<PAGE>
[logo] MFS(SM) Semiannual Report
INSTITUTIONAL ADVISORS, INC. December 31, 1996
MFS(R) INSTITUTIONAL WORLDWIDE FIXED INCOME FUND
[graphic omitted]
<PAGE>
MFS(R) INSTITUTIONAL WORLDWIDE FIXED INCOME FUND
<TABLE>
<S> <C>
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,
Capitol Entertainment Management Company SHAREHOLDER SERVICE CENTER
(Blockbuster Video Franchise) MFS Service Center, Inc.
P.O. Box 1400
PORTFOLIO MANAGER Boston, MA 02107-9906
Richard O. Hawkins*
For additional information,
TREASURER call toll free: 1-800-637-2262
W. Thomas London*
CUSTODIAN
ASSISTANT TREASURER State Street Bank and Trust Company
James O. Yost*
AUDITORS
SECRETARY Deloitte and Touche LLP
Stephen E. Cavan*
WORLD WIDE WEB
ASSISTANT SECRETARY www.mfs.com
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
For the six-month period ending December 31, 1996, the Fund provided a total
return of 5.68% (including the reinvestment of distributions), which compares to
a 5.62% 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. 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
After more than six years of expansion, the U.S. economy appears headed toward
another year of at least moderate growth in 1997, although a few signs point to
the possibility of a modest rise in inflation during the year. On the positive
side, the pattern of moderate growth and inflation set over the past few years
now seems fairly well entrenched in the economy and, short of a major
international or domestic crisis, appears to have enough momentum to remain on
track for some time. Furthermore, recent gains in such important sectors as
housing, automobiles, industrial production, and exports indicate a fair amount
of underlying strength in the economy. However, reason for caution can be seen
in the continuing high level of consumer debt and the attendant rise in personal
bankruptcies, as well as the modestly disappointing levels of holiday sales.
Also, the ongoing tightness in labor markets, and price increases in important
sectors such as energy, could add inflationary pressures to the economy. Given
these somewhat conflicting indicators, we expect real (inflation-adjusted)
growth to revolve around 2% in 1997, which would represent a modest decline from
1996.
Bond Market
In U.S. bond markets, conflicting signals over the strength of the economy have
created near-term volatility. Comments by Federal Reserve Chairman Alan
Greenspan, in late 1996 added some uncertainty over the Federal Reserve Board's
next move. However, we expect the Fed to maintain its anti-inflationary stance
should signs of more rapid economic growth and, particularly, higher inflation
resurface. While inflationary forces largely remained in check in 1996, the
continued strength in the labor market and rising energy prices could mean that
a pickup in inflation is still possible. At the same time, the U.S. budget
deficit continues to decline and, as a percentage of gross domestic product, is
now less than 2%, which we consider a positive development for the bond markets.
Although interest rates may move higher over the coming months, we believe that,
at current levels, fixed-income markets remain fairly valued.
Portfolio Performance and Strategy
Roughly speaking, 1996 can be divided into two halves. In the first half,
concerns about accelerating U.S. growth, and its potential boost to other major
economies, set off a rise in interest rates based on fears of higher inflation
and possible rate hikes by the Federal Reserve Board. During this period, the
majority of the increase in the U.S. dollar occurred. In the second half, the
U.S. economy slowed, inflation fears receded, and rates declined. Generally, in
Europe and in Japan, the story was one of gradual economic recovery. We still
believe, however, that we are in a benign inflationary environment globally,
with moderate economic growth, helping to support current valuation levels in
1997. During this second half, most central banks, with the exception of the
U.S., lowered official interest rates.
By the end of the year, as measured by the Morgan Index, all markets
registered positive returns but with significant differences. For example, the
core markets -- the United States, Japan, and Germany -- were the worst
performers, while the higher-yielding markets of Australia, Canada, Japan, and
Italy were among the better performers. The Fund benefited by being overweighted
in these higher-yielding markets for most of the year.
In preparation for the monetary union due to commence in January 1999,
almost all European countries announced tight fiscal budgets. At the same time,
interest rates were cut due to slow growth and low inflation. Within Europe, a
dramatic narrowing of yield spread differentials, or overperformance, began in
earnest during the third quarter with Spain, Italy, and Sweden being the main
beneficiaries. Although a good part of this convergence has now taken place, we
anticipate these markets will continue to outperform as the European monetary
union approaches.
Meanwhile, in the dollar-bloc, both Canada and Australia continue to benefit
from low inflation, slow growth, and tight fiscal budgets. The Fund benefited by
being overweighted in both these markets for most of the year. While an
underweighted position in U.S. bonds has been beneficial, the Fund's performance
has been hindered by the low duration (a measure of interest rate sensitivity)
of its U.S. position in anticipation of a pickup in U.S. economic growth that
never materialized.
The Fund has remained underweighted in the Japanese bond market, since we
believe other markets offer better value. The Japanese bond market was helped by
continued depressed real estate and banking sectors as well as by weak consumer
spending, but our outlook calls for a continuation of slow, choppy growth with a
modest increase in inflation suggesting an eventual income in interest rates.
The overall rise in U.S. interest rates, coinciding with reductions in
short-term rates in Europe, has enabled the dollar to appreciate against the
German mark. In addition, the dollar benefited from yield convergence within
Europe. The dollar has continued to strengthen versus the Japanese yen, based
primarily on Japan's low interest rates and the government's policy of
engineering a weaker currency in order to stimulate the beleaguered economy.
Looking ahead, we anticipate a modest, but further, lowering of interest rates
by central banks, in many European countries as well as Australia and New
Zealand. We believe this environment could continue to be positive for bonds.
However, some caution is warranted as ultimately the effect of lower rates in
these countries will result in a pickup in economic growth and, possibly
inflation. Moreover, with the U.S. currency benefiting from positive interest
rate differentials, renewed hope for a balanced budget, and movement toward an
inclusive, single European currency, the prospects for a stable dollar remain
favorable.
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
January 17, 1997
<PAGE>
PORTFOLIO MANAGER'S PROFILE
Richard O. Hawkins is a Senior Vice President of Massachusetts Financial
Services and head of the International Fixed Income Department. He is the
portfolio manager of the Institutional Worldwide Fixed Income Fund and heads the
team that manages the foreign bond and currency positions of MFS World Total
Return Fund, the Meridian and MFS International funds, four closed-end funds and
MFS variable annuities. Mr. Hawkins is a graduate of Brown University and
received his Master's in Business Administration from the University of
Pennsylvania's Wharton School of Business.
He joined MFS in August 1988 and was named a Vice President in 1991, Senior
Vice President in 1994, and head of the International Fixed Income Department in
1995.
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.
PERFORMANCE SUMMARY
Because mutual funds like MFS Institutional Worldwide Fixed Income Fund are
designed for investors with long-term goals, we have provided cumulative results
as well as the average annual total returns for the applicable time periods. The
minimum initial investment is generally $3 million. Shares of the Fund are
purchased at net asset value.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
AS OF DECEMBER 31, 1996
(net asset value change including reinvested distributions)
6 Months 1 Year 3 Years Life of Fund*
- -----------------------------------------------------------------------------
Cumulative Total Return +5.68% +4.78% +14.90% +28.91%
- -----------------------------------------------------------------------------
Average Annual Total Return -- +4.78% + 4.74% + 6.15%
- -----------------------------------------------------------------------------
*For the period from the commencement of investment operations, September 30,
1992 through December 31, 1996.
All results represent past performance and are not necessarily an indication of
future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
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.
<PAGE>
PORTFOLIO OF INVESTMENTS - December 31, 1996
Bonds - 83.0%
- -----------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------
Foreign Bonds - 57.0%
Australia - 9.1%
Commonwealth of Australia, 9.5s, 2003 AUD 3,000 $ 2,655,262
Commonwealth of Australia, 9.75s, 2002 750 663,815
Commonwealth of Australia, 10s, 2002 3,100 2,788,064
-----------
$ 6,107,141
- -----------------------------------------------------------------------------
Belgium - 2.6%
Kingdom of Belgium, 7.25s, 2004 BEF 14,770 $ 514,361
Kingdom of Belgium, 8.5s, 2007 10,000 375,993
Kingdom of Belgium, 8.75s, 2002 10,000 371,989
Kingdom of Belgium, 9s, 1998 15,000 513,384
-----------
$ 1,775,727
- -----------------------------------------------------------------------------
Canada - 11.5%
Government of Canada, 7s, 2006 CAD 5,100 $ 3,881,851
Government of Canada, 7.5s, 2003 4,900 3,867,292
-----------
$ 7,749,143
- -----------------------------------------------------------------------------
Denmark - 4.8%
Kingdom of Denmark, 6s, 1999 DKK 3,795 $ 669,933
Kingdom of Denmark, 7s, 2007 1,973 340,756
Kingdom of Denmark, 8s, 2001 11,672 2,200,604
-----------
$ 3,211,293
- -----------------------------------------------------------------------------
Germany - 12.4%
Federal Republic of Germany, 6.5s, 2005 DEM 4,127 $ 2,811,242
Federal Republic of Germany, 7.125s, 2002 3,863 2,755,699
Treuhandanstalt Obligationen, 6.375s, 1999 4,017 2,768,949
-----------
$ 8,335,890
- -----------------------------------------------------------------------------
Ireland - 3.0%
Republic of Ireland, 6.25s, 1999 IEP 800 $ 1,363,217
Republic of Ireland, 8s, 2000 380 686,167
-----------
$ 2,049,384
- -----------------------------------------------------------------------------
Italy - 6.6%
Republic of Italy, 8.313s, 2001 ITL 5,910,000 $ 4,279,957
Republic of Italy, 8.313s, 2006 210,000 156,769
-----------
$ 4,436,726
- -----------------------------------------------------------------------------
Spain - 2.4%
Government of Spain, 8.4s, 2001 ESP 94,330 $ 794,254
Government of Spain, 10.5s, 2003 88,150 824,824
-----------
$ 1,619,078
- -----------------------------------------------------------------------------
Sweden - 1.7%
Kingdom of Sweden, 10.25s, 2000 SEK 6,700 $ 1,134,035
- -----------------------------------------------------------------------------
United Kingdom - 2.9%
United Kingdom Treasury, 7s, 2001 GBP 1,140 $ 1,932,912
- -----------------------------------------------------------------------------
Total Foreign Bonds $38,351,329
- -----------------------------------------------------------------------------
U.S. Federal Agencies - 8.2%
FNMA, 8s, 2026 $ 5,445 $ 5,547,095
- -----------------------------------------------------------------------------
Total U.S. Federal Agencies $ 5,547,095
- -----------------------------------------------------------------------------
U.S. Treasury Obligations - 17.8%
U.S. Treasury Notes, 5.875s, 1998 $ 2,700 $ 2,699,568
U.S. Treasury Notes, 6.25s, 2001 7,000 7,006,580
U.S. Treasury Notes, 6.875s, 2006 2,200 2,267,034
- -----------------------------------------------------------------------------
Total U.S. Treasury Obligations $11,973,182
- -----------------------------------------------------------------------------
Total Bonds (Identified Cost, $55,781,262) $55,871,606
- -----------------------------------------------------------------------------
Short-Term Obligations - 16.6%
- -----------------------------------------------------------------------------
Federal Home Loan Bank, due 1/16/97 $ 2,700 $ 2,693,925
Federal Home Loan Mortgage Corp., due 1/17/97 4,200 4,189,957
Federal Home Loan Mortgage Corp., due 2/07/97 4,000 3,978,170
Ford Motor Credit Corp., due 1/02/97 295 294,942
- -----------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost and Value $11,156,994
- -----------------------------------------------------------------------------
Call Options Purchased - 0.1%
- -----------------------------------------------------------------------------
Principal Amount
of Contracts
Description/Expiration Month/Strike Price (000 Omitted)
- -----------------------------------------------------------------------------
Italian Lire/Deutsche Marks/January/995 ITL 3,478,940 $ 17,395
Japanese Government Bonds/January/104.076 JPY 219,000 17,520
Japanese Government Bonds/February/116.8 196,000 14,308
Japanese Government Bonds/March/114.25 201,000 8,040
Japanese Government Bonds/March/115.106 200,000 9,800
- -----------------------------------------------------------------------------
Total Call Options Purchased (Premiums Paid, $93,533) $ 67,063
- -----------------------------------------------------------------------------
Put Options Purchased - 1.6%
- -----------------------------------------------------------------------------
Deutsche Marks/British Pounds/January/2.45 DEM 9,068 $ 436,162
Deutsche Marks/British Pounds/January/2.56 9,475 180,450
Swiss Francs/Deutsche Marks/January/0.829 CHF 3,565 127,788
Swiss Francs/Deutsche Marks/February/0.84 3,612 92,357
Swiss Francs/Deutsche Marks/February/0.84 6,102 155,920
Swiss Francs/Deutsche Marks/March/0.86 9,945 107,925
- -----------------------------------------------------------------------------
Total Put Options Purchased (Premiums Paid, $234,881) $ 1,100,602
- -----------------------------------------------------------------------------
Total Investments (Identified Cost, $67,266,670) $68,196,265
- -----------------------------------------------------------------------------
<PAGE>
PORTFOLIO OF INVESTMENTS - continued
Call Options Written
- -----------------------------------------------------------------------------
Principal Amount
of Contracts
Description/Expiration Month/Strike Price (000 Omitted) Value
- -----------------------------------------------------------------------------
Deutsche Marks/British Pounds/January/2.3682 DEM 8,765 $ --
Swiss Francs/Deutsche Marks/February/.8265 CHF 6,004 (36)
- -----------------------------------------------------------------------------
Total Call Options Written (Premiums Received, $51,807) $ (36)
- -----------------------------------------------------------------------------
Put Options Written - (1.3)%
- -----------------------------------------------------------------------------
Deutsche Marks/British Pounds/January/2.45 DEM 9,068 $ (434,367)
Japanese Bond/January/104.076 JPY 219,000 (6,789)
Japanese Bond/February/116.8 196,000 (6,860)
Japanese Bond/March/114.25 201,000 (31,356)
Japanese Bond/March/115.106 200,000 (32,400)
Swiss Francs/Deutsche Marks/January/0.829 CHF 3,565 (127,877)
Swiss Francs/Deutsche Marks/February/0.84 9,714 (248,386)
- -----------------------------------------------------------------------------
Total Put Options Written (Premiums Received, $353,983) $ (888,035)
- -----------------------------------------------------------------------------
Other Assets, Less Liabilities $ (6,478)
- -----------------------------------------------------------------------------
Net Assets - 100.0% $67,301,716
- -----------------------------------------------------------------------------
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 GBP = British Pounds
BEF = Belgian Francs IEP = Irish Punts
CAD = Canadian Dollars ITL = Italian Lire
CHF = Swiss Francs JPY = Japanese Yen
DEM = Deutsche Marks NLG = Dutch Guilders
DKK = Danish Kroner SEK = Swedish Kronor
ESP = Spanish Pesetas
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
December 31, 1996
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $67,266,670) $68,196,265
Cash 5,251
Net receivable for forward foreign currency exchange
contracts sold 553,038
Interest receivable 1,152,795
Receivable from investment adviser 107,236
Deferred organization expenses 818
Other assets 765
-----------
Total assets $70,016,168
-----------
Liabilities:
Written options outstanding, at value
(premiums received, $405,790) $ 888,071
Net payable for open forward foreign currency contracts
purchased 609,219
Net payable for closed forward foreign currency exchange
contracts 1,158,854
Payable to affiliate for management fee 3,490
Accrued expenses and other liabilities 54,818
-----------
Total liabilities $ 2,714,452
-----------
Net assets $67,301,716
===========
Net assets consist of:
Paid-in capital $70,724,823
Unrealized depreciation on investments and translation of
assets and liabilities in foreign currencies (771,679)
Accumulated distributions in excess of net realized gain on
investments and foreign currency transactions (4,711,667)
Accumulated undistributed net investment income 2,060,239
-----------
Total $67,301,716
===========
Shares of beneficial interest outstanding 7,258,787
=========
Net asset value per share
(net assets of $67,301,716 / 7,258,787 shares of beneficial
interest outstanding) $9.27
=====
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ------------------------------------------------------------------------------
Six Months Ended December 31, 1996
- ------------------------------------------------------------------------------
Net investment income:
Interest income $ 2,253,828
-----------
Expenses -
Management fee $ 216,666
Trustees' compensation 1,300
Shareholder servicing agent fee 2,498
Custodian fee 49,269
Auditing fees 35,325
Registration fees 18,062
Amortization of organization expenses 934
Legal fees 314
Miscellaneous 1,742
-----------
Total expenses $ 326,110
Preliminary reduction of expenses by investment adviser (107,236)
Fees paid indirectly (2,208)
-----------
Net expenses $ 216,666
-----------
Net investment income $ 2,037,162
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 3,207,067
Written option transactions 242,708
Foreign currency transactions (1,293,049)
-----------
Net realized gain on investments and foreign
currency transactions $ 2,156,726
-----------
Change in unrealized appreciation (depreciation) -
Investments $ 561,435
Written options (529,425)
Translation of assets and liabilities in foreign
currencies (587,453)
-----------
Net unrealized loss on investments and foreign
currency translation $ (555,443)
-----------
Net realized and unrealized gain on investments
and foreign currency $ 1,601,283
-----------
Increase in net assets from operations $ 3,638,445
===========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------------------------
Six Months Ended Year Ended
December 31, 1996 June 30, 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 2,037,162 $ 4,536,824
Net realized gain (loss) on investments and foreign
currency transactions 2,156,726 (2,684,753)
Net unrealized loss on investments and foreign
currency translation (555,443) (769,182)
----------- ------------
Increase in net assets from operations $ 3,638,445 $ 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)
----------- ------------
Total distributions declared to shareholders $(3,729,868) $ (7,004,699)
----------- ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 2,097,004 $ 13,866,245
Net asset value of shares issued to shareholders in
reinvestment of distributions 2,775,710 6,002,734
Cost of shares reacquired (286,472) (27,218,552)
----------- ------------
Increase (decrease) in net assets from Fund
share transactions $ 4,586,242 $ (7,349,573)
----------- ------------
Total increase (decrease) in net assets $ 4,494,819 $(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 $2,060,239
and $3,752,945, respectively) $67,301,716 $ 62,806,897
=========== ============
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- -------------------------------------------------------------------------------------------------------------------------------
Years Ended June 30,
Six Months Ended ------------------------------------------------------------
December 31, 1996 1996 1995 1994 1993*
- -------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $ 9.28 $ 10.13 $ 9.64 $ 10.50 $ 10.00
------- ------- ------- ------- -------
Income from investment operations# -
Net investment income(S) $ 0.29 $ 0.64 $ 0.65 $ 0.63 $ 0.17
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 0.24 (0.48) 0.70 (0.63) 0.33
------- ------- ------- ------- -------
Total from investment operations $ 0.53 $ 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 gain 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 $ 9.27 $ 9.28 $ 10.13 $ 9.64 $ 10.50
======= ======= ======= ======= =======
Total return 5.68%++ 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 6.13%+ 6.52% 6.66% 6.09% 5.53%+
Portfolio turnover 181% 425% 279% 212% 73%
Net assets at end of period (000 omitted) $67,302 $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.
## For fiscal years after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid indirectly.
(S) The investment adviser voluntarily agreed to maintain the expenses of the Fund at not more than 0.65% of average daily net
assets. If this fee had been incurred by the Fund, the net investment income per share and the ratios would have been:
Net investment income $ 0.27 $ 0.61 $ 0.61 $ 0.58 $ 0.15
Ratios (to average net assets):
Expenses## 0.98%+ 0.95% 1.14% 1.23% 1.48%+
Net investment income 5.81%+ 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 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 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 write covered call or put options for which the
premiums are received and 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 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 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 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.
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 did not impose a portion of its
fee, which is reflected as a preliminary reduction of expenses in the Statement
of Operations. The investment advisor 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 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 of the Fund 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 $37,665,010 $17,312,479
=========== ===========
Investments (non-U.S. government securities) $61,460,824 $75,405,599
=========== ===========
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 $67,266,670
===========
Gross unrealized appreciation $ 1,422,179
Gross unrealized depreciation (492,584)
-----------
Net unrealized appreciation $ 929,595
===========
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
December 31, 1996 June 30, 1996
------------------------------ ------------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 219,311 $2,097,004 1,392,424 $ 13,866,245
Shares issued to shareholders in
reinvestment of distributions 300,077 2,775,710 642,004 6,002,734
Shares reacquired (29,903) (286,472) (2,773,858) (27,218,552)
------- ---------- ---------- ------------
Net increase (decrease) 489,485 $4,586,242 (739,430) $ (7,349,573)
======= ========== ========== ============
</TABLE>
(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 six months ended
December 31, 1996 was $282.
(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 risk
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 December 31, 1996,
is as follows:
Written Option Transactions
<TABLE>
<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
Canadian Dollars -- $ -- 5,329 $ 18,459
Japanese Yen -- -- 1,101,000 86,222
Spanish Pesetas/Deutsche
Marks -- -- 464,400 11,755
Options written -
Deutsche Marks 16,050 76,599 5,998 16,466
Deutsche Marks/British Pounds 21,998 87,021 9,068 116,862
Japanese Yen 722,811 56,362 2,137,000 182,210
Swiss Franc/Deutsche Marks 6,004 18,221 13,279 163,950
Options terminated in closing transactions -
Deutsche Marks (16,050) (76,599) (5,998) (16,466)
Japanese Yen (722,811) (56,362) (2,422,000) (195,261)
Options exercised -
Options expired -
Canadian Dollars -- -- (5,329) (18,459)
Deutsche Marks/British Pounds (13,233) (53,435) -- --
Spanish Pesetas/Deutsche Marks -- -- (464,400) (11,755)
------ ------- -------- -------
OUTSTANDING, END OF PERIOD 14,769 $51,807 838,347 $353,983
====== ======= ========== ========
OPTIONS OUTSTANDING AT END OF PERIOD CONSIST OF:
Deutsche Marks/British Pounds 8,765 $33,586 9,068 $116,862
Swiss Francs/Deutsche Marks 6,004 18,221 13,279 163,950
Japanese Yen -- -- 816,000 73,171
------ ------- -------- -------
OUTSTANDING, END OF PERIOD 14,769 $51,807 838,347 $353,983
====== ======= ========== ========
</TABLE>
At December 31, 1996, the Fund had sufficient cash and/or securities at least
equal to the value of the written options.
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
Net Unrealized
Contracts to Contracts at In Exchange Appreciation
Settlement Date Deliver/Receive Value For (Depreciation)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Purchases 1/31/97 - 4/21/97 CHF 4,916,414 $ 3,699,636 $ 3,823,061 $(123,425)
2/07/97 - 4/21/97 DEM 13,271,713 8,670,959 8,782,528 (111,569)
1/10/97 ITL 862,044,002 567,224 562,154 5,070
1/21/97 - 1/29/97 JPY 739,384,627 6,410,771 6,655,660 (244,889)
2/03/97 NLG 2,332,554 1,353,744 1,370,216 (16,472)
2/03/97 - 2/07/97 SEK 24,688,981 3,627,632 3,745,566 (117,934)
----------- ----------- ---------
$24,329,966 $24,939,185 $(609,219)
=========== =========== =========
Sales 2/07/97 CHF 7,874,118 $ 5,906,391 $ 6,220,683 $ 314,292
1/10/97 - 4/21/97 DEM 15,677,609 10,249,205 10,334,570 85,365
4/21/97 GBP 1,225,903 2,094,357 2,043,614 (50,743)
2/24/97 IEP 757,122 1,282,545 1,212,311 (70,234)
2/07/97 ITL 5,184,114,890 3,405,963 3,404,233 (1,730)
1/29/97 JPY 362,845,412 3,147,683 3,280,698 133,015
2/03/97 NLG 2,207,938 1,281,420 1,348,440 67,020
2/03/97 - 2/07/97 SEK 16,607,702 2,440,485 2,516,538 76,053
----------- ----------- ---------
$29,808,049 $30,361,087 $ 553,038
=========== =========== =========
</TABLE>
Forward foreign currency purchases and sales under master netting arrangements
and closed forward foreign currency exchange contracts, excluded from above,
amounted to a net payable of $276,528 with Banker's Trust, $76,370 with First
Boston and $1,310,984 with Swiss Bank Corp. and a net receivable of $51,220 with
Chase Manhattan Bank, $148,179 with Deutschebank, and $305,629 with Merrill
Lynch at December 31, 1996.
At December 31, 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 December 31, 1996, the related
statement of operations for the six months ended December 31, 1996, the
statement of changes in net assets for the six months ended December 31, 1996
and the year ended June 30, 1996, and the financial highlights for the six
months ended December 31, 1996 and 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
December 31, 1996 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Institutional
Worldwide Fixed Income Fund at December 31, 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
February 7, 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>
VHI-2/97/300
