For the period October 1, 1992, through June 30, 1997)
Salomon Brothers J.P. Morgan MFS Worldwide Consumer
World Governments Government Fixed Price
Bond Index Bond Index Income Fund Index - U.S.
10/92 3000 3000 3000 3000
6/93 3132 3043 3150 3065
6/94 3294 3236 3131 3142
6/95 3913 3627 3604 3237
6/96 3928 3866 3659 3325
6/97 4080 3947 3783 3397
AVERAGE ANNUAL TOTAL RETURNS AS OF JUNE 30, 1997
1 Year 3 Years Life of Fund*
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MFS Institutional Worldwide Fixed Income Fund +3.40% +6.50% +5.01%
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J.P. Morgan Global Government Bond Index +4.48% +7.79% +6.59%
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Salomon Brothers World Governments Bond Index +3.86% +7.39% +7.64%
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Consumer Price Index** +2.14% +2.63% +2.68%
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*For the period from the commencement of the Fund's investment
operations, September 30, 1992, through June 30, 1997.
**The Consumer Price Index is published by the U.S. Bureau of Labor Statistics
and measures the cost of living (inflation).
All results are historical and assume the reinvestment of dividends and capital
gains. Investment return and principal value will fluctuate, and shares, when
redeemed, may be worth more or less than their original cost.
Past performance is no guarantee of future results. Fund results reflect any
applicable expense subsidies and waivers, without which the performance results
would have been less favorable. Subsidies and waivers may be rescinded at any
time. See the prospectus for details.
PORTFOLIO OF INVESTMENTS - June 30, 1997
<TABLE>
<CAPTION>
Bonds - 59.2%
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Principal Amount
Issuer (000 Omitted) Value
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Foreign Bonds - 45.4%
Australia - 5.1%
<S> <C> <C> <C>
Commonwealth of Australia, 9.75s, 2002 AUD 1,645 $ 1,410,202
Commonwealth of Australia, 10s, 2002 1,485 1,294,350
------------
$ 2,704,552
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Canada - 3.3%
Government of Canada, 5.5s, 2002 CAD 2,500 $ 1,785,766
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Denmark - 1.6%
Kingdom of Denmark, 7s, 2007 DKK 839 $ 132,646
Nykredit, 8s, 2026 4,469 702,375
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$ 835,021
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Greece - 3.0%
Hellenic Republic, 11.1s, 2003 GRD 90,000 $ 337,545
Hellenic Republic, 12.6s, 2003 271,500 1,019,250
Hellenic Republic, 13.4s, 2003 70,000 262,790
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$ 1,619,585
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Italy - 12.0%
Republic of Italy, 9.5s, 1999 ITL 4,595,000 $ 2,833,791
Republic of Italy, 9.5s, 2001 4,455,000 2,890,949
Republic of Italy, 9.5s, 2006 990,000 680,793
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$ 6,405,533
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New Zealand - 5.0%
Government of New Zealand, 8s, 2001 NZD 3,750 $ 2,653,949
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Spain - 7.7%
Government of Spain, 6.75s, 2000 ESP 231,660 $ 1,636,922
Government of Spain, 10.5s, 2003 53,720 452,012
Government of Spain, 7.35s, 2007 281,540 2,043,081
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$ 4,132,015
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Sweden - 6.7%
Kingdom of Sweden, 10.25s, 2000 SEK 5,500 $ 806,225
Kingdom of Sweden, 13s, 2001 8,600 1,404,031
Kingdom of Sweden, 5.5s, 2002 10,900 1,397,273
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$ 3,607,529
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United Kingdom - 1.0%
United Kingdom Treasury, 7s, 2001 GBP 330 $ 546,758
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Total Foreign Bonds $ 24,290,708
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U.S. Bonds - 13.8%
U.S. Federal Agencies - 7.9%
Federal National Mortgage Assn., 7s, 2012 $ 3,960 $ 3,951,329
Federal National Mortgage Assn., 8s, 2026 274 280,295
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Total U.S. Federal Agencies $ 4,231,624
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U.S. Treasury Obligations - 5.9%
U.S. Treasury Bonds, 9.875s, 2015 $ 550 $ 723,250
U.S. Treasury Notes, 5.875s, 1998 640 639,302
U.S. Treasury Stripped Principal Payments, 0s, 2015 5,900 1,768,289
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Total U.S. Treasury Obligations $ 3,130,841
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Total U.S. Bonds $ 7,362,465
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Total Bonds (Identified Cost, $31,652,155) $ 31,653,173
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Federal Farm Credit Bank, due 7/23/97 $ 145 $ 144,521
Federal Home Loan Bank, due 7/01/97 - 7/02/97 7,600 7,599,337
Federal Home Loan Mortgage Corp., due 7/09/97 4,175 4,169,953
Federal National Mortgage Assn., due 7/11/97 - 7/18/97 7,155 7,140,136
General Electric Co., due 7/01/97 2,000 2,000,000
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Total Short-Term Obligations, at Amortized Cost $ 21,053,947
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Call Options Purchased
- ----------------------------------------------------------------------------------------------------
Principal Amount
of Contracts
Issuer/Expiration Month/Strike Price (000 Omitted)
- ----------------------------------------------------------------------------------------------------
Deutsche Marks/British Pounds/July/2.7 DEM 6,064 $ 0
Japanese Government Bonds/
July/116.201 JPY 570,000 996
July/114.635 413,000 1,239
September/115.498 69,000 3,254
Swiss Francs/August/1.35 CHF 10,330 4,215
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Total Call Options Purchased (Identified Cost, $156,375) $ 9,704
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Total Investments (Identified Cost, $52,862,477) $ 52,716,824
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Put Options Written - (0.2)%
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British Pounds/July/1.65 GBP 4,166 $ (55,390)
Japanese Government Bonds/
July/114.635 JPY 413,000 (40,474)
September/115.498 69,000 (5,106)
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Total Put Options Written (Premiums Received, $69,441) $ (100,970)
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Other Assets, Less Liabilities - 1.7% $ 901,072
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Net Assets - 100.0% $ 53,516,926
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</TABLE>
Abbreviations have been used throughout this report to indicate amounts shown in
currencies other than the U.S. dollar. A list of abbreviations is shown below.
AUD = Australian Dollars GRD = Greek Drachma
CAD = Canadian Dollars ITL = Italian Lire
CHF = Swiss Francs JPY = Japanese Yen
DEM = Deutsche Marks NLG = Dutch Guilders
DKK = Danish Kroner NZD = New Zealand Dollars
ESP = Spanish Pesetas SEK = Swedish Kronor
GBP = British Pounds
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
June 30, 1997
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $52,862,477) $52,716,824
Cash 23,254
Net receivable for forward foreign currency exchange
contracts to sell 538,199
Receivable for investments sold 19,622
Interest receivable 666,472
Receivable from investment adviser 207,260
Other assets 592
-----------
Total assets $54,172,223
-----------
Liabilities:
Written options outstanding, at value (premiums received,
$69,441) $ 100,970
Net payable for forward foreign currency exchange contracts
to purchase 144,773
Net payable for forward foreign currency exchange contracts
closed or subject to masternetting agreements 342,169
Payable to affiliate for management fee 2,862
Accrued expenses and other liabilities 64,523
-----------
Total liabilities $ 655,297
-----------
Net assets $53,516,926
===========
Net assets consist of:
Paid-in capital $58,457,382
Unrealized depreciation on investments and translation of
assets and liabilities in
foreign currencies (134,912)
Accumulated net realized loss on investments and foreign
currency transactions (9,043,989)
Accumulated undistributed net investment income 4,238,445
-----------
Total $53,516,926
===========
Shares of beneficial interest outstanding 5,901,426
===========
Net asset value, redemption price and offering price
per share (net assets of $53,516,926 / 5,901,426 shares
of beneficial interest outstanding) $9.07
=====
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ------------------------------------------------------------------------------
Year Ended June 30, 1997
- ------------------------------------------------------------------------------
Net investment income:
Interest income $ 4,422,901
-----------
Expenses -
Management fee $ 426,406
Trustees' compensation 3,800
Shareholder servicing agent fee 4,926
Administrative fee 3,164
Custodian fee 82,247
Auditing fee 69,220
Registration fee 28,917
Printing 8,934
Amortization of organization expenses 1,752
Legal fees 1,719
Miscellaneous 6,175
-----------
Total expenses $ 637,260
Fees paid indirectly (3,594)
Reduction of expenses by investment adviser (207,260)
-----------
Net expenses $ 426,406
-----------
Net investment income $ 3,996,495
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 1,016,782
Written option transactions (1,334)
Foreign currency transactions (2,972,171)
-----------
Net realized loss on investments and
foreign currency transactions $(1,956,723)
-----------
Change in unrealized appreciation (depreciation) -
Investments $ (513,813)
Written options (78,673)
Translation of assets and liabilities in
foreign currencies 673,810
-----------
Net unrealized gain on investments and
foreign currency translation $ 81,324
-----------
Net realized and unrealized loss on
investments and foreign currency $(1,875,399)
-----------
Increase in net assets from operations $ 2,121,096
===========
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ---------------------------------------------------------------------------------------------------
Year Ended June 30, 1997 1996
- -------------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
<S> <C> <C>
Net investment income $ 3,996,495 $ 4,536,824
Net realized loss on investments and foreign currency
transactions (1,956,723) (2,684,753)
Net unrealized gain (loss) on investments and foreign
currency translation 81,324 (769,182)
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Increase in net assets from operations $ 2,121,096 $ 1,082,889
----------- ------------
Distributions declared to shareholders -
From net investment income $(3,729,868) $ (3,328,966)
From net realized gain on investments and foreign currency
transactions -- (2,149,194)
In excess of net realized gain on investments and foreign
currency transactions -- (1,526,539)
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Total distributions declared to shareholders $(3,729,868) $ (7,004,699)
----------- ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 6,204,635 $ 13,866,245
Net asset value of shares issued to shareholders in
reinvestment of distributions 2,775,709 6,002,734
Cost of shares reacquired (16,661,543) (27,218,552)
----------- ------------
Decrease in net assets from Fund share transactions $(7,681,199) $ (7,349,573)
----------- ------------
Total decrease in net assets $(9,289,971) $(13,271,383)
Net assets:
At beginning of period 62,806,897 76,078,280
----------- ------------
At end of period (including accumulated undistributed net
investment income of $4,238,445, and $3,752,945,
respectively) $53,516,926 $ 62,806,897
=========== ============
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended June 30, 1997 1996 1995 1994 1993*
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $ 9.28 $ 10.13 $ 9.64 $ 10.50 $ 10.00
======= ======= ======= ======= -------
Income from investment operations# -
Net investment income(S) $ 0.58 $ 0.64 $ 0.65 $ 0.63 $ 0.17
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions (0.25) (0.48) 0.70 (0.63) 0.33
------- ------- ------- ------- -------
Total from investment operations $ 0.33 $ 0.16 $ 1.35 $ -- $ 0.50
------- ------- ------- ------- -------
Less distributions declared to shareholders -
From net investment income $ (0.54) $ (0.48) $ (0.23) $ (0.31) --
In excess of net investment income -- -- -- (0.55) --
From net realized gain on investments and
foreign currency transactions -- (0.31) (0.63) -- --
In excess of net realized gains on
investments and foreign currency
transactions -- (0.22) -- -- --
------- ------- ------- ------- -------
Total distributions declared to
shareholders $ (0.54) $ (1.01) $ (0.86) $ (0.86) $ --
------- ------- ------- ------- -------
Net asset value - end of period $ 9.07 $ 9.28 $ 10.13 $ 9.64 $ 10.50
======= ======= ======= ======= =======
Total return 3.40% 1.51% 15.10% (0.57)% 5.00%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 0.65% 0.65% 0.72% 0.75% 0.80%+
Net investment income 6.09% 6.52% 6.66% 6.09% 5.53%+
Portfolio turnover 365% 425% 279% 212% 73%
Net assets at end of period (000 omitted) $53,517 $62,807 $76,078 $42,364 $23,966
*For the period from the commencement of the Fund's investment
operations, September 30, 1992, through June 30, 1993.
+Annualized.
++Not annualized.
#Per share data is based on average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses
are calculated without reduction for fees paid indirectly.
(S)The investment adviser voluntarily waived its management fee and/or
paid expenses of the fund for the periods indicated. If these fees
had been incurred by the Fund, the net investment income per share
and the ratios would have been:
Net investment income $ 0.55 $ 0.61 $ 0.61 $ 0.58 $ 0.15
Ratios (to average net assets):
Expenses## 0.97% 0.95% 1.14% 1.23% 1.48%+
Net investment income 5.78% 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) 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 foreign currency and translated into U.S. dollars at the
closing daily exchange rate. Futures contracts, options, and options on futures
contracts listed on commodities exchanges are reported at market value using
closing settlement prices. Over- the-counter options on securities are valued by
brokers. Over-the-counter currency options are valued through the use of a
pricing model which takes into account foreign currency exchange spot and
forward rates, implied volatility, and short-term repurchase rates. Securities
for which there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates of
such transactions. Gains and losses attributable to foreign currency exchange
rates on sales of securities are recorded for financial statement purposes as
net realized gains and losses on investments. Gains and losses attributable to
foreign exchange rate movements on income and expenses are recorded for
financial statement purposes as foreign currency transaction gains and losses.
That portion of both realized and unrealized gains and losses on investments
that result from fluctuations in foreign currency exchange rates is not
separately disclosed.
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 Fund
operations.
Written Options - The Fund may also write call or put options in exchange for a
premium. The premium is initially recorded as a liability which is subsequently
adjusted to the current value of the options contract. When a written option
expires, the Fund realizes a gain equal to the amount of the premium received.
When a written call option is exercised or closed, the premium received is
offset against the proceeds to determine the realized gain or loss. When a
written put option is exercised, the premium reduces the cost basis of the
security purchased by the Fund. The Fund, as writer of an option, may have no
control over whether the underlying securities may be sold (call) or purchased
(put) and, as a result, bears the market risk of an unfavorable change in the
price of the securities underlying the written option. In general, written call
options may serve as a partial hedge against decreases in value in the
underlying securities to the extent of the premium received. Written options may
also be used as part of an income producing strategy reflecting the view of the
Fund's management on the direction of interest rates.
Forward Foreign Currency Exchange Contracts - The Fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar. The Fund will enter into
forward contracts for hedging purposes as well as for non-hedging purposes. For
hedging purposes, the Fund may enter into contracts to deliver or receive
foreign currency it will receive from or require for its normal investment
activities. The Fund may also use contracts in a manner intended to protect
foreign currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the Fund may
enter into contracts with the intent of changing the relative exposure of the
Fund's portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains or
losses are recorded as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains or
losses on foreign currency transactions.
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 custody fee is calculated as a percentage of
the Fund's average daily net assets. The fee is reduced according to an
arrangement, which measures the value of cash deposited with the custodian by
the Fund. This amount is shown as a reduction of expenses on the Statement of
Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code which may differ from generally accepted accounting principles, the basis
on which these financial statements are prepared. Accordingly, the amount of net
investment income and net realized gain reported on these financial statements
may differ from that reported on the Fund's tax return and, consequently, the
character of distributions to shareholders reported in the financial highlights
may differ from that reported to shareholders on Form 1099-DIV.
Distributions to shareholders are recorded on the ex-dividend date. The Fund
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits are reported in the financial statements as a tax return of capital.
Differences in the recognition or classification of income between the financial
statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains. During the year ended June 30, 1997, $218,873 was reclassified to
accumulated undistributed net investment income from accumulated net realized
loss on investments and foreign currency transactions due to differences between
book and tax accounting for mortgage-backed securities and currency
transactions. This change had no effect on the net assets or net asset value per
share. At June 30, 1997, accumulated undistributed net investment income
(realized gain on investments and foreign currency transactions) under book
accounting was different from tax accounting due to temporary differences in
accounting for currrency transactions.
At June 30, 1997, the Fund, for federal income tax purposes, had a capital loss
carryforward of $5,862,903 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 advisor has voluntarily agreed to pay
expenses of the Fund in order to maintain total expenses at no more than 0.65%
of the Fund's average net assets. This is reflected as a reduction of expenses
in 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 officers and Trustees of the
Fund are officers or directors of MFS and MFS Service Center, Inc. (MFSC).
Administrator - Effective March 1, 1997, the Fund has an administrative services
agreement with MFS to provide the Fund with certain financial, legal, and other
administrative services. As a partial reimbursement for the cost of providing
these services, the Fund pays MFS an administrative fee up to 0.015% per annum
of the Fund's average daily net assets, provided that the administrative fee is
not assessed on Fund assets that exceed $3 billion.
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 $ 53,425,899 $ 43,191,934
============ ============
Investments (non-U.S. government securities) $117,762,434 $142,968,438
============ ============
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 $53,003,545
============
Gross unrealized depreciation $ (672,660)
Gross unrealized appreciation 385,939
------------
Net unrealized depreciation $ (286,721)
============
(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>
Year Ended June 30, 1997 Year Ended June 30, 1996
-------------------------------- --------------------------------
Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 673,046 $ 6,204,635 1,392,424 $13,866,245
Shares issued to shareholders in
reinvestment of distributions 300,077 2,775,709 642,004 6,002,734
Shares reacquired (1,840,999) (16,661,543) (2,773,858) (27,218,552)
---------- ----------- ---------- -----------
Net decrease (867,876) $(7,681,199) (739,430) $(7,349,573)
========== =========== ========== ===========
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in a $400 million unsecured line
of credit provided by a syndication of banks under a line of credit agreement.
Borrowings may be made to temporarily finance the repurchase of Fund shares.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the bank's base rate. In addition, a commitment fee, based on the average daily
unused portion of the line of credit, is allocated among the participating funds
at the end of each quarter. The commitment fee allocated to the Fund for the
year ended June 30, 1997, was $582.
(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 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 June 30, 1997, is as follows:
Written Option Transactions
<TABLE>
<CAPTION>
1997 Calls 1997 Puts
----------------------------------- -------------------------------------
Principal Amounts Principal Amounts
of Contracts of Contracts
(000 Omitted) Premiums (000 Omitted) Premiums
- -----------------------------------------------------------------------------------------------------------
Outstanding, beginning of period -
<S> <C> <C> <C> <C>
Canadian Dollars -- $ -- 5,329 $ 18,459
Japanese Yen -- -- 1,101,000 86,222
Spanish Pesetas/Deutsche Marks -- -- 464,400 11,755
Options written -
British Pounds -- -- 4,166 31,431
Deutsche Marks 16,050 76,599 17,608 35,931
Deutsche Marks/British Pounds 21,997 87,021 9,068 116,863
Japanese Government Bond 241,000 17,373 4,100,000 329,813
Japanese Yen 2,438,507 232,071 -- --
Swiss Francs/Deutsche Marks 6,004 18,221 13,279 163,950
Options terminated in closing transactions -
Deutsche Marks (16,050) (76,599) (17,608) (35,931)
Deutsche Marks/British Pounds -- -- (9,068) (116,863)
Japanese Government Bond (241,000) (17,373) (3,618,000) (291,803)
Japanese Yen (2,438,507) (232,071) (1,101,000) (86,222)
Swiss Francs/Deutsche Marks -- -- (13,279) (163,950)
Options expired -
Canadian Dollars -- -- (5,329) (18,459)
Deutsche Marks/British Pounds (21,997) (87,021) -- --
Spanish Pesetas/Deutsche
Marks -- -- (464,400) (11,755)
Swiss Francs/Deutsche Marks (6,004) (18,221) -- --
-------- --------- ---------- --------
Outstanding, end of period -- $ -- 486,166 $ 69,441
========= ========= ========== ========
Options outstanding at end of
period consist of -
British Pounds -- -- 4,166 $ 31,431
Japanese Government Bond -- -- 482,000 38,010
-------- --------- ---------- --------
Outstanding, end of period -- -- 486,166 $ 69,441
========= ========= ========== ========
</TABLE>
At June 30, 1997, the Fund had sufficient cash and/or securities at least equal
to the value of the written options.
<PAGE>
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
Contracts to Contracts Appreciation
Settlement Date Deliver/Receive In Exchange for at Value (Depreciation)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales 8/26/97 AUD 2,665,589 $ 2,068,297 $ 2,014,311 $ 53,986
1/07/98 CAD 4,099,490 3,008,458 3,002,200 6,258
8/26/97 CHF 10,316,747 7,299,510 7,171,377 128,133
8/26/97 DEM 21,937,934 12,946,186 12,629,098 317,088
1/07/98 ESP 360,541,545 2,488,382 2,455,648 32,734
------------ ------------ ----------
$ 27,810,833 $ 27,272,634 $ 538,199
============ ============ ==========
Purchases 9/30/97 CAD 4,760,867 $ 3,485,022 $ 3,480,557 $ (4,465)
8/26/97 CHF 4,083,244 2,853,240 2,815,400 (37,840)
8/26/97 DEM 10,383,953 6,134,216 6,002,651 (131,565)
8/26/97 ESP 878,137,042 6,063,587 5,974,369 (89,218)
1/07/98 GBP 1,252,415 2,074,889 2,071,431 (3,458)
8/26/97 JPY 419,783,772 3,368,051 3,694,937 326,886
8/26/97 NLG 12,746,097 6,724,895 6,519,782 (205,113)
------------ ------------ ----------
$ 30,703,900 $ 30,559,127 $ (144,773)
============ ============ ==========
</TABLE>
Forward foreign currency purchases and sales under master netting agreements
amounted to a net payable of $631,873 with Swiss Bank, Corp., of $282,335 with
Banker's Trust, and of $1,774 with Merrill Lynch and a net receivable of
$431,074 with C.S. First Boston, of $87,410 with Deutschebank, and of $32,241
with Chase Manhatten Bank, at June 30, 1997. Closed forward foreign currency
exchange contracts excluded above amounted to a net payable of $9,427 with
Morgan Stanley, and a net receivable of $26,951 with Goldman Sachs, and of
$5,564 with J.P. Morgan at June 30, 1997.
At June 30, 1997, 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
(one of the series comprising MFS Institutional Trust) as of June 30, 1997, the
related statement of operations for the year then ended, the statement of
changes in net assets for the years ended June 30, 1997 and 1996, and the
financial highlights for the five year period ended June 30, 1997. These
financial statements and financial highlights are the responsibility of the
Trust'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, 1997 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, 1997, 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 1, 1997
--------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
<PAGE>
(C)1997 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MWF-2 8/97 500
