<PAGE>
[LOGO] MFS (SM) Semiannual Report
INSTITUTIONAL ADVISORS, INC. December 31, 1997
MFS(R) INSTITUTIONAL GLOBAL FIXED INCOME FUND
(formerly MFS(R) Institutional Worldwide Fixed Income Fund)
[Graphic Omitted)
<PAGE>
MFS(R) INSTITUTIONAL GLOBAL FIXED INCOME FUND
(formerly MFS(R) Institutional Worldwide Fixed Income Fund)
TRUSTEES INVESTMENT ADVISER
Nelson J. Darling, Jr. Massachusetts Financial Services Company
Trustee, Eastern Enterprises 500 Boylston Street
(diversified holding company) Boston, MA 02116-3741
William R. Gutow DISTRIBUTOR
Vice Chairman, MFS Fund Distributors, Inc.
Capitol Entertainment 500 Boylston Street
Management Company Boston, MA 02116-3741
(Blockbuster Video franchise)
INVESTOR SERVICE
PORTFOLIO MANAGER MFS Service Center, Inc.
Richard O. Hawkins* P.O. Box 1400
Boston, MA 02107-9906
TREASURER
W. Thomas London* For additional information,
contact your financial adviser.
ASSISTANT TREASURERS
Mark E. Bradley* AUDITORS
Ellen Moynihan* Deloitte & Touche LLP
James O. Yost*
CUSTODIAN
SECRETARY State Street Bank and Trust Company
Stephen E. Cavan*
WORLD WIDE WEB
ASSISTANT SECRETARY www.mfs.com
James R. Bordewick, Jr.*
[graphic omitted]
For the fourth year in a row, MFS earned a #1 ranking in the DALBAR, Inc.
Broker/Dealer Survey, Main Office Operations Service Quality Category. The firm
achieved a 3.42 overall score on a scale of 1 to 4 in the 1997 survey. A total
of 111 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 11 categories, including "knowledge of operations contact,"
"keeping you informed," and "ease of doing business" with the firm.
*Affiliated with the Investment Adviser
- -------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- -------------------------------------------------------------------------------
<PAGE>
MFS Mourns Chairman's Passing
It is with deep regret that we inform you of the death on February 2, 1998, of
A. Keith Brodkin, Chairman and Chief Executive Officer of MFS Investment
Management(SM). Mr. Brodkin joined MFS in 1970 and made enormous contributions
to the organization, including helping to build the firm's investment staff,
which will continue to manage all of the MFS investment portfolios. His
leadership, friendship, and wise counsel will be sorely missed.
LETTER TO SHAREHOLDERS
Dear Shareholders:
Thanks to a sustained period of relative stability and moderate growth, the
U.S. economy has produced thousands of new jobs, inflation has remained under
control, and the investment climate has -- for the most part -- been
favorable. 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. The rapid
pace of growth seen in the first quarter slowed to an annual rate of 3.3% in
the second quarter and 3.5% in the third. We believe this economic momentum
will carry well into the first quarter of 1998 as a result of lower interest
rates and continuing growth in the money supply. While U.S. economic growth
continues to be impressive, events in the Pacific Rim will somewhat offset
that and, therefore, markets are likely to continue to focus on Federal
Reserve Board (Fed) activity.
Internationally, the second half of 1997 brought turmoil to the world's
investment markets as concerns about Asia mounted and as liquidity, which has
been high for the past few years, began to dry up. While markets in Europe,
the United States, and even Latin America performed reasonably well, the
cumulative effect of large current-account deficits, followed by the collapse
of several large financial institutions and corporations, created a situation
in Asia that could remain unstable for some time. Although the Asian crisis
affected other emerging markets, valuations in several of them have become
more attractive, and we believe the long-term case for emerging markets
remains intact. In Europe, the uncertainty over economic union appears to have
diminished somewhat. Growth has begun accelerating on the continent and may
exceed U.S. growth in 1998.
The U.S. government bond market has benefited from the deflationary events in
Asia, while the high-yield and emerging-debt markets have come under severe
pressure. Inflation remains under control, and the Fed will most likely take a
wait-and-see attitude toward raising interest rates. As a result, our near-
term outlook for high-grade markets is neutral to moderately positive. At the
same time, high-yield markets, having gone through a substantial correction,
could offer reasonable value but require careful selection. Overall, fixed-
income markets appear to be reasonably valued.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
President, MFS Investment Management
January 12, 1998
<PAGE>
PORTFOLIO MANAGER'S OVERVIEW
Dear Shareholders:
The second half of 1997 was kinder than the first half to global bond markets.
Bond markets rallied to new lows in yield and the dollar finally gave up some
ground against the European currencies. For the six months ended December 31,
1997, the Fund provided a total return of 1.80% (including the reinvestment of
distributions), which compares to a 2.52% return for the J.P. Morgan Global
Government Bond Index (the Morgan Index), an aggregate of actively traded
government bonds issued by 13 countries, including the United States, with
remaining maturities of at least one year.
Looking first at the bond side and starting with the United States, the big
question has been: What is the Fed going to do? Two important issues for the
Fed are always growth and inflation. On the growth side, we have consistently
believed the economy would remain strong because the situation for consumers
is so favorable and because investment continues to be quite strong. We've
been right on that; where we've not been right is on inflation. Given our
expectations of continued U.S. growth, with ever-lower unemployment and
increasing constraints on resources in the economy, we had believed that
inflation would stabilize and, if anything, pick up over the course of the
year. But to the surprise of many people (including Fed Chairman Alan
Greenspan), inflation has fallen, as have inflation expectations. So, the most
important trend for the bond market has been the surprising decline in
inflation, bringing yields down despite strong growth. While our defensive
position on the U.S. Treasury market hurt us in the second quarter, we changed
our position as we realized inflation was continuing to perform remarkably
well, and we increased the Fund's duration, or sensitivity to changes in
interest rates, for the second half of the year.
For the bulk of the second half, we have been consistently underweighted in
the U.S. market in favor of one or another of the three other dollar markets
(Canada, Australia, and New Zealand). We have been most consistently
overweighted in Australia. In fact, Australian yield spreads have declined
dramatically versus those of the United States and, therefore, Australian
bonds have outperformed. Inflation in Australia is extremely low, even below
U.S. levels. For most of the year, the economy trended weaker, and the central
bank has been cutting interest rates. South Korea is Australia's number two
export market, and Japan is number one. So, clearly, if the Asian crisis
deepens, Australia's export side isn't going to be as strong. Domestically,
the Australian economy looks stronger but, in our view, the odds of an
acceleration in growth are not that great. We still like the market, in part
because the Asian crisis will tend to dampen growth and inflation.
Turning to Europe, we started the year with a significantly overweighted
position in European bonds. As the year progressed and yield spreads in Europe
narrowed, we cut back on the European weighting and brought the dollar-bloc
weighting up commensurately. The narrowing of spreads has reached a point at
which current yield levels almost fully reflect the advent of a single
European currency. Europe is in a unique situation right now. Almost all
economic issues have been subsumed to the issue of European monetary union
(EMU). The relative performance of government debt among nations depends
almost entirely on the likelihood of each country's joining the first round of
EMU in 1999. This has tightened yield spreads among all European markets. In
this environment, we have concentrated holdings in some of the higher-yielding
markets such as Italy, Spain, Sweden, Denmark, and the United Kingdom. Even
countries unlikely to join EMU in the first round, such as Sweden and the
United Kingdom, have performed well in this environment. If the United Kingdom
waits until 2002 or 2003 to join EMU, its government will still need to
prepare its economy fairly soon in order to get the pound into the European
exchange-rate mechanism.
On the currency side, we've had a bias toward a stronger dollar this year,
especially against the Japanese yen, which has proven to be correct. What was
surprising was the magnitude of the dollar's rise against European currencies,
which we believed reflected excessive concern in the market about the possible
weakness of the new Euro currency. But since September, the German mark's
strength against the dollar has been more in line with our expectations,
reflecting a more realistic assessment of prospects for the Euro. In an
environment of a strong dollar, our policy is to hedge out losses that would
otherwise be incurred from owning foreign assets. However, given that the
nature of this Fund is to offer some international diversification, only under
very extreme circumstances would we be 100% hedged, which would make the
portfolio in practical terms a dollar portfolio. So the very strong dollar has
created a significant drag on returns in 1997, not only for this Fund but also
for the entire global bond asset category. When the cycle turns and the dollar
weakens, we believe foreign currency exposure will again add to performance.
Looking ahead, everything hinges on Asia. That situation contains the kernels
of what could turn out to be something similar to the Latin American debt
debacle of the 1980s. The Asian nations are trade oriented and have close
financial and trade relationships with the rest of the world. If the Asian
contagion spreads, it would tend to bring yields down globally, creating a
very bond-friendly environment. On the other hand, should a firewall be built
to contain the region's economic difficulties, then the outcome could be very
different. For example, given the continued strength of the U.S. economy, it's
quite possible that, in the absence of Asian uncertainty, the Fed would raise
interest rates. European economies are also accelerating as we go into 1998.
So, for the time being we're running a middle course, and a key strategy for
our bond duration will be to determine which of the two scenarios plays out.
Since Australia and New Zealand are so closely tied to Asian events, we see a
potential for falling yields there as well. In Europe, fewer and fewer markets
offer real value relative to Germany. Sweden and the United Kingdom, both of
which are unlikely to join EMU in the first round, still offer attractive
spreads to the core markets, so we're likely to remain overweighted there for
the time being. In Japan, our weighting has varied between 10% and 15% for
most of the year, which is higher than the average global bond fund due to our
perception that Japanese growth is unlikely to accelerate and that deflation,
not inflation, remains the reality. Indeed, yields have dropped to levels that
reflect this. Also, the government is under increasing pressure to come up
with programs to stimulate the economy and provide capital for the banking
sector. So we will remain in that 10% to 15% range initially, but should new
policy initiatives appear likely to succeed in boosting growth, we would
reduce the weighting in Japan. The dollar may struggle more in 1998, given the
likely drag from an expanding trade deficit and the vulnerability of the U.S.
stock market, although the dollar could be supported by relatively strong U.S.
growth.
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. A graduate of Brown University, he holds a Master of Business
Administration degree from the University of Pennsylvania Wharton School of
Finance and has managed MFS Institutional Global Fixed Income Fund since 1996.
Effective January 2, 1998, the fund is being managed by Stephen C. Bryant.
Stephen C. Bryant joined MFS in 1987 as an Assistant Vice President --
Investments in the Fixed Income Department and was named Vice President --
Investments in 1989, and Senior Vice President in 1993. Mr. Bryant is a
graduate of Wesleyan University.
<PAGE>
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.
Commencement of investment operations: September 30, 1992
PERFORMANCE SUMMARY
Because mutual funds like MFS Institutional Global 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 minimal 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, 1997
(net asset value change including reinvested distributions)
6 Months 1 Year 5 Years Life of Fund*
- -------------------------------------------------------------------------------
Cumulative Total Return +1.80% -0.40% +33.89% +28.39%
- -------------------------------------------------------------------------------
Average Annual Total Return -- -0.40% + 6.01% + 4.87%
- -------------------------------------------------------------------------------
*For the period from the commencement of the Fund's investment operations,
September 30, 1992, through December 31, 1997.
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.
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - December 31, 1997
Bonds - 97.9%
- ----------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
U.S. Bonds - 50.4%
U.S. Federal Agencies - 8.5%
Federal National Mortgage Assn., 2.125s, 2007 $ 400,000 $ 3,131,171
- ----------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 41.9%
U.S. Treasury Bond, 9.875s, 2015 $ 1,200 $ 1,707,936
U.S. Treasury Notes, 6.5s, 2005 8,400 8,757,000
U.S. Treasury Notes, 6.625s, 2002 4,820 4,978,144
-----------
$15,443,080
- ----------------------------------------------------------------------------------------------------
Total U.S. Bonds $18,574,251
- ----------------------------------------------------------------------------------------------------
Foreign Bonds - 47.5%
Germany - 14.2%
Germany Fed Rep, 6.25s, 2006 DEM 6,081 $ 3,590,395
Treuhandanstalt, 6s, 2003 2,795 1,630,028
-----------
$ 5,220,423
- ----------------------------------------------------------------------------------------------------
Italy - 6.2%
Republic of Italy, 8.5s, 2004 ITL 2,105,000 $ 1,376,021
Republic of Italy, 9.5s, 1999 1,545,000 912,577
-----------
$ 2,288,598
- ----------------------------------------------------------------------------------------------------
Japan - 12.9%
Japan Development Bank, 2.875s 2006 JPY 190,000 $ 1,576,273
International Bank of Reconstruction and Development,
4.5s, 2003 358,000 3,190,235
-----------
$ 4,766,508
- ----------------------------------------------------------------------------------------------------
Spain - 3.2%
Kingdom of Spain, 7.35s, 2007 ESP 160,480 $ 1,184,872
- ----------------------------------------------------------------------------------------------------
Sweden - 2.1%
Kingdom of Sweden, 6s, 2005 SEK 3,100 $ 393,657
Kingdom of Sweden, 13s, 2001 2,500 386,948
-----------
$ 780,605
- ----------------------------------------------------------------------------------------------------
United Kingdom - 8.9%
U.K. Treasury Stock, 7.75s, 2006 GBP 970 $ 1,738,261
U.K. Treasury Stock, 10s, 2003 810 1,549,805
-----------
$ 3,288,066
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Total Foreign Bonds $17,529,072
- ----------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $36,671,866) $36,103,323
- ----------------------------------------------------------------------------------------------------
Put Options Purchased - 0.7%
- ----------------------------------------------------------------------------------------------------
Principal Amount
of Contracts
Issuer/Expiration Month/Strike Price (000 Omitted) Value
- ----------------------------------------------------------------------------------------------------
Japanese Yen/U.S. Dollars/May/130 (Premiums Paid,
$223,567) JPY 1,447,397 $ 254,742
- ----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $36,895,433) $36,358,065
- ----------------------------------------------------------------------------------------------------
<PAGE>
Call Options Written - (0.2)%
- ----------------------------------------------------------------------------------------------------
Principal Amount
of Contracts
Issuer/Expiration Month/Strike Price (000 Omitted) Value
- ----------------------------------------------------------------------------------------------------
Japanese Yen/U.S. Dollars/May/119 (Premiums Received,
$113,023) JPY 716,176 $ (58,010)
- ----------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 1.6% 591,735
- ----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $36,891,790
- ----------------------------------------------------------------------------------------------------
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.
CAD = Canadian Dollar GBP = British Pounds
CHF = Swiss Franc ITL = Italian Lire
DEM = Deutsche Marks JPY = Japanese Yen
ESP = Spanish Pesetas NLG = Netherlands Guilder
FIM = Finnish Markka NZD = New Zealand Dollar
FRF = French Franc SEK = Swedish Kronor
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- -------------------------------------------------------------------------------
December 31, 1997
- -------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $36,895,433) $36,358,065
Net receivable for forward foreign currency exchange
contracts to sell 902,129
Net receivable for closed forward foreign currency exchange
contracts 601,768
Receivable for investments sold 2,156,246
Interest receivable 616,175
Receivable from Investment Adviser 67,479
Other assets 591
-----------
Total assets $40,702,453
-----------
Liabilities:
Cash overdraft $ 516,868
Payable for investments purchased 1,663,110
Written options outstanding, at value (premiums received,
$113,023) 58,010
Net payable for forward foreign currency exchange contracts
to purchase 1,523,506
Payable to affiliates for management fee 659
Accrued expenses and other liabilities 48,510
-----------
Total liabilities $ 3,810,663
-----------
Net assets $36,891,790
===========
Net assets consist of:
Paid-in capital $45,470,359
Unrealized depreciation on investments and translation of
assets and liabilities in
foreign currencies (520,380)
Accumulated undistributed net realized loss on investments
and foreign currency transactions (8,662,619)
Accumulated undistributed net investment income 604,430
-----------
Total $36,891,790
===========
Shares of beneficial interest outstanding 4,595,836
=========
Net asset value, redemption price, and offering price per
share(net assets of $36,891,790 / 4,595,836 shares of
beneficial interest outstanding) $8.03
=====
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- -------------------------------------------------------------------------------
Six Months Ended December 31, 1997
- --------------------------------------------------------------------------------
Net investment income:
Income -
Interest $1,635,735
----------
Expenses -
Management fee $ 168,081
Trustees' compensation 3,125
Shareholder servicing agent fee 1,965
Administrative fee 3,586
Auditing fees 34,652
Custodian fees 15,212
Registration fees 10,665
Legal fees 1,341
----------
Total expenses $ 238,627
Fees paid indirectly (3,068)
Preliminary reduction of expenses by investment adviser (67,479)
----------
Net expenses $ 168,080
----------
Net investment income $1,467,655
----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 291,995
Written option transactions 99,222
Foreign currency transactions (87,844)
Interest rate swap transactions 77,997
----------
Net realized gain on investments and foreign currency
transactions $ 381,370
----------
Change in unrealized appreciation (depreciation) -
Investments $ (391,715)
Written options 86,542
Translation of assets and liabilities in foreign currencies (80,295)
----------
Net unrealized loss on investments and foreign currency
translation $ (385,468)
----------
Net realized and unrealized loss on investments and
foreign currency $ (4,098)
----------
Increase in net assets from operations $1,463,557
==========
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS- continued
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------------------------
Six Months Ended Year Ended
December 31, 1997 June 30, 1997
<S> <C> <C>
- ------------------------------------------------------------------------------------------------
Increase (Decrease) in net assets:
From operations -
Net investment income $ 1,467,655 $ 3,996,495
Net realized gain (loss) on investments and foreign
currency transactions 381,370 (1,956,723)
Net unrealized loss on investments and foreign currency
translation (385,468) 81,324
------------ -----------
Increase in net assets from operations $ 1,463,557 $ 2,121,096
------------ -----------
Distributions declared to shareholders -
From net investment income $ (5,101,670) $ 3,729,868)
------------ -----------
Net decrease in net assets from Fund share transactions $(12,987,023) $ 7,681,199)
------------ -----------
Total decrease in net assets $(16,625,136) $(9,289,971)
Net assets:
At beginning of period 53,516,926 62,806,897
------------ -----------
At end of period (including accumulated undistributed
net investment income of $604,430, and $4,238,445,
respectively) $ 36,891,790 $53,516,926
============ ===========
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS- continued
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended June 30,
Six Months Ended ----------------------------------------------------------------------------
December 31, 1997 1997 1996 1995 1994 1993*
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $ 9.07 $ 9.28 $10.13 $ 9.64 $10.50 $10.00
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.26 $ 0.58 $ 0.64 $ 0.65 $ 0.63 $ 0.17
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions (0.09) (0.25) (0.48) 0.70 (0.63) 0.33
------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.17 $ 0.33 $ 0.16 $ 1.35 -- $ 0.50
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $(1.21) $(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 $(1.21) $(0.54) $(1.01) $(0.86) $(0.86) --
------ ------ ------ ------ ------ ------
Net asset value - end of period $ 8.03 $ 9.07 $ 9.28 $10.13 $ 9.64 $10.50
====== ====== ====== ====== ====== ======
Total return 1.80%++ 3.40% 1.51% 15.10% (0.57)% 5.00%++
Ratios (to average net
assets)/Supplemental data(S):
Expenses 0.65%+ 0.65% 0.65% 0.72% 0.75% 0.80%+
Net investment income 5.68%+ 6.09% 6.52% 6.66% 6.09% 5.53%+
Portfolio turnover 288% 365% 425% 279% 212% 73%
Net assets at end of period
(000 omitted) $36,892 $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 are based on average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without
reduction for fees paid indirectly.
(S)The investment adviser voluntarily agreed to maintain the expenses of the Fund excluding the
management fee at not more than 0% of the average daily net assets. To the extent that actual
expenses were over these limitations, the net investment income per share and the ratios would
have been;
Net investment income $ 0.25 $ 0.55 $ 0.61 $ 0.61 $ 0.58 $ 0.15
Ratios (to average net assets):
Expenses## 0.92%+ 0.97% 0.95% 1.14% 1.23% 1.48%+
Net investment income 5.41%+ 5.78% 6.22% 6.23% 5.61% 4.85%+
See notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Institutional Global Fixed Income Fund (the Fund), formerly known as
MFS(R) Institutional Worldwide Fixed Income Fund, is a nondiversified 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.
Investment Valuations - Debt securities (other than short-term obligations
which mature in 60 days or less), including listed issues, forward contracts,
and interest rate swaps, 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.
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 nonhedging
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 nonhedging purposes, the Fund may
enter into contracts with the intent of changing the relative exposure of the
Fund's portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains
or losses are recorded as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains
or losses on foreign currency transactions.
Swap Agreements - The Fund may enter into swap agreements. A swap is an
exchange of cash payments between the Fund and another party which is based on
a specific financial index. Cash payments are exchanged at specified intervals
and the expected income or expense is recorded on the accrual basis. The value
of the swap is adjusted daily and the change in value is recorded as
unrealized appreciation or depreciation. Risks may arise upon entering into
these agreements from the potential inability of counterparties to meet the
terms of their contract and from unanticipated changes in the value of the
financial index on which the swap agreement is based. The Fund uses swaps for
both hedging and nonhedging purposes. For hedging purposes, the Fund may use
swaps to reduce its exposure to interest and foreign exchange rate
fluctuations. For nonhedging purposes, the Fund may use swaps to take a
position on anticipated changes in the underlying financial index.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and original issue discount is amortized or accreted for financial statement
and tax reporting purposes as required by federal income tax regulations.
Interest payments received in additional securities are recorded on the ex-
interest date in an amount equal to the value of the security on such date.
Fees Paid Indirectly - The Fund's custody fee is calculated as a percentage of
the Fund's average daily net assets. The fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the Fund. This amount is shown as a reduction of expenses on the Statement of
Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code, which may differ from generally accepted accounting principles, the
basis on which these financial statements are prepared. Accordingly, the
amount of net investment income and net realized gain reported on these
financial statements may differ from that reported on the Fund's tax return
and, consequently, the character of distributions to shareholders reported in
the financial highlights may differ from that reported to shareholders on Form
1099-DIV.
Distributions to shareholders are recorded on the ex-dividend date. The Fund
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits are reported in the financial statements as a tax return of capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes are classified as
distributions in excess of net investment income or net realized gains.
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 adviser 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 preliminary
reduction of expenses in the statement of operations.
Administrator - The Fund has an administrative services agreement with MFS to
provide the Fund with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Fund pays MFS an administrative fee
at the following annual percentages of the Fund's average daily net assets,
provided that the administrative fee is not assessed on Fund assets that
exceed $3 billion:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
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 Fund's average daily net assets at an effective annual
rate of 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 $28,696,331 $21,025,820
----------- -----------
Investments (non-U.S. government securities) $62,721,224 $65,393,364
----------- -----------
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 $36,895,433
-----------
Gross unrealized depreciation $ (622,354)
Gross unrealized appreciation $ 84,986
-----------
Net unrealized depreciation $ (537,368)
===========
(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 December 31, 1997 Year Ended June 30, 1997
------------------------------------ --------------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Shares sold 885,459 $ 8,002,547 673,046 $ 6,204,635
Shares issued to shareholders in
reinvestment of distributions 376,093 3,035,070 300,077 2,775,709
Shares reacquired (2,567,142) (24,024,640) (1,840,999) (16,661,543)
---------- ------------ --------- -----------
Net decrease (1,305,590) $(12,987,023) (867,876) $(7,681,199)
========== ============ ========= ===========
</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 December 31, 1997, was $73.
(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, interest rate swap 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.
<TABLE>
<CAPTION>
Written Option Transactions
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>
---------- -------- -------- -------
British Pounds -- $ -- 4,166 $ 31,431
Japanese Government Bond -- -- 482,000 38,009
Options written -
Australian Dollar 2,586 10,905 -- --
Deutsche Marks/British Pounds 10,005 50,133 15,755 55,237
Japanese Yen/Deutsche Marks 718,604 69,279 792,140 51,916
Japanese Government Bond 1,140,000 20,682 1,779,000 141,536
Japanese Yen 1,999,621 303,689 629,651 43,053
Options terminated in closing
transactions -
Australian Dollar (2,586) (10,905) -- --
British Pounds -- -- (4,166) (31,431)
DeutscheMarks/British Pounds (10,005) (50,133) (15,755) (55,237)
Japanese Yen/Deutsche Marks (362,027) (28,529) (792,140) (51,916)
Japanese Government Bond (1,140,000) (20,682) (2,261,000) (179,545)
Japanese Yen (1,283,445) (190,666) (629,651) (43,053)
Options expired -
Japanese Yen/Deutsche Marks (356,577) (40,750) -- --
--------- ---------- --------- --------
Outstanding, end of period 716,176 $ 113,023 -- $ --
========= ========== ========= ========
Options outstanding at end of
period consist of -
Japanese Yen 716,176 $ 113,023 -- $ --
========= ========== ========= ========
At December 31, 1997, the Fund had sufficient cash and/or securities at least
equal to the value of the written options.
</TABLE>
<TABLE>
<CAPTION>
Forward Foreign Currency Exchange Contracts
Net Unrealized
Contracts to Contracts Appreciation
Settlement Date Deliver/Receive In Exchange for at Value (Depreciation)
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Sales 5/15/98 CAD 14,940,507 $10,585,307 $10,443,601 $ 141,706
5/15/98 CHF 10,316,747 7,298,557 7,131,952 166,605
1/07/98 DEM 17,008,586 9,496,517 9,467,795 28,722
1/07/98 ESP 996,520,810 6,780,508 6,552,124 228,384
1/07/98 FIM 10,998,432 2,061,318 2,021,655 39,663
1/07/98 FRF 10,427,277 1,777,298 1,733,764 43,534
5/15/98 GBP 1,252,415 2,085,964 2,059,719 26,245
1/07/98 JPY 575,190,453 4,652,744 4,425,515 227,229
5/15/98 NLG 27,911 13,928 13,887 41
----------- ----------- -----------
$44,752,141 $43,850,012 $ 902,129
=========== =========== ===========
Purchases 5/15/98 CAD 20,335,278 $14,476,868 $14,226,166 $ (250,702)
5/15/98 CHF 6,973,922 4,862,769 4,804,159 (58,610)
5/15/98 DEM 34,017,171 19,352,919 19,004,849 (348,070)
5/18/98 ESP 1,367,322,570 9,189,793 9,000,158 (189,635)
1/07/98 FRF 31,591,993 5,371,801 5,252,864 (118,937)
5/15/98 GBP 1,873,502 3,095,334 3,074,814 (20,520)
1/07/98 JPY 518,089,823 4,343,294 3,986,183 (357,111)
1/07/98 NLG 10,535,798 5,384,759 5,202,461 (182,298)
1/07/98 NZD 27,911 13,825 16,202 2,377
----------- ----------- -----------
$66,091,362 $64,567,856 $(1,523,506)
=========== =========== ===========
</TABLE>
Forward foreign currency purchases and sales under master netting agreements
excluded above amounted to a net payable of $971,225 with Swiss Bank and a net
receivable of $38,220 with Banker's Trust, $288,420 with C.S. First Boston,
$628,136 with Deutschebank, and $618,217 with Merrill Lynch at December 31,
1997.
At December 31, 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 Global Fixed Income Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Institutional Global Fixed
Income Fund (one of the series comprising MFS Institutional Trust) as of
December 31, 1997, the related statement of operations for the six months then
ended, the statement of changes in net assets for the six months then ended
and the year ended June 30, 1997 and the financial highlights for the six
months ended December 31, 1997 and for each of the years in 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 December 31, 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
Global Fixed Income Fund at December 31, 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
February 6, 1998
--------------------------------------------
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)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
IGF-3 2/98 .5M
