<PAGE>
[Logo] M F S(SM) Annual Report
INSTITUTIONAL ADVISORS, INC. for Year Ended
June 30, 1998
- --------------------------------------------------------------------------------
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
Jeffrey L. Shames* Massachusetts Financial Services
Chairman, Chief Executive Officer, Company
and Director, MFS(R Investment 500 Boylston Street
Management(SM) Boston, MA 02116-3741
Nelson J. Darling, Jr. DISTRIBUTOR
Professional Trustee MFS Fund Distributors, Inc.
500 Boylston Street
William R. Gutow Boston, MA 02116-3741
Vice Chairman,
Capitol Entertainment Management INVESTOR SERVICE
Company; MFS Service Center, Inc.
Real Estate Consultant P.O. Box 1400
Boston, MA 02107-9906
PORTFOLIO MANAGER
Stephen C. Bryant* For additional information,
contact your financial adviser.
CHAIRMAN AND PRESIDENT
Jeffrey L. Shames* CUSTODIAN
State Street Bank and Trust Company
TREASURER
W. Thomas London* AUDITORS
Deloitte & Touche LLP
ASSISTANT TREASURERS
Mark E. Bradley* WORLD WIDE WEB
Ellen Moynihan* www.mfs.com
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
- --------------------------------------------------------------------------------
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
[Dalbar logo] 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>
LETTER FROM THE CHAIRMAN
Dear Shareholders:
With the U.S. stock market well into its fourth year of record-breaking
advances, it is necessary to take a cautious outlook. By most commonly accepted
measures, equity valuations appear to have risen to a point at which the stock
market has become more vulnerable to changes in the investment environment such
as rising inflation and interest rates or a slowing economy. As a result, while
we continue to hold a favorable long-term outlook for the equity markets, we
also believe that a significant market correction is possible and that such a
correction would be a healthy near-term event.
Currently, equity investors seem to be primarily focused on interest rates,
which have been relatively stable for several months as inflation has remained
low. In an environment of low interest rates, stocks become more attractive than
most fixed-income investments, while low inflation helps control companies'
costs, such as for raw materials, wages, and benefits. The near-term outlook for
a continuation of this environment appears relatively favorable. However, this
year has seen a marked slowdown in corporate earnings. This means that as equity
prices continue to rise, price-to-earnings (P/E) ratios, or the amount an
investor pays for a stock in relation to the company's earnings per share, also
go up. A year ago, the average P/E ratio for stocks in the unmanaged Standard &
Poor's 500 Composite Index stood at approximately 22; this summer, the average
P/E ratio was 32% higher, at about 29. In some cases, such as with some of the
newer companies associated with the Internet, P/E ratios have soared to levels
that are unlikely to be sustained.
As long as interest rates remain low and the economy continues to grow, it is
possible that some of these valuations can be supported. We expect corporate
earnings to grow 4% to 6% this year. However, just as no one can predict market
cycles, so too no one can predict economic cycles -- except to say that these
cycles do exist and that an economic slowdown at some point is inevitable.
Internationally, the economic turmoil in Asia continues to be a concern to us,
and we believe the United States has yet to see the full impact of this crisis.
There have been brief periods when some Asian economies appeared to improve, but
the situation remains quite dynamic and could turn worse before getting better.
While the crisis has affected all countries in Asia, Japan was a major factor
behind the turmoil as excesses in its banking and real estate sectors have led
to severe currency problems. In the long run, Japan will be the engine that
drives the region's eventual recovery, thus it warrants closer investor
scrutiny. At the same time, the Asian turmoil has had the beneficial effect of
moderating U.S. growth and keeping inflation in check, which has helped
establish a favorable interest-rate environment.
Countering the situation in Asia has been the greater-than-expected strength of
European economies. As Europe moves toward economic union, these countries have
benefited from a convergence of interest rates to lower levels, a rapid
expansion of manufacturing and service businesses, and an increasingly strong
consumer sector. This has helped American exporters offset some of their Asian
losses, while providing numerous investment opportunities in developed and
emerging European markets.
Given the uncertainty arising from these conflicting developments, we believe it
is prudent to remind investors of the need to take a long-term view and to
diversify their investments across a range of asset classes. This includes
portfolios that focus on bonds and international investments as well as on the
U.S. stock market. The likelihood of an eventual market correction also makes it
important for us to use original, bottom-up research to find companies that we
think can keep growing or gain market share in the face of the occasional
downturn. To help achieve this, and to provide the broadest possible coverage of
industry sectors and individual companies, MFS continues to increase its number
of full-time research analysts. These analysts thoroughly investigate each
company's earnings potential and position in its industry as well as the overall
prospects for that industry.
MFS also uses active portfolio management on the fixed-income side, taking
advantage of our extensive research and credit analysis to help reduce the
potential for price declines and enhance the opportunity for appreciation. Every
year, both fixed-income and equity managers meet with thousands of credit
issuers and companies. They also attend many presentations, closely follow
sources of industry research, and keep track of competitors.
We believe that applying this discipline of thorough, bottom-up research to both
the equity and fixed-income markets is the best way to provide favorable
long-term performance for our shareholders -- regardless of changes in the
overall market environment.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS(R) Investment Management(SM)
July 13, 1998
MANAGEMENT REVIEW AND OUTLOOK
Dear Shareholders:
For the year ended June 30, 1998, the Fund provided a total return of 3.70%
(including the reinvestment of distributions), which compares to a 4.32% return
for the Salomon Brothers World Governments Bond Index (the Salomon Index), an
unmanaged index consisting of the complete universes of government bonds with
remaining maturities of at least five years. The Fund is replacing the J.P.
Morgan Global Government Bond Index (an aggregate of actively traded government
bonds issued by 13 countries, including the United States, with remaining
maturities of less than one year) with the Salomon Index because we feel the
Salomon Index better reflects the universe in which the Fund invests.
For much of the past year, the Asian economic crisis has been the largest factor
in determining the global environment for bond investing. The slowdown in growth
resulting from the Asian problem, combined with a lack of inflation, has
resulted in a very positive environment for almost all bond markets in developed
countries. Given these conditions, we had expected that the three major central
banks -- those in the United States, Germany, and Japan -- would leave interest
rates unchanged. This proved to be the case, and we believe that, absent
inflationary signs, the U.S. Federal Reserve Board (the Fed) will continue to
defer from raising rates as long as economic turmoil exists in Southeast Asia.
By the end of June, the Japanese appeared to be getting closer to addressing
their severe banking problems as well as offering badly needed income tax cuts
in order to stimulate their depressed economy. However, markets will remain
skeptical until firm policies are put in place and acted upon. Meanwhile,
Western Europe continues to prepare itself for the initial phase of European
monetary union, which is set to begin in January 1999. This will be a huge and
significant undertaking that will take years to fully implement.
Year-to-date returns for all bond markets in the Salomon Index registered
positive returns when measured in local terms (not adjusted for currency
differences). The better performers have been Sweden and the United Kingdom, and
Japan has been the worst. The Fund has benefited from being overweighted in the
United Kingdom and underweighted in Japan. Performance relative to the index was
hurt by being overweighted in the U.S., which underperformed at the beginning of
the year.
Our views have not dramatically changed from the beginning of the year. The
global inflation outlook, fiscal progress in several regions of the world in
lowering budget deficits, and increasing global competition are very favorable
factors that we believe will continue to lower global interest rates. Many of
the bond markets have already discounted these positive developments. In order
for interest rates to drop significantly from current levels, the Southeast
Asian economies would have to continue unraveling, thereby causing central banks
to ease monetary policy and put more currency into their respective economies.
However, we do not foresee this happening in the near future.
Meanwhile, the direction of both the Japanese economy and the yen will be
critical for most fixed-income markets in the months ahead. We continue to
believe that bond markets with the highest real and nominal interest rates will
perform well. Consequently, we expect to maintain our overweighted position in
the U.S. bloc, with underweightings in both the European and Japanese blocs.
Respectfully,
/s/ Stephen C. Bryant
Stephen C. Bryant
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and are
only through the end of the period of the report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
PORTFOLIO MANAGER'S PROFILE
Stephen C. Bryant is a Senior Vice President of MFS(R) Investment Management(SM)
and portfolio manager of the World Governments Series offered through MFS(R)/Sun
Life annuity products. He also is a member of the team that manages MFS(R) World
Governments Fund and the MFS(R) World Governments Series, part of MFS(R)
Variable Insurance Trust(SM), MFS(R) Institutional Global Fixed Income Fund, and
MFS(R) Government Markets Income Trust, a closed-end fund. He also manages the
foreign bond portions of MFS(R) World Total Return Fund and MFS(R) Intermediate
Income Fund.
He joined MFS in 1987 as Assistant Vice President -- Investments. He was named
Vice President -- Investments in 1989 and Senior Vice President in 1993. Mr.
Bryant is a graduate of Wesleyan University.
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. Please read it carefully before investing
or sending money.
<PAGE>
FUND FACTS
Note: The Fund changed its name from MFS(R) Institutional Worldwide Fixed
Income Fund to MFS Institutional Global Fixed Income Fund effective November
1, 1997.
Objective: Seeks not only preservation, but also growth of
capital, together with moderate current income.
The Fund invests, under normal market conditions,
at least 80% of its assets in fixed-income
securities and, to a lesser extent, equity
securities.
Commencement of
investment operations: September 30, 1992
Size: $26.0 million net assets as of June 30, 1998
PERFORMANCE SUMMARY
The information below illustrates the historical performance of the Fund in
comparison to various market indicators. Benchmark comparisons are unmanaged and
do not reflect any fees or expenses. It is not possible to invest directly in an
index. The minimum initial investment is generally $3 million. Shares of the
Fund are purchased at net asset value.
GROWTH OF A HYPOTHETICAL $3,000,000 INVESTMENT
(For the period from October 1, 1992, through June 30, 1998)
MFS SALOMON BROTHERS J.P. MORGAN
INSTITUTIONAL WORLD GLOBAL CONSUMER
GLOBAL GOVERNMENTS GOVERNMENT PRICE
FIXED INCOME BOND BOND INDEX
FUND INDEX INDEX -- U.S.
- ---------------------------------------------------------------------------
10/92 $3,000,000 $3,000,000 $3,000,000 $3,000,000
12/94 $3,196,000 $3,349,000 $3,298,000 $3,178,000
12/96 $3,867,000 $4,132,000 $4,108,000 $3,367,000
6/98 $3,923,542 $4,256,758 $4,301,550 $3,462,891
AVERAGE ANNUAL TOTAL RETURNS THROUGH JUNE 30, 1998
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years/Life
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS Institutional Global Fixed Income Fund* +3.70% +2.86% +4.49% +4.78%
- ---------------------------------------------------------------------------------------------------------------------------------
J.P. Morgan Global Government Bond Index# +5.87% +4.12% +6.63% +6.47%
- ---------------------------------------------------------------------------------------------------------------------------------
Salomon Brothers World Governments Bond Index## +4.32% +2.84% +6.33% +6.28%
- ---------------------------------------------------------------------------------------------------------------------------------
Consumer Price Index##+ +1.75% +2.27% +2.47% +2.53%
- ---------------------------------------------------------------------------------------------------------------------------------
*"Life" refers to the period from the commencement of the Fund's
investment operations, September 30, 1992, through June 30, 1998.
#Source: AIM. "Life" refers to the period from October 1, 1992, through June 30, 1998.
##Source: CDA/Wiesenberger. "Life" refers to the period from October 1, 1992, through June 30, 1998.
+The Consumer Price Index is measured by the U.S. Bureau of Labor Statistics and measures the cost
of living (inflation).
</TABLE>
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. Performance results reflect any applicable
expense subsidies and waivers, without which the results would have been less
favorable. Subsidies and waivers may be rescinded at any time. See the
prospectus for details.
Investments in foreign and emerging market securities may provide superior
returns but also involve greater risk than U.S. investments. Investments in
foreign and emerging market securities may be favorably or unfavorably affected
by changes in interest rates and currency exchange rates, market conditions, and
the economic and political conditions of the countries where investments are
made. These risks may increase share price volatility.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS - June 30, 1998
BONDS - 96.8%
<CAPTION>
- --------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Bonds - 53.1%
Government National Mortgage Association - 14.4%
GNMA, 6.5s, 2028, TBA $ 3,753 $ 3,744,727
-----------
$ 3,744,727
- --------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 38.7%
U.S. Treasury Notes, 5.5s, 2003 $ 750 $ 749,415
U.S. Treasury Notes, 6.5s, 2005 4,170 4,401,310
U.S. Treasury Notes, 6.625s, 2002 4,750 4,924,420
-----------
$10,075,145
- --------------------------------------------------------------------------------------------------
Total U.S. Bonds $13,819,872
- --------------------------------------------------------------------------------------------------
Foreign Bonds - 43.7%
Germany - 16.0%
Germany Federal Republic, 6s, 2007 DEM 5,726 $ 3,437,502
Germany Federal Republic, 6.25s, 2006 1,176 715,104
-----------
$ 4,152,606
- --------------------------------------------------------------------------------------------------
Italy - 6.3%
Republic of Italy, 5.75s, 2002 ITL 1,405,000 $ 822,387
Republic of Italy, 7.75s, 2006 1,205,000 804,756
-----------
$ 1,627,143
- --------------------------------------------------------------------------------------------------
Japan - 7.2%
FNMA, 2.125s, 2007 JPY 250,000 $ 1,883,548
- --------------------------------------------------------------------------------------------------
New Zealand - 2.1%
Government of New Zealand, 8s, 2004 NZD 1,000 $ 550,919
- --------------------------------------------------------------------------------------------------
United Kingdom - 12.1%
United Kingdom Treasury, 7.25s, 2007 GBP 1,722 $ 3,158,091
- --------------------------------------------------------------------------------------------------
Total Foreign Bonds $11,372,307
- --------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $25,012,295) $25,192,179
- --------------------------------------------------------------------------------------------------
Short-Term Obligations - 4.0%
- --------------------------------------------------------------------------------------------------
Student Loan Marketing, due 7/01/98, at Amortized Cost $ 1,045 $ 1,045,000
- ----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $26,057,295) $26,237,179
- ----------------------------------------------------------------------------------------------------
<PAGE>
PORTFOLIO OF INVESTMENTS - continued
Call Options Written
- --------------------------------------------------------------------------------------------------
Principal Amount
of Contracts
Issuer/Expiration Month/Strike Price (000 Omitted) Value
- --------------------------------------------------------------------------------------------------
Japanese Yen/Deutsche Marks/August/66.520
(Premiums Received, $69,293) JPY 297,964 $ (298)
- --------------------------------------------------------------------------------------------------
Put Options Written - (0.1)%
- --------------------------------------------------------------------------------------------------
Canadian Dollars/U.S. Dollars/July/1.430
(Premiums Received, $6,946) CAD 1,857 $ (35,030)
- --------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (0.7)% (185,774)
- --------------------------------------------------------------------------------------------------
Net Assets - 100.0% $26,016,077
- --------------------------------------------------------------------------------------------------
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 JPY = Japanese Yen
DEM = Deutsche Marks NLG = Netherlands Guilder
GBP = British Pounds NZD = New Zealand Dollars
ITL = Italian Lira
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- -------------------------------------------------------------------------------
June 30, 1998
- -------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $26,057,295) $ 26,237,179
Cash 4,462
Net receivable for forward foreign currency exchange
contracts to sell 88,553
Receivable from investment adviser 135,398
Interest receivable 275,918
Other assets 749
------------
Total assets $ 26,742,259
------------
Liabilities:
Written options outstanding, at value (premiums received,
$76,239) $ 35,328
Net payable for forward foreign currency exchange contracts
to purchase 483,211
Net payable for foreign currency exchange contracts closed
or subject to master netting agreements 158,323
Payable to affiliates -
Management fee 2,083
Shareholder servicing agent fee 16
Accrued expenses and other liabilities 47,221
------------
Total liabilities $ 726,182
------------
Net assets $ 26,016,077
============
Net assets consist of:
Paid-in capital $ 33,524,228
Unrealized depreciation on investments and translation of
assets and liabilities in foreign currencies (331,379)
Accumulated net realized loss on investments and foreign
currency transactions (5,788,499)
Accumulated distributions in excess of net investment income (1,388,273)
------------
Total $ 26,016,077
============
Shares of beneficial interest outstanding 3,181,988
=========
Net asset value, redemption price, and offering price per share
(net assets of $26,016,077 / 3,181,988 shares of beneficial
interest outstanding) $8.18
=====
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- -------------------------------------------------------------------------------
Year Ended June 30, 1998
- -------------------------------------------------------------------------------
Net investment income:
Income -
Interest $2,458,518
----------
Expenses -
Management fee $ 259,872
Trustees' compensation 5,833
Shareholder servicing agent fee 3,024
Administrative fee 5,657
Auditing fees 72,700
Custodian fee 23,647
Registration fees 22,299
Printing 7,323
Legal fees 1,474
Miscellaneous 457
----------
Total expenses $ 402,286
Fees paid indirectly (6,503)
Reduction of expenses by investment adviser (135,906)
----------
Net expenses $ 259,877
----------
Net investment income $2,198,641
----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 157,996
Written option transactions 183,335
Foreign currency transactions (319,183)
Swaps 51,486
----------
Net realized gain on investments and foreign currency
transactions $ 73,634
----------
Change in unrealized appreciation (depreciation) -
Investments $ 325,537
Written options 72,440
Translation of assets and liabilities in foreign currencies (594,444)
----------
Net unrealized loss on investments and foreign currency
translation $ (196,467)
----------
Net realized and unrealized loss on investments and
foreign currency $ (122,833)
----------
Increase in net assets from operations $2,075,808
==========
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Year Ended June 30, 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 2,198,641 $ 3,996,495
Net realized gain (loss) on investments and foreign
currency transactions 73,634 (1,956,723)
Net unrealized gain (loss) on investments and foreign
currency translation (196,467) 81,324
------------ ------------
Increase in net assets from operations $ 2,075,808 $ 2,121,096
------------ ------------
Distributions declared to shareholders -
From net investment income $ (4,643,503) $ (3,729,868)
From paid-in capital (458,167) --
------------ ------------
Total distributions declared to shareholders $ (5,101,670) $ (3,729,868)
------------ ------------
Net decrease in net assets from Fund share transactions (24,474,987) (7,681,199)
------------ ------------
Total decrease in net assets $(27,500,849) $ (9,289,971)
Net assets:
At beginning of period 53,516,926 62,806,897
------------ ------------
Atend of period (including accumulated undistributed net investment income
(accumulated distributions in excess of net investment income) of
$(1,388,273) and $4,238,445, respectively) $ 26,016,077 $ 53,516,926
============ ============
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Financial Highlights
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Year Ended June 30,
------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993*
- --------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C> <C>
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) $ 0.48 $ 0.58 $ 0.64 $ 0.65 $ 0.63 $ 0.17
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions (0.16) (0.25) (0.48) 0.70 (0.63) 0.33
------ ------ ------ ------ ------ ------
Total from investment operations $ 0.32 $ 0.33 $ 0.16 $ 1.35 $ -- $ 0.50
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(1.10) $(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) -- -- --
From paid-in capital (0.11) -- -- -- -- --
------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(1.21) $(0.54) $(1.01) $(0.86) $(0.86) $ --
------ ------ ------ ------ ------ ------
Net asset value - end of period $ 8.18 $ 9.07 $ 9.28 $10.13 $ 9.64 $10.50
====== ====== ====== ====== ====== ======
Total return 3.70% 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 5.51% 6.09% 6.52% 6.66% 6.09% 5.53%+
Portfolio turnover 413% 365% 425% 279% 212% 73%
Net assets at end of period (000 omitted) $26,016 $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# $ 0.45 $ 0.55 $ 0.61 $ 0.61 $ 0.58 $ 0.15
Ratios (to average net assets):
Expenses## 1.01% 0.97% 0.95% 1.14% 1.23% 1.48%+
Net investment income 5.17% 5.78% 6.22% 6.23% 5.61% 4.85%+
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Institutional Global Fixed Income Fund (the Fund), formerly known as MFS
Institutional Worldwide Fixed Income Fund, is a non diversified series of MFS
Institutional Trust (the Trust). The Trust is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. (2) Significant
Accounting Policies General - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Investments in foreign securities are vulnerable to the effects of changes in
the relative values of the local currency and the U.S. dollar and to the effects
of changes in each country's legal, political, and economic environment.
Investment Valuations - Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues, forward contracts, and swap
agreements, 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 results from fluctuations in foreign currency exchange rates is not
separately disclosed.
Written Options - The Fund may write call or put options in exchange for a
premium. The premium is initially recorded as a liability which is subsequently
adjusted to the current value of the options contract. When a written option
expires, the Fund realizes a gain equal to the amount of the premium received.
When a written call option is exercised or closed, the premium received is
offset against the proceeds to determine the realized gain or loss. When a
written put option is exercised, the premium reduces the cost basis of the
security purchased by the Fund. The Fund, as writer of an option, may have no
control over whether the underlying securities may be sold (call) or purchased
(put) and, as a result, bears the market risk of an unfavorable change in the
price of the securities underlying the written option. In general, written call
options may serve as a partial hedge against decreases in value in the
underlying securities to the extent of the premium received. Written options may
also be used as part of an income producing strategy reflecting the view of the
Fund's management on the direction of interest rates.
Forward Foreign Currency Exchange Contracts - The Fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar. The Fund will enter into
forward contracts for hedging purposes as well as for non-hedging purposes. For
hedging purposes, the Fund may enter into contracts to deliver or receive
foreign currency it will receive from or require for its normal investment
activities. The Fund may also use contracts in a manner intended to protect
foreign currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the Fund may
enter into contracts with the intent of changing the relative exposure of the
Fund's portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains or
losses are recorded as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains or
losses on foreign currency transactions.
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 non-hedging purposes. For hedging purposes, the Fund may use swaps to reduce
its exposure to interest and foreign exchange rate fluctuations. For non-hedging
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
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. During
the year ended June 30, 1998, $2,723,689 from accumulated distributions in
excess of net investment income and $458,167 from paid in capital were
reclassified to accumulated net realized loss on investments and foreign
currency transactions due to differences between book and tax accounting for
currency transactions. The amount of $458,167 was redesignated as a tax return
of capital distribution. These changes had no effect on net assets or net asset
value per share. At June 30, 1998, accumulated distributions in excess of net
investment income under book accounting was different from tax accounting due to
temporary differences in accounting for currency transactions and Post October
losses.
At June 30, 1998, the Fund, for federal income tax purposes, had a capital loss
carryforward of $4,676,613 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
the expenses of the Fund, excluding management fees. This is reflected as a
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:
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 $49,153,022 $43,190,686
----------- -----------
Investments (non-U.S. government securities) $83,059,659 $95,294,364
----------- -----------
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 $26,091,198
===========
Gross unrealized appreciation $ 155,134
Gross unrealized depreciation (9,153)
-----------
Net unrealized appreciation $ 145,981
===========
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year Ended June 30, 1998 Year Ended June 30, 1997
---------------------------- ---------------------------
Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,216,802 $ 10,686,382 673,046 $ 6,204,635
Shares issued to shareholders in
reinvestment of distributions 376,093 3,035,070 300,077 2,775,709
Shares reacquired (4,312,333) (38,196,439) (1,840,999) (16,661,543)
---------- ------------ ---------- -----------
Net decrease (2,719,438) $(24,474,987) (867,876) $(7,681,199)
========== ============ ======== ===========
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in a $805 million unsecured line
of credit provided by a syndication of banks under a line of credit agreement.
Borrowings may be made to temporarily finance the repurchase of Fund shares.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the bank's base rate. In addition, a commitment fee, based on the average daily
unused portion of the line of credit, is allocated among the participating funds
at the end of each quarter. The commitment fee allocated to the Fund for the
year ended June 30, 1998, was $136.
The fund and other affiliated funds also participate in a $20 million
uncommitted, unsecured line of credit provided by State Street Bank and Trust
Company under a line of credit agreement. Borrowings may be made to temporarily
finance the purchase of securities, the redemption of shares, or emergency
expenses. During the year ended June 30, 1998, the maximum amount outstanding
was $516,694, and $0 was outstanding at June 30, 1998. Interest expense incurred
on the borrowings amounted to $496 for the period ended June 30, 1998, and the
weighted average interest rate on borrowings was 6.69%.
(7) Financial Instruments
The Fund trades financial instruments with off-balance-sheet risk in the normal
course of its investing activities in order to manage exposure to market risks
such as interest rates and foreign currency exchange rates. These financial
instruments include written options, forward foreign currency exchange
contracts, and swap agreements. 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>
Written Option Transactions
<CAPTION>
1998 Calls 1998 Puts
------------------------------------ ---------------------------------
Principal Amounts Principal Amounts
of Contracts of Contracts
(000 Omitted) Premiums (000 Omitted) Premiums
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding, beginning of period -
Japanese Yen 716,176 $ 113,023 -- $ --
Options written -
Australian Dollars 2,586 10,905 -- --
British Pounds -- -- 4,166 31,431
Canadian Dollars -- -- 1,857 6,946
Deutsche Marks/British
Pounds 10,005 50,133 15,755 55,237
Japanese Yen/Deutsche Marks 1,016,568 138,573 792,140 51,916
Japanese Government Bonds 1,140,000 20,682 2,500,700 134,991
Japanese Yen 1,609,345 195,673 629,651 43,053
Options terminated in closing transactions -
Australian Dollars (2,586) (10,905) -- --
British Pounds -- -- (4,166) (31,431)
Deutsche Marks/British
Pounds (10,005) (50,133) (15,755) (55,237)
Japanese Yen/Deutsche Marks (590,173) (64,534) (792,140) (51,916)
Japanese Government Bonds (1,140,000) (20,682) (2,500,700) (134,991)
Japanese Yen (1,609,345) (195,673) (629,651) (43,053)
Options expired -
Japanese Yen/Deutsche Marks (356,577) (40,750) -- --
Japanese Yen (488,030) (77,019) -- --
---------- --------- --------- --------
Outstanding, end of period $ 69,293 $ 6,946
========= ========
Options outstanding at end of
period consist of -
Canadian Dollars -- $ -- 1,857 $ 6,946
Japanese Yen/Deutsche Marks 297,964 69,293 -- --
---------- --------- --------- --------
Outstanding, end of period $ 69,293 $ 6,946
========= ========
</TABLE>
At June 30, 1998, the Fund had sufficient cash and/or securities at least equal
to the value of the written options.
<TABLE>
Forward Foreign Currency Exchange Contracts
<CAPTION>
Net Unrealized
Contracts to Contracts Appreciation
Settlement Date Deliver/Receive In Exchange for at Value (Depreciation)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales 9/25/98 JPY 540,181,035 $ 4,046,346 $ 3,958,057 $ 88,289
9/25/98 NLG 27,911 14,040 13,776 264
------------ ----------- ---------
$ 4,060,386 $ 3,971,833 $ 88,553
============ =========== =========
Purchases 9/25/98 CAD 7,510,974 $ 5,247,182 $ 5,119,445 $(127,737)
9/25/98 JPY 1,008,931,261 7,748,196 7,392,722 (355,474)
------------ ----------- ---------
$ 12,995,378 $12,512,167 $(483,211)
============ =========== =========
</TABLE>
Forward foreign currency purchases and sales under master netting agreements
excluded above amounted to a net payable of $6,916 with Banker's Trust, $29,027
with Deutsche Bank, $89,457 with C.S. First Boston, $122,310 with Swiss Bank,
and a net receivable of $83,353 with Merrill Lynch at June 30, 1998. Closed
forward foreign currency exchange contracts excluded above amount to a net
receivable of $6,034 with Goldman Sachs at June 30, 1998.
At June 30, 1998, 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 June 30, 1998, the
related statement of operations for the year then ended, the statement of
changes in net assets for the years ended June 30, 1998 and 1997 and the
financial highlights for each of the six years in the period ended June 30,
1998. These financial statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at June
30, 1998 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
Global Fixed Income Fund at June 30, 1998, the results of its operations, the
changes in its net assets, and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
August 7, 1998
<PAGE>
FEDERAL TAX INFORMATION
In January 1999, shareholders will be mailed a Form 1099 reporting the federal
tax status of all distributions paid during the calendar year 1998.
<PAGE>
(C)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
IGF-2 8/98 0.5M
