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[Logo]
INSTITUTIONAL ADVISORS, INC. Annual Report
for Year Ended
June 30, 1997
MFS(R) INSTITUTIONAL RESEARCH FUND
[Graphic Omitted]
<PAGE>
<TABLE>
MFS(R) INSTITUTIONAL RESEARCH FUND
<S> <C>
TRUSTEES INVESTMENT ADVISER
A. Keith Brodkin* Massachusetts Financial Services Company
Chairman and President 500 Boylston Street
Boston, MA 02116-3741
Nelson J. Darling, Jr.
Trustee, Eastern Enterprises DISTRIBUTOR
(diversified holding company) MFS Fund Distributors, Inc.
500 Boylston Street
William R. Gutow Boston, MA 02116-3741
Vice Chairman,
Capitol Entertainment Management Company INVESTOR SERVICE
(Blockbuster Video franchise) MFS Service Center, Inc.
P.O. Box 2281
DIRECTOR OF RESEARCH Boston, MA 02107-9906
Kevin R. Parke*
For additional information, contact
TREASURER your financial adviser.
W. Thomas London*
CUSTODIAN
ASSISTANT TREASURERS State Street Bank and Trust Company
Mark E. Bradley*
Ellen Moynihan* AUDITORS
James O. Yost* Deloitte & Touche LLP
SECRETARY WORLD WIDE WEB
Stephen E. Cavan* www.mfs.com
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
[DALBAR For the third year in a row,
LOGO] MFS earned a #1 ranking in the
DALBAR, Inc. Broker/Dealer Survey,
Main Office Operations Service Quality
Category. The firm achieved a 3.48
overall score on a scale of 1 to 4 in
the 1996 survey. A total of 110 firms
responded, offering input on the
quality of service they received from
29 mutual fund companies nationwide.
The survey contained questions about
service quality in 15 categories,
including "knowledge of phone service
contacts," "accuracy of transaction
processing," and "overall ease of
doing business with the firm."
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Shareholders:
An unprecedented combination of generally positive factors has helped the U.S.
economy enjoy a sustained period of relative stability and moderate growth in
which thousands of new jobs have been created every month, inflation remains
under control, and the investment climate -- at least until now -- has been
favorable. For example, the increased use of technology and other productivity
enhancements, as well as corporate restructuring and global competition, is
improving companies' balance sheets and helping control inflation. Meanwhile,
borrowing by corporations and governments continues to decline, while consumer
confidence is increasing, although consumer debt levels are still uncomfortably
high. While some lenders are beginning to tighten standards to address this
problem, consumer debt and personal bankruptcies continue to rise. Because of
this, plus slight declines in other indicators such as average hourly wages and
the corporate purchasing-managers index, we do not expect the rapid pace of
growth seen in the first quarter of 1997 to continue. While second-quarter
growth has slowed dramatically, we do expect the second half of the year to pick
up once again with real (inflation-adjusted) growth centering around 2 1/2%.
We have been surprised by the strength of the U.S. equity market in the
first half of 1997. Much of this is the result of continuing gains in corporate
earnings. Even as the current recovery enters its seventh year, more and more
U.S. companies have been exceeding MFS analysts' earnings estimates. In the
first quarter of 1997, for example, two-thirds of all companies met or exceeded
MFS analysts' expectations, a trend that could be an important indicator of the
U.S. equity market's future direction. However, while the near-term outlook for
profits is generally favorable, we believe equity valuations have risen to a
point where a cautious investment approach seems warranted.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
/s/ A. Keith Brodkin
A. Keith Brodkin
Chairman and President
July 14, 1997
<PAGE>
DIRECTOR OF RESEARCH'S OVERVIEW
Dear Shareholders:
For the 12 months ended June 30, 1997, the Fund provided a total return of
24.12% (including the reinvestment of distributions), which compares to a return
of 34.68% for the Standard & Poor's 500 Composite Index (the S&P 500), a
popular, unmanaged index of common stock total return performance, for the same
period.
The Fund's underperformance versus the S&P 500 during this period can be
attributed to three sectors: technology, health care, and business products and
services. Overall, the companies held in the Fund in each of these sectors
performed well during this period; however, these sectors in the Fund were
unable to maintain the torrid pace of the equivalent sectors in the S&P 500. The
computer software and business products and services sectors have shown
broad-based weakness during the past six months, primarily reflecting concerns
about high valuations and fears regarding upcoming earnings announcements.
Networking stocks were also pressured during the period because of a resurfacing
competitive environment. The companies within these two sectors that are held in
the Fund are leaders in their respective industries, and the analysts have
chosen them because of what they see as their long-term, sustainable competitive
advantage within their industries, which they believe will translate into
successful long-term stock market performance.
During the past 12 months, sector weightings have shifted based on the
industry analysts' changing best ideas. Most notably, the financial services
sector increased by roughly 6.3%. The slow-growth, low-inflation economic
environment has allowed select banks and insurance companies to flourish during
the latter half of 1996 and the first half of 1997, and many of the banking and
insurance stocks in the Fund have performed well.
The analysts have also increased their weighting in the basic materials
sector. Several companies within the chemical and specialty chemical industries,
including du Pont, Air Products and Chemicals, and Praxair, have enhanced the
Fund's return. These companies have achieved strong stock performance through
focused cost-savings efforts and the introduction of new, higher-margin products
and services that have complemented their existing product lines.
The weighting in the technology sector remained the same during the period,
and several stocks in this sector positively contributed to the Fund's
performance, including Microsoft, Compuware, Intel, Compaq, and Lucent
Technologies. These companies have developed what the analysts view as solid
competitive positions within their industries that have translated into
successful stock performance. The analysts believe that earnings outlooks for
all of the technology companies held in the Fund remain strong.
The Fund remains underweighted in energy, autos and housing, and utilities
and communications. The analysts have determined that the earnings outlook for
many of the companies within these sectors remains bleak. In addition, they have
reduced exposure to the leisure and transportation sectors based on an uncertain
profit picture.
The Fund continues to be based upon the research analysts' best ideas within
their industries. The stocks are selected after careful, in-depth fundamental
analysis of individual companies' earnings outlooks. Although each analyst
incorporates general economic forecasts into his or her decision-making process,
ultimately, stocks selected for the Fund represent companies that the analysts
believe offer the best possibility for capital appreciation regardless of the
economic outlook. These companies typically demonstrate dominant and/or growing
market share, quality new and existing products, superior management teams, and
strong financial statements. However, the committee of analysts revisits
weightings regularly to assure agreement within the changing economic landscape.
Respectfully,
/s/ Kevin R. Parke
Kevin R. Parke
Director of Research
The committee of MFS research analysts is responsible for the day-to-day
management of the Fund under the general supervision of Mr. Parke.
<PAGE>
OBJECTIVE AND POLICIES
The Fund's investment objective is to provide long-term growth of capital and
future income. The Fund seeks to achieve its objective by investing, 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. Shares of the Fund are purchased at net asset value. The minimum initial
investment is generally $3 million.
Commencement of investment operations: May 21, 1996.
TAX FORM SUMMARY
In January 1998, shareholders will be mailed a Tax Form Summary reporting the
federal tax status of all distributions paid during the calendar year 1997.
PERFORMANCE SUMMARY
The information below illustrates the historical performance of MFS
Institutional Research Fund shares in comparison to various market indicators.
Benchmark comparisons are unmanaged and do not reflect any fees or expenses.
It is not possible to invest directly in an index.
GROWTH OF A HYPOTHETICAL $3,000,000 INVESTMENT
(For the period June 1, 1996, through June 30, 1997)
MFS
CONSUMER PRICE INSTITUTIONAL
INDEX - U.S. S&P 500 RESEARCH FUND
------------ ------- -------------
June/96 3.00 3.00 3.00
June/96 3.00 3.01 2.93
Sept/96 3.02 3.10 3.06
Dec/96 3.04 3.36 3.27
Mar/97 3.07 3.45 3.13
June/97 3.07 4.05 3.64
AVERAGE ANNUAL TOTAL RETURNS AS OF JUNE 30, 1997
1 Year Life of Fund*
- ------------------------------------------------------------------------------
MFS Institutional Research Fund +24.12% +19.03%
- ------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index+ +34.48% +32.43%
- ------------------------------------------------------------------------------
Consumer Price Index**+ + 2.14% + 2.90%
- ------------------------------------------------------------------------------
*For the period from the commencement of the Fund's investment operations, May
21, 1996, through June 30, 1997.
+Source: CDA/Wiesenberger.
**The Consumer Price Index is published by the U.S. Bureau of Labor Statistics
and measures the cost of living (inflation).
All results are historical and assume the reinvestment of dividends and capital
gains. Investment return and principal value will fluctuate, and shares, when
redeemed, may be worth more or less than their original cost. Past performance
is no guarantee of future results.
Fund results reflect any applicable expense subsidies and waivers, without which
the performance results would have been less favorable. Subsidies and waivers
may be rescinded at any time. See the prospectus for details.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS - June 30, 1997
Stocks - 97.1%
<CAPTION>
- ----------------------------------------------------------------------------------------------
Issuer Shares Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 89.4%
Aerospace - 4.2%
General Dynamics Corp. 3,400 $ 255,000
Lockheed-Martin Corp. 6,100 631,731
United Technologies Corp. 10,500 871,500
-----------
$ 1,758,231
- ----------------------------------------------------------------------------------------------
Agricultural Products - 0.8%
Case Corp. 4,900 $ 337,488
- ----------------------------------------------------------------------------------------------
Apparel and Textiles - 0.9%
Polo Ralph Lauren Corp.* 500 $ 13,688
Reebok International Ltd. 7,600 355,300
-----------
$ 368,988
- ----------------------------------------------------------------------------------------------
Banks and Credit Companies - 3.9%
BankBoston Corp. 3,040 $ 219,070
Chase Manhattan Corp. 6,200 601,787
Comerica, Inc. 6,700 455,600
Fleet/Norstar Financial Group, Inc. 5,700 360,525
-----------
$ 1,636,982
- ----------------------------------------------------------------------------------------------
Business Machines - 1.0%
Sun Microsystems, Inc.* 11,300 $ 420,572
- ----------------------------------------------------------------------------------------------
Business Services - 1.2%
AccuStaff, Inc.* 15,200 $ 360,050
DST Systems, Inc.* 4,000 133,250
-----------
$ 493,300
- ----------------------------------------------------------------------------------------------
Chemicals - 4.2%
Air Products & Chemicals, Inc. 8,100 $ 658,125
Betzdearborn, Inc. 2,500 165,000
du Pont (E.I.) de Nemours & Co., Inc. 7,800 490,425
Ferro Corp. 3,500 129,719
Praxair, Inc. 6,200 347,200
-----------
$ 1,790,469
- ----------------------------------------------------------------------------------------------
Computer Software - Personal Computers - 4.4%
Electronic Arts, Inc.* 9,500 $ 319,437
First Data Corp. 12,500 549,219
Microsoft Corp.* 7,800 985,725
-----------
$ 1,854,381
- ----------------------------------------------------------------------------------------------
Computer Software - Systems - 7.5%
Adobe Systems, Inc. 6,600 $ 231,413
BMC Software, Inc.* 6,700 371,012
Cadence Design Systems, Inc.* 7,500 251,250
Compaq Computer Corp.* 5,900 585,575
Computer Associates International, Inc. 7,500 417,656
Compuware Corp.* 6,300 300,825
Oracle Systems Corp.* 14,100 710,287
Sybase, Inc.* 5,700 84,788
Synopsys, Inc.* 5,400 198,450
-----------
$ 3,151,256
- ----------------------------------------------------------------------------------------------
Consumer Goods and Services - 9.6%
Colgate-Palmolive Co. 13,400 $ 874,350
Estee Lauder Cos., "A" 5,400 271,350
Gillette Co. 7,800 739,050
Hertz Corp., "A"* 400 14,400
Keystone International, Inc. 12,200 423,187
Philip Morris Cos., Inc. 4,500 199,688
Procter & Gamble Co. 4,100 579,125
Revlon, Inc., "A"* 6,100 316,056
Sherwin Williams Co. 4,600 142,025
Tyco International Ltd. 7,300 507,806
-----------
$ 4,067,037
- ----------------------------------------------------------------------------------------------
Containers - 0.3%
Stone Container Corp. 8,800 $ 125,950
- ----------------------------------------------------------------------------------------------
Defense Electronics - 0.7%
Loral Space & Communications Corp.* 20,400 $ 306,000
- -------------------------------------------------------------------------------------------------------
Electronics - 3.1%
ADT Ltd.* 7,400 $ 244,200
Analog Devices, Inc.* 6,533 173,533
Intel Corp. 6,200 879,237
-----------
$ 1,296,970
- ----------------------------------------------------------------------------------------------
Entertainment - 1.4%
Clear Channel Communications, Inc.* 4,800 $ 295,200
Jacor Communications, Inc., "A"* 8,000 306,000
-----------
$ 601,200
- ----------------------------------------------------------------------------------------------
Financial Institutions - 4.1%
Advanta Corp., "B" 8,200 $ 292,638
American Express Co., Inc. 3,100 230,950
Federal National Mortgage Assn. 7,100 309,737
Franklin Resources, Inc. 4,300 312,019
Household International, Inc. 2,000 234,875
Union Planters Corp. 6,632 344,035
-----------
$ 1,724,254
- ----------------------------------------------------------------------------------------------
Financial Services - 0.3%
Morgan Stanley, Dean Witter, Discovery and Co.* 3,300 $ 142,106
- ----------------------------------------------------------------------------------------------
Food and Beverage Products - 3.3%
Coca-Cola Co. 11,900 $ 803,250
Earthgrains Co. 3,000 196,688
McCormick & Co., Inc. 8,700 219,675
Tyson Foods, Inc. - Delaware 9,850 188,381
-----------
$ 1,407,994
- ----------------------------------------------------------------------------------------------
Forest and Paper Products - 1.4%
Kimberly-Clark Corp. 12,000 $ 597,000
- ----------------------------------------------------------------------------------------------
Insurance - 8.5%
Allstate Corp. 5,300 $ 386,900
ARM Financial Group, Inc., "A"* 200 4,000
Chubb Corp. 4,900 327,687
CIGNA Corp. 3,800 674,500
Conseco, Inc. 14,300 529,100
Equitable of Iowa Cos. 3,700 207,200
Hartford Financial Services Group, Inc. 5,200 430,300
Hartford Life, Inc.* 300 11,250
PennCorp Financial Group, Inc. 10,200 392,700
Reliastar Financial Corp. 500 36,563
Security - Connecticut Corp. 3,700 203,731
Travelers Group, Inc. 6,300 397,294
-----------
$ 3,601,225
- ----------------------------------------------------------------------------------------------
Medical and Health Products - 2.0%
Bristol-Myers Squibb Co. 9,700 $ 785,700
Uromed Corp.* 16,700 58,450
-----------
$ 844,150
- ----------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 7.1%
Cardinal Health, Inc. 3,100 $ 177,475
HBO & Co. 6,900 475,238
HealthSouth Corp.* 7,700 192,019
Horizon CMS Healthcare Corp.* 10,900 218,681
Integrated Health Services, Inc. 2,200 84,700
Pacificare Health Systems, Inc., "A"* 2,400 145,350
St. Jude Medical, Inc.* 14,000 546,000
Tenet Healthcare Corp.* 8,500 251,281
United Healthcare Corp. 13,300 691,600
Vencor, Inc.* 5,000 211,250
-----------
$ 2,993,594
- ----------------------------------------------------------------------------------------------
Oil Services - 1.3%
Apache Corp. 4,600 $ 149,500
Burlington Resources, Inc. 5,900 260,338
Diamond Offshore Drilling, Inc.* 2,000 156,250
-----------
$ 566,088
- ----------------------------------------------------------------------------------------------
Oils - 0.7%
Chevron Corp. 3,800 $ 280,963
- ----------------------------------------------------------------------------------------------
Pollution Control - 0.5%
Browning Ferris Industries, Inc. 6,800 $ 226,100
- ----------------------------------------------------------------------------------------------
Railroads - 2.1%
Burlington Northern Santa Fe Railway Co. 4,500 $ 404,437
Wisconsin Central Transportation Corp.* 12,500 465,625
-----------
$ 870,062
- ----------------------------------------------------------------------------------------------
Restaurants and Lodging - 3.0%
Doubletree Corp.* 1,200 $ 49,350
HFS, Inc.* 10,700 620,600
Hilton Hotels Corp. 4,200 111,563
Host Marriott Corp.* 26,100 464,906
-----------
$ 1,246,419
- ----------------------------------------------------------------------------------------------
Solid Waste - 0.4%
Waste Management, Inc. 5,500 $ 176,688
- ----------------------------------------------------------------------------------------------
Special Products and Services - 0.7%
Newport News Shipbuilding, Inc. 16,100 $ 312,944
- ----------------------------------------------------------------------------------------------
Stores - 3.7%
Ann Taylor Stores Corp.* 6,500 $ 126,750
Gymboree Corp.* 10,300 247,200
Home Depot, Inc. 4,600 317,112
Lowes Co., Inc. 5,200 193,050
Rite Aid Corp. 9,600 478,800
Staples, Inc.* 8,800 204,600
-----------
$ 1,567,512
- ----------------------------------------------------------------------------------------------
Supermarkets - 1.2%
Safeway, Inc.* 11,400 $ 525,825
- ----------------------------------------------------------------------------------------------
Telecommunications - 3.0%
Aspect Telecommunications Corp.* 17,600 $ 391,600
Intermedia Communications, Inc.* 400 12,950
Lucent Technologies, Inc. 5,000 360,312
Qwest Communications International, Inc.* 200 5,450
WorldCom, Inc.* 16,100 515,200
-----------
$ 1,285,512
- ----------------------------------------------------------------------------------------------
Utilities - Gas - 1.0%
Coastal Corp. 7,900 $ 420,181
- ----------------------------------------------------------------------------------------------
Utilities - Telephone - 1.9%
MCI Communications Corp. 10,200 $ 390,469
Sprint Corp. 8,200 431,525
-----------
$ 821,994
- ----------------------------------------------------------------------------------------------
Total U.S. Stocks $37,819,435
- ----------------------------------------------------------------------------------------------
Foreign Stocks - 7.7%
Finland - 0.3%
Huhtamaki Oy Group (Conglomerate) 2,600 $ 111,998
- ----------------------------------------------------------------------------------------------
France - 0.4%
Union des Assurances Federales S.A. (Insurance) 1,500 $ 176,425
- ----------------------------------------------------------------------------------------------
Hong Kong - 0.5%
Wharf Holdings Ltd. (Real Estate) 51,000 $ 221,195
- ----------------------------------------------------------------------------------------------
Italy - 0.6%
Gucci Group Designs N.V. (Apparel and Textiles) 4,200 $ 270,375
- ----------------------------------------------------------------------------------------------
Japan - 2.3%
Canon, Inc. (Consumer Goods) 14,000 $ 381,451
Sony Corp. (Electronics) 5,200 453,655
TDK Corp. (Special Products and Services) 2,000 146,887
-----------
$ 981,993
- ----------------------------------------------------------------------------------------------
Singapore - 0.3%
DBS Land Limited (Real Estate) 37,000 $ 117,016
- ----------------------------------------------------------------------------------------------
Switzerland - 0.9%
Novartis AG (Pharmaceuticals) 235 $ 375,730
- ----------------------------------------------------------------------------------------------
United Kingdom - 2.4%
Jarvis Hotels PLC (Restaurants and Lodging)+ 69,800 $ 161,406
Kwik-Fit Holdings PLC (Retail) 44,900 200,931
Storehouse PLC (Retail) 24,700 77,354
British Petroleum PLC, ADR (Oils) 7,568 566,654
-----------
$ 1,006,345
- ----------------------------------------------------------------------------------------------
Total Foreign Stocks $ 3,261,077
- ----------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $35,964,419) $41,080,512
- ----------------------------------------------------------------------------------------------
Short-Term Obligation - 11.6%
- ----------------------------------------------------------------------------------------------
Principal Amount
(000 Omitted)
- ----------------------------------------------------------------------------------------------
Federal Home Loan Bank, due 7/01/97, at Amortized
Cost and Value $4,900 $ 4,900,000
- ----------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $40,864,419) $45,980,512
Other Assets, Less Liabilities - (8.7)% (3,688,788)
- ----------------------------------------------------------------------------------------------
Net Assets - 100.0% $42,291,724
- ----------------------------------------------------------------------------------------------
*Non-income producing security.
+Restricted security.
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
June 30, 1997
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $40,864,419) $45,980,512
Cash 88,907
Foreign currency, at value (identified cost, $7,932) 7,929
Receivable for Fund shares sold 11,996
Dividends receivable 47,091
Receivable from investment adviser 82,036
Deferred organization expenses 5,430
Other assets 220
-----------
Total assets $46,224,121
-----------
Liabilities:
Payable for investments purchased $ 3,900,451
Payable to affiliate for management fee 1,871
Accrued expenses and other liabilities 30,075
-----------
Total liabilities $ 3,932,397
-----------
Net assets $42,291,724
===========
Net assets consist of:
Paid-in capital $37,085,678
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 5,115,912
Accumulated undistributed net realized loss on investments
and foreign currency transactions (13,245)
Accumulated undistributed net investment income 103,379
-----------
Total $42,291,724
===========
Shares of beneficial interest outstanding 3,495,392
=========
Net asset value, offering price, and redemption price per share
(net assets of $42,291,724 / 3,495,392 shares of beneficial
interest outstanding) $12.10
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- --------------------------------------------------------------------------------
Year Ended June 30, 1997
- --------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 275,519
Interest 47,159
Foreign taxes withheld (7,101)
----------
Total investment income $ 315,577
----------
Expenses -
Management fee $ 156,892
Trustees' compensation 4,700
Shareholder servicing agent fee 1,773
Administrative fee 1,531
Auditing fee 23,530
Custodian fee 20,039
Registration fee 18,020
Printing 3,850
Amortization of organization expenses 1,394
Legal fee 561
Miscellaneous 2,440
----------
Total expenses $ 234,730
Fees paid indirectly (2,692)
Reduction of expenses by investment adviser (62,070)
----------
Net expenses $ 169,968
----------
Net investment income $ 145,609
----------
Realized and unrealized gain (loss) on investments:
Realized loss (identified cost basis) -
Investment transactions $ (27,898)
Foreign currency transactions (1,895)
----------
Net realized loss on investments and foreign
currency transactions $ (29,793)
----------
Change in unrealized appreciation (depreciation) -
Investments $5,643,723
Translation of assets and liabilities in foreign currencies (143)
----------
Net unrealized gain on investments and foreign currency
translation $5,643,580
----------
Net realized and unrealized gain on investments
and foreign currency $5,613,788
----------
Increase in net assets from operations $5,759,396
==========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
- ------------------------------------------------------------------------------------------------
Year Ended Period Ended
June 30, 1997 June 30, 1996*
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 145,609 $ 36,283
Net realized gain (loss) on investments and foreign
currency transactions (29,793) 17,745
Net unrealized gain (loss) on investments and foreign
currency translation 5,643,580 (527,668)
----------- -----------
Increase (decrease) in net assets from operations $ 5,759,396 $ (473,640)
----------- -----------
Distributions declared to shareholders -
From net investment income
$ (79,710) $ --
----------- -----------
Fund share (principal) transactions -
Net proceeds from sale of shares $17,800,872 $23,252,732
Net asset value of shares issued to shareholders in
reinvestment of distributions 79,710 --
Cost of shares reacquired (4,047,646) --
----------- -----------
Increase in net assets from Fund share transactions $13,832,936 $23,252,732
----------- -----------
Total increase in net assets $19,512,622 $22,779,092
Net assets:
At beginning of period 22,779,102 10
----------- -----------
At end of period (including accumulated undistributed net
investment income of $103,379 and $36,283, respectively) $42,291,724 $22,779,102
=========== ===========
*For the period from the commencement of the Fund's investment operations, May
21, 1996, through June 30, 1996.
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Year Ended Period Ended
June 30, 1997 June 30, 1996*
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 9.78 $ 10.00
------- -------
Income from investment operations# -
Net investment income(S) $ 0.06 $ 0.02
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 2.29 (0.24)
------- -------
Total from investment operations $ 2.35 $ (0.22)
------- -------
Less distributions declared to shareholders -
From net investment income $ (0.03) $ --
------- -------
Net asset value - end of period $ 12.10 $ 9.78
======= =======
Total return 24.12% (2.20)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 0.65% 0.65%+
Net investment income 0.56% 1.52%+
Portfolio turnover 84% 6%
Average commission rate $0.0318 $0.0260
Net assets, end of period (000 omitted) $42,292 $22,779
* For the period from the commencement of the Fund's investment operations, May 21, 1996, through June 30, 1996.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid indirectly.
(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 this limitation, the net investment income per share and
the ratios would have been:
Net investment income $ 0.03 $ --
Ratios (to average net assets):
Expenses## 0.90% 2.03%+
Net investment income 0.31% 0.14%+
See notes to financial statements
</TABLE>
<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 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 - Equity securities listed on securities exchanges or
reported through the NASDAQ system are reported at market value using last sale
prices. Unlisted equity securities or listed equity securities for which last
sale prices are not available are reported at market value using last quoted bid
prices. Short-term obligations, which mature in 60 days or less, are valued at
amortized cost, which approximates market value. Securities for which there are
no such quotations or valuations are valued at fair value as determined in good
faith by or at the direction of the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates of
such transactions. Gains and losses attributable to foreign currency exchange
rates on sales of securities are recorded for financial statement purposes as
net realized gains and losses on investments. Gains and losses attributable to
foreign exchange rate movements on income and expenses are recorded for
financial statement purposes as foreign currency transaction gains and losses.
That portion of both realized and unrealized gains and losses on investments
that result from fluctuations in foreign currency exchange rates is not
separately disclosed.
Deferred Organization Expenses - Costs incurred by the Fund in connection with
its organization have been deferred and are being amortized on a straight-line
basis over a five-year period beginning on the date of commencement of Fund
operations.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premiums and
original issue discounts are amortized or accreted for financial statement and
tax reporting purposes as required by federal income tax regulations. Dividends
received in cash are recorded on the ex-dividend date. Dividend payments
received in additional securities are recorded on the ex-dividend 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 which measures the value of cash deposited with the custodian by the
Fund. This amount is shown as a reduction of expenses on the Statement of
Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
The Fund files a tax return annually using tax accounting methods required under
provisions of the Code which may differ from generally accepted accounting
principles, the basis on which these financial statements are prepared.
Accordingly, the amount of net investment income and net realized gain reported
on these financial statements may differ from that reported on the Fund's tax
return and, consequently, the character of distributions to shareholders
reported in the financial highlights may differ from that reported to
shareholders on Form 1099-DIV. Capital gains taxes have been provided on
unrealized and realized gains from securities transactions in countries where
such a capital gains tax is applicable. Realized and unrealized gain is reported
net of any capital gains tax in the Statement of Operations. Distributions to
shareholders are recorded on the ex-dividend date.
The Fund distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a tax return of
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes are classified as
distributions in excess of net investment income or accumulated net realized
gains. During the year ended June 30, 1997, $1,197 was reclassified to
accumulated undistributed net investment income from accumulated net realized
gain on investments due to differences between book and tax accounting for
currency transactions. This change had no effect on the net assets or net asset
value per share.
At June 30, 1997, the Fund, for federal income tax purposes, had a capital loss
carryforward of $7,440 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, 2005.
(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 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.
This is reflected as a reduction of expenses in the Statement of Operations.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive remuneration
for their services to the Fund from MFS. Certain officers and Trustees of the
Fund are officers or directors of MFS and MFS Service Center, Inc. (MFSC).
Administrator - Effective March 1, 1997, the Fund has an administrative services
agreement with MFS to provide the Fund with certain financial, legal, and other
administrative services. As a partial reimbursement for the cost of providing
these services, the Fund pays MFS an administrative fee up to 0.015% per annum
of the Fund's average daily net assets, provided that the administrative fee is
not assessed on Fund assets that exceed $3 billion.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the fund's average daily net assets at an effective annual rate of
up to 0.0075%.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$34,365,806 and $21,701,079, 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 $40,931,198
===========
Gross unrealized appreciation $ 5,687,620
Gross unrealized depreciation (638,306)
-----------
Net unrealized appreciation $ 5,049,314
===========
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year Ended June 30, 1997 Period Ended June 30, 1996*
--------------------------- ---------------------------
Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,574,044 $17,800,872 2,329,167 $23,252,732
Shares issued to shareholders in
reinvestment of distributions 7,415 79,710 -- --
Shares reacquired (415,234) (4,047,646) -- --
--------- ----------- --------- -----------
Net increase 1,166,225 $13,832,936 2,329,167 $23,252,732
========= =========== ========= ===========
</TABLE>
*For the period from the commencement of the Fund's investment operations, May
21, 1996, through June 30, 1996. (6) Line of Credit The Fund and other
affiliated funds participate in a $400 million unsecured line of credit provided
by a syndication of banks under a line of credit agreement. Borrowings may be
made to temporarily finance the repurchase of Fund shares. Interest is charged
to each fund, based on its borrowings, at a rate equal to the bank's base rate.
In addition, a commitment fee, based on the average daily unused portion of the
line of credit, is allocated among the participating funds at the end of each
quarter. The commitment fee allocated to the Fund for the year ended June 30,
1997, was $60.
(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, 1997, the
Fund owned the following restricted securities (constituting 0.38% of net
assets) which may not be publicly sold without registration under the Securities
Act of 1933 (the 1933 Act). The Fund does not have the right to demand that such
securities be registered. The value of these securities 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.
<TABLE>
<CAPTION>
Share/Par
Description Dates of Acquisition Amount Cost Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jarvis Hotels PLC 6/21/96 - 6/13/97 69,800 $189,438 $161,406
======== ========
</TABLE>
<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, 1997, the related
statement of operations for the year then ended, the statement of changes in net
assets and the financial highlights for the year then ended and 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at June
30, 1997 by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Institutional
Research Fund at June 30, 1997, the results of its operations, the changes in
its net assets, and its financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
August 1, 1997
--------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
<PAGE>
(C)1997 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
IRF-2 8/97 300
