<PAGE>
[logo] Annual Report for
THE FIRST NAME IN MUTUAL FUNDS Year Ended
June 30, 1996
MFS(R) INSTITUTIONAL RESEARCH FUND
[graphic omitted: two men sitting in front of a window]
<PAGE>
MFS(R) INSTITUTIONAL RESEARCH FUND
TRUSTEES ASSISTANT TREASURER
A. Keith Brodkin* James O. Yost*
Chairman and President
SECRETARY
Nelson J. Darling, Jr. Stephen E. Cavan*
Trustee, Eastern Enterprises
(diversified holding company) ASSISTANT SECRETARY
James R. Bordewick, Jr.*
William R. Gutow
Vice Chairman, SHAREHOLDER SERVICE CENTER
Capitol Entertainment MFS Service Center, Inc.
(Blockbuster Video Franchise) P.O. Box 2281
Boston, MA 02107-9906
INVESTMENT ADVISER
Massachusetts Financial Services Company For general information,
500 Boylston Street call toll free:
Boston, MA 02116-3741 1-800-637-2262
DISTRIBUTOR CUSTODIAN
MFS Fund Distributors, Inc. State Street Bank and Trust Company
500 Boylston Street
Boston, MA 02116-3741 AUDITORS
Deloitte & Touche LLP
PORTFOLIO MANAGER
Kevin R. Parke*
TREASURER
W. Thomas London*
*Affiliated with the Investment Adviser
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
We would like to welcome you as shareholders of MFS Institutional Research Fund,
which commenced operations on May 21, 1996. The Fund seeks to provide long-term
growth of capital and future income by investing, under normal market
conditions, at least 65% of its total assets in equity securities of companies
we believe possess better-than-average prospects for long-term growth. From
inception through June 30, 1996, the Fund provided a total return of -2.20%. A
discussion of the Fund's investments may be found in the Portfolio Performance
and Strategy section of this letter.
Economic Environment
Real (inflation-adjusted) economic growth in the first quarter of 1996 was 2.3%
on an annualized basis, and it appears that second-quarter growth could be even
stronger. Thus, real growth in gross domestic product has started the year at a
rate exceeding our expectations. While we continue to believe that growth from
quarter to quarter will be uneven, it is now our expectation that growth for all
of 1996 could exceed 2.5%. Although individual consumers appear to be carrying
an excessive debt load, the consumer sector itself, which represents two-thirds
of the economy, continues to be impressive as the auto and housing markets
remain resilient. Consumer spending has also been positively impacted by
widespread job growth. At the same time, however, the economies of Europe and
Japan continue to be in the doldrums, weakening U.S. export markets while
subduing the capital spending plans of American corporations. Finally, due to
the pickup in economic activity and increasing job growth, it appears that
inflation may accelerate slightly this year, and the Federal Reserve Board is
expected to continue its diligent anti-inflationary stance.
While we do not expect the U.S. stock market to match the extraordinary
performance of 1995, we continue to be positive about the equity market this
year. Although we believe the equity market represents fair value at current
levels, the expected slowdown in the growth of corporate earnings and the
increases in interest rates experienced so far this year raise near-term
concerns. Further increases in interest rates, and an acceleration of inflation
coupled with an additional slowdown in corporate earnings growth, could have a
negative effect on the stock market. However, to the extent that some earnings
disappointments are taken as a sign that the economy is not overheating, this
may prove beneficial for the longer-term health of the equity market. We
continue to believe that many of the technology-driven productivity gains that
U.S. companies have made in recent years will continue to enhance corporate
America's competitiveness and profitability. Therefore, while we have some
near-term concerns, we remain quite constructive on the long-term viability of
the equity market.
Portfolio Performance and Strategy
The Fund is diversified across 118 companies within 13 different sectors of the
economy, and it is currently overweighted in technology, leisure, industrial
goods and services, and retailing. We believe select companies within each of
these sectors offer strong earnings potential given the current economic
environment. Within the technology sector, companies such as Microsoft, Sun
Microsystems, Compuware, and Glenayre Technologies have contributed to the
Fund's performance, while within the leisure sector the hotel industry continues
to be an attractive area. HFS, Inc., both through recent acquisitions and
existing business growth, has demonstrated superior earnings potential and
remains one of the Fund's top holdings.
The Fund is currently underweighted in utilities and communications, mainly
due to an unfavorable economic outlook for some industries within this sector.
The utility industry, for example, is currently being impacted by increased
competition and lower growth prospects.
Respectfully,
/s/ A. Keith Brodkin /s/ Kevin R. Parke
A. Keith Brodkin Kevin R. Parke
Chairman and President Director of Research
July 10, 1996
A Committee of MFS Institutional Research Analysts is responsible for the
day-to-day management of the Fund under the general supervision of Mr. Parke.
OBJECTIVE AND POLICIES
The Fund's investment objective is to provide long-term growth of capital and
future income. The Fund invests, under normal market conditions, at least 65% of
its total assets in equity securities of companies believed to possess
better-than-average prospects for long-term growth.
TAX FORM SUMMARY
In January 1997, shareholders will be mailed a Tax Form Summary reporting the
federal tax status of all distributions paid during the calendar year 1996.
<PAGE>
PORTFOLIO OF INVESTMENTS - June 30, 1996
Common Stocks - 100.1%
- -----------------------------------------------------------------------------
Issuer Shares Value
- -----------------------------------------------------------------------------
U.S. Stocks - 89.2%
Aerospace - 6.2%
General Dynamics Corp. 4,300 $ 266,600
Lockheed Martin Corp. 3,900 327,600
McDonnell Douglas Corp. 9,200 446,200
United Technologies Corp. 3,300 379,500
-----------
$ 1,419,900
- -----------------------------------------------------------------------------
Agricultural Products - 2.1%
AGCO Corp. 9,200 $ 255,300
Case Corp. 4,800 230,400
-----------
$ 485,700
- -----------------------------------------------------------------------------
Apparel and Textiles - 0.9%
Nike, Inc., "B" 2,000 $ 205,500
- -----------------------------------------------------------------------------
Automotive - 0.5%
B.F. Goodrich Co. 2,900 $ 108,387
- -----------------------------------------------------------------------------
Banks and Credit Companies - 3.0%
BayBanks, Inc. 2,400 $ 258,600
Chase Manhattan Bank Corp. 3,900 275,437
Leader Financial Corp. 3,200 143,200
-----------
$ 677,237
- -----------------------------------------------------------------------------
Biotechnology - 0.2%
Guidant Corp.* 800 $ 39,400
- -----------------------------------------------------------------------------
Business Machines - 3.4%
Affiliated Computer Co.* 2,300 $ 108,100
Digital Equipment Corp.* 3,700 166,500
Gateway 2000, Inc.* 5,800 197,200
Sun Microsystems, Inc.* 5,100 300,262
-----------
$ 772,062
- -----------------------------------------------------------------------------
Business Services - 2.6%
Alco Standard Corp. 4,500 $ 203,625
Ceridian Corp.* 5,700 287,850
Technology Solutions Co.* 2,900 100,412
-----------
$ 591,887
- -----------------------------------------------------------------------------
Chemicals - 3.6%
Air Products & Chemicals, Inc. 3,700 $ 213,675
Grace (W.R.) & Co. 2,400 170,100
Hanna (M.A.) Co. 3,300 68,887
Polymer Group, Inc.* 1,500 26,250
Praxair, Inc. 6,200 261,950
Uniroyal Chemical Corp.* 4,600 68,425
-----------
$ 809,287
- -----------------------------------------------------------------------------
Computer Software - Personal Computers - 2.2%
Electronic Arts, Inc.* 5,900 $ 157,825
Microsoft Corp.* 2,800 336,350
-----------
$ 494,175
- -----------------------------------------------------------------------------
Computer Software - Systems - 7.6%
Adobe Systems, Inc. 4,300 $ 154,262
BMC Software, Inc.* 3,000 179,250
Cadence Design Systems, Inc.* 10,200 344,250
Computer Associates International, Inc. 2,200 $ 156,750
Compuware Corp.* 4,700 185,650
Oracle Systems Corp.* 12,300 485,081
Sybase, Inc.* 3,600 85,050
Synopsis, Inc.* 3,700 147,075
-----------
$ 1,737,368
- -----------------------------------------------------------------------------
Consumer Goods and Services - 9.8%
Colgate-Palmolive Co. 4,500 $ 381,375
Estee Lauder Cos., "A" 2,600 109,850
Gillette Co. 5,000 311,875
Philip Morris Cos., Inc. 4,300 447,200
Procter & Gamble Co. 3,800 344,375
Revlon, Inc., "A"* 3,800 110,675
Tyco International Ltd. 6,600 268,950
UST, Inc. 7,600 260,300
-----------
$ 2,234,600
- -----------------------------------------------------------------------------
Electronics - 1.7%
Analog Devices, Inc.* 3,500 $ 89,250
LSI Logic Corp.* 1,800 46,800
Xilinx, Inc.* 7,600 241,300
-----------
$ 377,350
- -----------------------------------------------------------------------------
Entertainment - 3.3%
Harrah's Entertainment, Inc.* 5,700 $ 161,025
Jacor Communications, Inc., "A"* 5,300 163,637
Showboat, Inc. 6,900 207,862
Viacom, Inc.* 5,800 225,475
-----------
$ 757,999
- -----------------------------------------------------------------------------
Financial Institutions - 1.7%
Advanta Corp., "B" 4,200 $ 190,050
Federal Home Loan Mortgage Corp. 2,200 188,100
-----------
$ 378,150
- -----------------------------------------------------------------------------
Food and Beverage Products - 1.0%
Tyson Foods, Inc., "A" 8,300 $ 227,212
- -----------------------------------------------------------------------------
Forest and Paper Products - 1.6%
Kimberly Clark Corp. 4,700 $ 363,075
- -----------------------------------------------------------------------------
Insurance - 5.5%
Amerin Corp.* 2,600 $ 69,550
CIGNA Corp. 3,200 377,200
Chartwell Re Corp. 2,800 61,950
Equitable of Iowa Cos. 3,800 134,900
Everest Reinsurance Holdings 5,700 147,487
IPC Holdings Ltd. 1,100 22,137
LaSalle Re Holdings Corp. 3,300 74,250
Penncorp Financial Group, Inc. 11,700 371,475
-----------
$ 1,258,949
- -----------------------------------------------------------------------------
Machinery - 0.4%
York International Corp. 2,000 $ 103,500
- -----------------------------------------------------------------------------
Medical and Health Products - 3.3%
Pfizer, Inc. 2,200 $ 157,025
Rhone Poulenc Rorer, Inc. 1,900 127,537
Uromed Corp.* 22,500 309,375
Ventritex, Inc.* 9,000 154,125
-----------
$ 748,062
- -----------------------------------------------------------------------------
Medical and Health Technology and Services - 4.5%
Amisys Managed Care Systems* 6,700 $ 172,525
Living Centers of America* 2,700 92,812
Mariner Health Group, Inc.* 2,000 36,750
Pacificare Health Systems, Inc., "A"* 2,500 165,000
St. Jude Medical, Inc. 9,300 311,550
United Healthcare Corp. 4,900 247,450
-----------
$ 1,026,087
- -----------------------------------------------------------------------------
Oils - 3.0%
Belco Oil & Gas Corp.* 3,400 $ 120,700
Mobil Corp. 2,700 302,737
Newfield Exploration Co.* 3,000 116,625
Seacor Holdings, Inc.* 3,400 152,150
-----------
$ 692,212
- -----------------------------------------------------------------------------
Railroads - 3.3%
Burlington Northern S.A. 2,600 $ 210,275
CSX Corp. 4,700 226,775
Wisconsin Central Transportation Corp.* 9,900 321,750
-----------
$ 758,800
- -----------------------------------------------------------------------------
Restaurants and Lodging - 5.3%
HFS, Inc.* 8,900 $ 623,000
Host Marriott Corp.* 16,900 221,812
MGM Grand, Inc.* 4,300 171,462
Sonic Corp.* 7,600 184,300
-----------
$ 1,200,574
- -----------------------------------------------------------------------------
Special Products and Services - 1.2%
Stanley Works 9,200 $ 273,700
- -----------------------------------------------------------------------------
Stores - 3.9%
CompUSA, Inc.* 6,500 $ 221,812
Gymboree Corp.* 6,700 204,350
Home Depot, Inc. 2,900 156,600
Lowes Co. 3,300 119,212
Micro Warehouse, Inc.* 4,200 84,000
Staples, Inc.* 5,600 109,200
-----------
$ 895,174
- -----------------------------------------------------------------------------
Supermarkets - 0.9%
Safeway, Inc. 6,000 $ 198,000
- -----------------------------------------------------------------------------
Telecommunications - 4.1%
Cabletron Systems, Inc.* 3,300 $ 226,462
Cisco Systems, Inc.* 5,100 288,787
Glenayre Technologies, Inc.* 5,800 290,000
Lucent Technologies 3,600 136,350
-----------
$ 941,599
- -----------------------------------------------------------------------------
Utilities - Gas - 1.9%
Coastal Corp. 5,700 $ 237,975
Panenergy Corp. 5,800 190,675
-----------
$ 428,650
- -----------------------------------------------------------------------------
Utilities - Telephone - 0.5%
MCI Communications Corp. 4,100 $ 105,062
- -----------------------------------------------------------------------------
Total U.S. Stocks (Identified Cost, $21,156,110) $20,309,658
- -----------------------------------------------------------------------------
Foreign Stocks - 10.9%
Denmark - 0.6%
ISS International Service System A/S, "B"
(Business Services) 6,600 $ 147,429
- -----------------------------------------------------------------------------
Finland - 0.5%
Huhtamaki Oy, "I", Free Shares (Consumer Products) 3,600 $ 120,419
- -----------------------------------------------------------------------------
France - 1.0%
TV Francaise (Entertainment) 900 $ 102,827
Union des Assurances Federales (Insurance) 1,000 123,384
-----------
$ 226,211
- -----------------------------------------------------------------------------
Hong Kong - 1.9%
Dah Sing Financial Group (Banks and Credit Cos.) 14,800 $ 44,838
Giordano International Ltd. (Stores) 138,000 133,717
Wharf Holdings Ltd. (Real Estate) 53,000 189,672
Wing Hang Bank Ltd. (Banks and Credit Cos.) 16,000 63,460
-----------
$ 431,687
- -----------------------------------------------------------------------------
Italy - 0.2%
Olivetti Group (Computers)* 83,500 $ 45,045
- -----------------------------------------------------------------------------
Philippines - 1.0%
Pilipino Telephone (Telecommunications)* 141,400 $ 215,894
- -----------------------------------------------------------------------------
Singapore - 0.8%
Singapore Press Holdings Ltd. (Publishing) 9,000 $ 176,720
- -----------------------------------------------------------------------------
South Korea - 0.5%
Korea Mobile Telecom, ADR (Telecommunications) 6,900 $ 118,162
- -----------------------------------------------------------------------------
Sweden - 2.9%
Astra AB, Free Shares, "B" (Medical and
Health Products) 7,100 $ 309,720
Ericsson LM, "B" (Telecommunications) 6,100 131,667
Nobel Biocare AB (Medical and Health Products)* 6,400 118,822
Volvo AB, ADR, "B" (Automotive) 4,200 95,728
-----------
$ 655,940
- -----------------------------------------------------------------------------
United Kingdom - 1.5%
Jarvis Hotels PLC (Restaurants and Lodging)*+ 41,700 $ 112,425
Kwik-Fit Holdings PLC (Automotive) 33,900 119,988
Lloyds TSB Group PLC (Banks and Credit Cos.) 24,700 120,784
-----------
$ 353,197
- -----------------------------------------------------------------------------
Total Foreign Stocks (Identified Cost, $2,171,882) $ 2,490,704
- -----------------------------------------------------------------------------
Total Investments (Identified Cost, $23,327,992) $22,800,362
Other Assets, Less Liabilities - (0.1)% (21,260)
- -----------------------------------------------------------------------------
Net Assets - 100.0% $22,779,102
- -----------------------------------------------------------------------------
*Non-income producing security.
+Restricted security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
June 30, 1996
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $23,327,992) $22,800,362
Cash 186,495
Foreign currency, at value and identified cost 4,432
Receivable for investments sold 317,953
Dividends receivable 19,312
Deferred organization expenses 6,824
-----------
Total assets $23,335,378
-----------
Liabilities:
Payable for investments purchased $ 548,173
Payable to affiliate for management fee 1,119
Accrued expenses and other liabilities 6,984
-----------
Total liabilities $ 556,276
-----------
Net assets $22,779,102
===========
Net assets consist of:
Paid-in capital $23,252,742
Unrealized depreciation on investments and translation of
assets and liabilities in foreign currencies (527,668)
Accumulated undistributed net realized gain on investments
and foreign currency transactions 17,745
Accumulated undistributed net investment income 36,283
-----------
Total $22,779,102
===========
Shares of beneficial interest outstanding 2,329,167
===========
Net asset value and offering price per share
(net assets of $22,779,102 / 2,329,167 shares of beneficial
interest outstanding) $9.78
=====
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ------------------------------------------------------------------------------
Period Ended June 30, 1996*
- ------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 30,277
Interest 21,483
---------
Total investment income $ 51,760
---------
Expenses -
Management fee $ 14,286
Shareholder servicing agent fee 179
Registration fees 17,610
Auditing fees 9,400
Printing 5,821
Legal fees 906
Amortization of organization expenses 149
Custodian fee 100
Postage 10
Miscellaneous 21
---------
Total expenses $ 48,482
Reduction of expenses by investment adviser (33,005)
---------
Net expenses $ 15,477
---------
Net investment income $ 36,283
---------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 18,047
Foreign currency transactions (302)
---------
Net realized gain on investments and foreign currency
transactions $ 17,745
---------
Change in unrealized depreciation -
Investments $(527,630)
Translation of assets and liabilities in foreign currencies (38)
---------
Net unrealized loss on investments and foreign currency
translation $(527,668)
---------
Net realized and unrealized loss on investments and
foreign currency $(509,923)
---------
Decrease in net assets from operations $(473,640)
=========
*For the period from the commencement of investment operations, May 21, 1996 to
June 30, 1996.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------
Period Ended June 30, 1996*
- ------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment income $ 36,283
Net realized gain on investments and foreign currency
transactions 17,745
Net unrealized loss on investments and foreign currency
translation (527,668)
-----------
Decrease in net assets from operations $ (473,640)
Fund share (principal) transactions -
Net proceeds from sale of shares 23,252,732
-----------
Total increase in net assets $22,779,092
Net assets:
At beginning of period 10
-----------
At end of period (including accumulated undistributed net
investment income of $36,283) $22,779,102
===========
*For the period from the commencement of investment operations, May 21, 1996
to June 30, 1996.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights
- ------------------------------------------------------------------------------
Period Ended June 30, 1996*
- ------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.00
------
Income from investment operations# -
Net investment income(S) $ 0.02
Net realized and unrealized loss on investments (0.24)
------
Total from investment operations $(0.22)
------
Net asset value - end of period $ 9.78
======
Total return (2.20)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.65%+
Net investment income 1.52%+
Portfolio turnover 6%
Average commission rate### $0.0260
Net assets at end of period (000 omitted) $22,779
* For the period from the commencement of investment operations, May 21, 1996
to June 30, 1996.
+ Annualized.
++ Not annualized.
# Per share data is based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid
indirectly.
### Average commission rate is calculated for funds with fiscal years beginning
on or after September 1, 1995.
(S) The Adviser voluntarily agreed to maintain the expenses of the Fund
at not more than 0.65% of average daily net assets. To the extent actual
expenses were over/under these limitations, the net investment income per
share and the ratios would have been:
Net investment income $ --
Ratios (to average net assets):
Expenses## 2.03%+
Net investment income 0.14%+
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Institutional Research Fund (the Fund) is a 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 reported amounts of revenues and expenses during the 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 - Equity securities listed on securities exchanges or
reported through the NASDAQ system are valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices are not
available are valued at last quoted bid prices. Debt securities (other than
short-term obligations which mature in 60 days or less), including listed
issues, are valued on the basis of valuations furnished by dealers or by a
pricing service with consideration to factors such as institutional-size trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics and other market data, without exclusive reliance
upon exchange or over-the-counter prices. Short-term obligations, which mature
in 60 days or less, are valued at amortized cost, which approximates market
value. Non-U.S. dollar denominated short-term obligations are valued at
amortized cost as calculated in the base currency and translated into U.S.
dollars at the closing daily exchange rate. Securities for which there are no
such quotations or valuations are valued at fair value as determined in good
faith by or at the direction of the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments, income and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates of
such transactions. Gains and losses attributable to foreign currency exchange
rates on sales of securities are recorded for financial statement purposes as
net realized gains and losses on investments. Gains and losses attributable to
foreign exchange rate movements on income and expenses are recorded for
financial statement purposes as foreign currency transaction gains and losses.
That portion of both realized and unrealized gains and losses on investments
that results from fluctuations in foreign currency exchange rates is not
separately disclosed.
Deferred Organization Expenses - Costs incurred by the Fund in connection with
its organization have been deferred and are being amortized on a straight-line
basis over a five-year period beginning on the date of commencement of
operations of the Fund.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
original issue discount are amortized or accreted for financial statement and
tax reporting purposes as required by federal income tax regulations. Dividend
income is recorded on the ex-dividend date for dividends received in cash.
Dividend and interest payments received in additional securities are recorded on
the ex-dividend or ex-interest date in an amount equal to the value of the
security on such date.
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 net taxable
income, including any net realized gain on investments. At June 30, 1996, the
Fund elected not to be taxed as a regulated investment company. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code which may differ from generally accepted accounting principles, the basis
on which these financial statements are prepared. Accordingly, the amount of net
investment income and net realized gain reported on these financial statements
may differ from that reported on the Fund's tax return, and consequently, the
character of distributions to shareholders reported in the financial highlights
may differ from that reported to shareholders on Form 1099-DIV. Foreign taxes
have been provided for on interest and dividend income earned on foreign
investments in accordance with the applicable country's tax rates and to the
extent unrecoverable are recorded as a reduction of investment income.
Distributions to shareholders are recorded on the ex-dividend date.
The Fund distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a return of
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains.
(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 effective annual rate of
0.60% of average daily net assets. The investment adviser did not impose a
portion of its fee, which is reflected as a reduction of expenses on the
Statement of Operations.
MFS has voluntarily agreed to pay the Fund's operating expenses exclusive of
management fees such that the Fund's aggregate expenses do not exceed 0.65% of
its average daily net assets.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive remuneration
for their services to the Fund from MFS. Certain of the officers and Trustees of
the Fund are officers or directors of MFS and MFS Service Center, Inc. (MFSC).
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of average daily net assets of the Fund at an effective annual rate
of up to 0.0075%.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions and
short-term obligations, aggregated $24,712,259 and $1,402,314, respectively.
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 $23,327,992
===========
Gross unrealized depreciation $(1,024,273)
Gross unrealized appreciation 496,643
-----------
Net unrealized depreciation $ (527,630)
===========
(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:
Period Ended June 30, 1996* Shares Amount
- ------------------------------------------------------------------------------
Shares sold 2,329,166 $23,252,732
--------- -----------
*For the period from the commencement of investment operations, May 21, 1996 to
June 30, 1996.
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS in an unsecured line of credit with a bank which permits
borrowings up to $350 million, collectively. Borrowings may be made to
temporarily finance the repurchase of Fund shares. Interest is charged to each
fund, based on its borrowings, at a rate equal to the bank's base rate. In
addition, a commitment fee, based on the average daily unused portion of the
line of credit, is allocated among the participating funds at the end of each
quarter. The commitment fee allocated to the Fund for the period ended June 30,
1996 was $5.
(7) Restricted Securities
The Fund may invest not more than 15% of its net assets in securities which are
subject to legal or contractual restrictions on resale. At June 30, 1996, the
Fund owned the following restricted security (constituting 0.5% of net assets)
which may not be publicly sold without registration under the Securities Act of
1933. The Fund does not have the right to demand that such security be
registered. The value of this security is determined by valuations supplied by a
pricing service or brokers or, if not available, in good faith by or at the
direction of the Trustees.
Date of
Description Acquisition Share Amount Cost Value
- -----------------------------------------------------------------------------
Jarvis Hotels PLC 6/21/96 - 6/25/96 $41,700 $116,049 $112,425
========
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Institutional Trust and Shareholders of MFS Institutional
Research Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Institutional Research Fund (one of the
series comprising MFS Institutional Trust) as of June 30, 1996, and the related
statement of operations, the statement of changes in net assets and the
financial highlights for the period from May 21, 1996, commencement of
operations, to June 30, 1996. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned at June 30, 1996 by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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
Research Fund at June 30, 1996, the results of its operations, the changes in
its net assets, and its financial highlights for the period from May 21, 1996,
commencement of operations, to June 30, 1996 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
August 2, 1996
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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.
