<PAGE>
[Logo] M F S(SM) SEMIANNUAL REPORT
INVESTMENT MANAGEMENT DECEMBER 31, 1998
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
MFS(R) INSTITUTIONAL
RESEARCH FUND
[Graphic Omitted]
<PAGE>
MFS(R) INSTITUTIONAL RESEARCH FUND
<TABLE>
<S> <C>
TRUSTEES INVESTMENT ADVISER
Jeffrey L. Shames* Massachusetts Financial Services Company
Chairman, Chief Executive Officer, and 500 Boylston Street
Director, MFS Investment Management(R) 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 Company; INVESTOR SERVICE
Real Estate Consultant MFS Service Center, Inc.
P.O. Box 2281
CHAIRMAN AND PRESIDENT Boston, MA 02107-9906
Jeffrey L. Shames*
For additional information,
DIRECTOR OF EQUITY RESEARCH contact your financial adviser.
Kevin R. Parke*
CUSTODIAN
TREASURER State Street Bank and Trust Company
W. Thomas London*
WORLD WIDE WEB
ASSISTANT TREASURERS www.mfs.com
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
</TABLE>
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Shareholders,
In 1999, MFS celebrates its 75th anniversary. The nation's first mutual fund
- -- our Massachusetts Investors Trust (MIT) -- was introduced to the public on
March 21, 1924. Since then, MFS Investment Management(R), the company that
grew out of that original fund, has helped guide shareholders through many
economic and investment cycles, primarily by focusing on the long-term
opportunities created by an expanding global economy. As of December 31, 1998,
MFS manages nearly $100 billion, and the firm's 2,000 people serve almost four
million investors and their financial advisers worldwide. Meanwhile, MIT's
assets have grown to over $12 billion, and 56 mutual funds are offered in the
MFS Family of Funds(R).
One of the elements in the success of MIT did not exist before our founders
invented it in 1924. That is daily redemption. This innovation means that if
you want to sell your investment in any MFS mutual fund, you have the security
of knowing that you may do so immediately by exchanging into another MFS fund.
Or, if you need your money for other purposes, it can quickly be wired or
mailed to you. This daily redemption feature, through which new shares were
created when people invested in MIT and were redeemed when people sold,
brought another important change to the industry. Now, the price of a mutual
fund's shares wasn't determined by supply and demand, but by the value of the
securities owned by the fund.
Another factor in our growth was the development of one of the industry's
first in-house research departments in 1932. Unlike companies that rely on
Wall Street research reports, which can be used by many investors at the same
time, MIT's managers built its long-term track record by visiting companies,
talking to managers and competitors, and "kicking the tires" so they could
judge the quality and potential of each company's products and services for
themselves. Today, MFS has more than 100 full-time portfolio managers, stock
analysts, and credit analysts who track the equity and bond markets. That
number includes over 35 equity analysts who specialize in industries such as
aviation, media, technology, automobiles, and utilities.
While MIT introduced the daily redemption feature, that was not our only
invention. We also established the nation's first global bond fund, first
high-yield municipal bond fund, and first high-yield municipal closed-end bond
fund.
We are proud of the record of MIT and of the funds in the MFS Family of Funds,
but we are also proud of our long-standing relationship with financial
advisers. Not only do we believe investors can benefit from the advice of
these experts but, as was shown during the market volatility of 1998, people
who work with financial advisers are less likely to abandon their carefully
designed, long-term investment strategies.
Our ability to service your investment and information needs is also extremely
important to us. The MFS Service Center handles millions of transactions and
phone calls every year. Supporting the work of financial advisers, promptly
sending out statements and confirmations, and answering hundreds of investors'
questions every day are crucial elements in maintaining long-term
relationships with our fund shareholders. That link to our investors has also
been enhanced by our site on the World Wide Web: WWW.MFS.COM. Since 1996, this
site has given investors and the general public access to up-to-date
information about MFS products and services, as well as market outlooks and
retirement information. The site has rapidly become one of our primary
vehicles for communicating with our investors and educating the public about
mutual funds in general and MFS in particular.
If there is a common thread running through these milestones, it is our
always-increasing commitment to providing you with the best possible
investment management and shareholder service, just as we have done for the
past 75 years.
As we celebrate this anniversary, it is also a time for MFS to look ahead and
build on our 75 years of innovation and experience to help meet your
investment needs in the next century. We appreciate your confidence and
welcome any questions or comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management
January 15, 1999
MANAGEMENT REVIEW AND OUTLOOK
Dear Shareholders,
For the six months ended December 31, 1998, the Fund provided a total return
of 4.57%. This compares to a return of 9.23% for the Standard & Poor's 500
Composite Index (the S&P 500), a popular, unmanaged index of common stock
total return performance.
Regarding the underperformance of the portfolio in comparison to the S&P 500,
it pays to bear in mind that this portfolio is truly a "best ideas" portfolio
that invests in what we feel are strong stocks regardless of their market
capitalizations or industry sectors. The roller-coaster ride that the market
has been on in the past few months has been driven by a narrow band of large-
capitalization, multinational companies, while the portfolio has significant
holdings in small- and mid-cap stocks. As a result, this portfolio does not
move in lock-step with the S&P 500, and we feel this flexibility will better
position the portfolio for long-term growth as the valuation gap between large
and small companies closes. We manage the portfolio through MFS(R) Original
Research(SM), whereby we select companies that we feel can demonstrate
earnings growth in a variety of market conditions. This approach is very
important in a market such as this one in which we see few companies with the
ability to raise prices on their products.
While volatility bothers some investors, we believe it has created some
compelling bargains for what we feel are fundamentally sound companies. We
tried to take advantage of these during the market's downturn and added to
positions that had shown weaker stock prices but still demonstrated sound
fundamental outlooks. Now, with share prices rebounding across market
capitalizations, we are paying additional attention to companies' valuations.
If we find instances of valuations that are not supported by stocks'
fundamentals, we will pare back our positions in order to preserve gains for
investors.
Two of our best ideas are MCI WorldCom and Lucent Technologies, both of which
are benefiting from the growth in demand for data communications products. We
believe MCI WorldCom has achieved the best strategic position in the industry
by focusing on the business market, which is the fastest-growing and most-
profitable segment of the data communications and Internet arena. It is also
expanding internationally and has been successfully taking market share from
larger, more-entrenched European telecommunications companies, many of which
were formerly nationalized industries. MCI is following the same
entrepreneurial model in Europe that it did in the United States, where it had
similar success in competition with AT&T. Finally, we feel the stock's current
valuation, or the ratio of its share price to its projected earnings, is
attractive at 22 times 1999 earnings estimates. Lucent Technologies is the
leading telecommunications equipment supplier in the United States. It
continues to benefit from increased capital spending, as telecommunications
companies such as MCI WorldCom and AT&T spend to accommodate the growth in
data and Internet traffic. Lucent is also increasing its market share
overseas. Though the stock is not inexpensive at 40 times its estimated 1999
earnings growth, we believe that its strong growth justifies its valuation.
We continue to be overweighted in growth areas such as technology, health
care, and consumer staples. In technology the portfolio features Microsoft,
our largest holding, Cisco, Intel, and Oracle. We see positive prospects for
continued earnings growth in these companies as the world's corporations
continue to leverage all types of technology to reduce costs and boost
productivity. In health care, our weightings have changed little from year ago
and include major pharmaceutical companies such as Pfizer, American Home
Products, and Bristol-Myers Squibb, all of which have strong product pipelines
and should benefit from the worldwide trend toward increased prescription
volume. We also have large holdings in consumer staples companies such as
Colgate-Palmolive and Clorox, both of which we see as benefiting from
continued consumer confidence in a growing economy.
On the flip side, we are underweighted in a number of cyclical and commodity-
driven industries such as oil, chemical, and paper and forest products. We see
these industries suffering from pricing pressures that have hurt their ability
to generate consistent earnings growth.
MFS' commitment to research has not wavered since the company's inception in
1924. However, it's fair to say that the process has evolved. In 1924, MFS had
virtually no dedicated analysts. Portfolio managers did their own research and
made the investment decisions, and that heritage of informed stock selection
is deeply ingrained in our corporate culture. We started our internal research
department in 1932, and today we have a large global team of analysts who
examine individual companies firsthand by meeting with company managements,
interviewing customers, quizzing suppliers, and evaluating new products. This
experience is important in building our track record, as seasoned MFS
investment professionals pass along their knowledge and the corporate culture
to new analysts.
Respectfully,
/s/ Kevin R. Parke
Kevin R. Parke
Director of Equity 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.
The opinions expressed in this report are those of the Director of Equity
Research and are only through the end of the period of the report as stated on
the cover. The director's views are subject to change at any time based on
market and other conditions, and no forecasts can be guaranteed.
The portfolio is actively managed, and current holdings may be different.
It is not possible to invest directly in an index.
<PAGE>
FUND FACTS
Objective: Seeks to provide long-term growth of capital.
The Fund invests, under normal market conditions, at
least 80% of its total assets in equity securities of
companies believed to possess better-than-average
prospects for long-term growth.
Commencement of
investment operations: May 21, 1996
Size: $103.8 million net assets as of December 31, 1998
PERFORMANCE SUMMARY
Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for
the applicable time periods. Investment results reflect the percentage change
in net asset value, including reinvestment of dividends. The minimum initial
investment is generally $3 million. Shares of the Fund are purchased at net
asset value.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
6 Months 1 Year 10 Years/Life*
- -------------------------------------------------------------------------------
Cumulative Total Return +4.57% +23.98% +60.94%
- -------------------------------------------------------------------------------
Average Annual Total Return -- +23.98% +19.97%
- -------------------------------------------------------------------------------
*For the period from the commencement of the Fund's investment operations, May
21, 1996, through December 31, 1998.
NOTES TO PERFORMANCE SUMMARY
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.
<PAGE>
PORTFOLIO OF INVESTMENTS (Unaudited) - December 31, 1998
<TABLE>
<CAPTION>
Stocks - 99.8%
- --------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 93.7%
Aerospace - 3.0%
Lockheed-Martin Corp. 7,300 $ 618,675
United Technologies Corp. 22,700 2,468,625
------------
$ 3,087,300
- --------------------------------------------------------------------------------------------------
Automotive - 0.5%
Federal-Mogul Corp. 8,500 $ 505,750
- --------------------------------------------------------------------------------------------------
Banks and Credit Companies - 2.5%
Bank of New York, Inc. 23,300 $ 937,825
Chase Manhattan Corp. 13,100 891,619
Wells Fargo Co.* 18,200 726,862
------------
$ 2,556,306
- --------------------------------------------------------------------------------------------------
Business Machines - 2.2%
Sun Microsystems, Inc.* 14,800 $ 1,267,250
Xerox Corp. 8,600 1,014,800
------------
$ 2,282,050
- --------------------------------------------------------------------------------------------------
Business Services - 0.2%
Modis Professional Services, Inc.* 17,800 $ 258,100
- --------------------------------------------------------------------------------------------------
Chemicals - 0.6%
Cambrex Corp. 10,900 $ 261,600
DuPont (E.I.) de Nemours & Co., Inc. 6,400 339,600
------------
$ 601,200
- --------------------------------------------------------------------------------------------------
Computer Software - Personal Computers - 4.4%
Microsoft Corp.* 32,900 $ 4,562,819
- --------------------------------------------------------------------------------------------------
Computer Software - Services - 0.8%
EMC Corp.* 10,300 $ 875,500
- --------------------------------------------------------------------------------------------------
Computer Software - Systems - 8.1%
BMC Software, Inc.* 30,900 $ 1,376,981
Cadence Design Systems, Inc.* 38,300 1,139,425
Computer Associates International, Inc. 26,550 1,131,694
Compuware Corp.* 21,500 1,679,688
Oracle Corp.* 54,450 2,348,156
Synopsys, Inc.* 13,000 705,250
------------
$ 8,381,194
- --------------------------------------------------------------------------------------------------
Consumer Goods and Services - 11.2%
Black & Decker Corp. 5,500 $ 308,344
Clorox Co. 7,600 887,775
Colgate-Palmolive Co. 10,900 1,012,337
Dial Corp. 29,900 863,363
Gillette Co. 23,100 1,116,019
Monsanto Co. 18,500 878,750
Newell Co. 11,600 478,500
Philip Morris Cos., Inc. 27,500 1,471,250
Procter & Gamble Co. 14,600 1,333,162
Tyco International Ltd. 43,720 3,298,127
------------
$ 11,647,627
- --------------------------------------------------------------------------------------------------
Containers - 0.7%
Smurfit Stone Container Corp.* 47,421 $ 749,845
- --------------------------------------------------------------------------------------------------
Electrical Equipment - 1.5%
Emerson Electric Co. 25,500 $ 1,542,750
- --------------------------------------------------------------------------------------------------
Electronics - 3.2%
Analog Devices, Inc.* 38,633 $ 1,212,110
Intel Corp. 15,500 1,837,719
Lattice Semiconductor Corp.* 5,400 247,894
------------
$ 3,297,723
- --------------------------------------------------------------------------------------------------
Entertainment - 4.3%
CBS Corp. 34,200 $ 1,120,050
Disney (Walt) Co. 40,900 1,227,000
Jacor Communications, Inc.* 1,700 109,438
MediaOne Group, Inc.* 16,600 780,200
Time Warner, Inc. 19,400 1,204,012
------------
$ 4,440,700
- --------------------------------------------------------------------------------------------------
Financial Institutions - 7.1%
American Express Co. 5,600 $ 572,600
Associates First Capital Corp., "A" 27,320 1,157,685
Bear Stearns Cos., Inc. 14,100 526,987
CIT Group, Inc., "A" 15,100 480,369
Citigroup, Inc. 11,800 584,100
Federal Home Loan Mortgage Corp. 19,500 1,256,531
Federal National Mortgage Assn. 15,400 1,139,600
First Union Corp. 17,772 1,080,760
Morgan Stanley, Dean Witter & Co. 8,500 603,500
------------
$ 7,402,132
- --------------------------------------------------------------------------------------------------
Food and Beverage Products - 3.0%
Archer-Daniels-Midland Co. 26,525 $ 455,898
Dean Foods Co. 8,400 342,825
Hershey Foods Corp. 14,300 889,281
Hormel Foods Corp. 8,900 291,475
McCormick & Co., Inc. 8,200 277,263
Ralston-Ralston Purina Co. 25,800 835,275
------------
$ 3,092,017
- --------------------------------------------------------------------------------------------------
Insurance - 6.5%
Allstate Corp. 9,800 $ 378,525
CIGNA Corp. 12,400 958,675
Conseco, Inc. 21,458 655,810
Equitable Cos., Inc. 19,700 1,140,137
Hartford Financial Services Group, Inc. 18,400 1,009,700
Lincoln National Corp. 15,600 1,276,275
Nationwide Financial Services, Inc., "A" 10,900 563,394
ReliaStar Financial Corp. 15,950 735,694
------------
$ 6,718,210
- --------------------------------------------------------------------------------------------------
Machinery - 0.2%
Federal Signal Corp. 8,500 $ 232,688
- --------------------------------------------------------------------------------------------------
Manufacturing - 0.2%
Illinois Tool Works, Inc. 3,600 $ 208,800
- --------------------------------------------------------------------------------------------------
Medical and Health Products - 5.4%
American Home Products Corp. 39,700 $ 2,235,607
Bristol-Myers Squibb Co. 9,700 1,297,981
Pfizer, Inc. 16,300 2,044,631
------------
$ 5,578,219
- --------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 6.1%
Cardinal Health, Inc. 7,500 $ 569,063
Guidant Corp. 14,100 1,554,525
HBO & Co. 65,500 1,879,031
HealthSouth Corp.* 62,545 965,538
United Healthcare Corp. 32,600 1,403,838
------------
$ 6,371,995
- --------------------------------------------------------------------------------------------------
Oil Services - 0.2%
Cooper Cameron Corp.* 7,000 $ 171,500
- --------------------------------------------------------------------------------------------------
Oils - 0.2%
Mobil Corp. 2,700 $ 235,237
- --------------------------------------------------------------------------------------------------
Pollution Control - 0.2%
Browning Ferris Industries, Inc. 8,100 $ 230,344
- --------------------------------------------------------------------------------------------------
Restaurants and Lodging - 2.0%
Cendant Corp.* 18,800 $ 358,375
CKE Restaurants, Inc. 22,000 647,625
McDonalds Corp. 13,700 1,049,762
------------
$ 2,055,762
- --------------------------------------------------------------------------------------------------
Special Products and Services - 0.8%
Newport News Shipbuilding, Inc. 25,600 $ 856,000
- --------------------------------------------------------------------------------------------------
Stores - 6.6%
American Stores Co. 8,700 $ 321,356
CompUSA, Inc.* 22,200 289,987
CVS Corp. 23,600 1,298,000
Dayton Hudson Corp. 18,500 1,003,625
Home Depot, Inc. 14,100 862,744
Office Depot, Inc.* 19,300 712,894
Rite Aid Corp. 42,800 2,121,275
TJX Cos., Inc. 7,700 223,300
------------
$ 6,833,181
- --------------------------------------------------------------------------------------------------
Supermarkets - 3.1%
Albertsons, Inc. 5,200 $ 331,175
Meyer (Fred), Inc.* 23,600 1,421,900
Safeway, Inc.* 23,600 1,438,125
------------
$ 3,191,200
- --------------------------------------------------------------------------------------------------
Telecommunications - 7.4%
3Com Corp.* 16,500 $ 739,406
Aspect Telecommunications Corp.* 11,300 194,925
Cisco Systems, Inc.* 15,700 1,457,156
Intermedia Communications, Inc.* 11,800 203,550
Lucent Technologies, Inc. 10,300 1,133,000
MCI WorldCom, Inc.* 40,407 2,899,202
Sprint Corp. 10,700 900,138
Sprint PCS* 5,350 123,719
------------
$ 7,651,096
- --------------------------------------------------------------------------------------------------
Utilities - Electric - 0.6%
CalEnergy Co., Inc.* 17,900 $ 620,906
- --------------------------------------------------------------------------------------------------
Utilities - Gas - 0.9%
Columbia Energy Group 7,450 $ 430,238
KN Energy, Inc. 14,100 512,887
------------
$ 943,125
- --------------------------------------------------------------------------------------------------
Total U.S. Stocks $ 97,181,276
- --------------------------------------------------------------------------------------------------
Foreign Stocks - 6.1%
Bermuda - 0.8%
Ace Ltd. (Insurance) 15,500 $ 533,781
EXEL Ltd., "A" (Insurance) 3,900 292,500
------------
$ 826,281
- --------------------------------------------------------------------------------------------------
France - 0.8%
Alcatel Alsthom Compagnie, ADR (Telecommunications) 33,300 $ 813,769
- --------------------------------------------------------------------------------------------------
Italy - 0.8%
San Paolo Imi S.p.A (Banks and Credit Cos.)* 46,607 $ 824,103
- --------------------------------------------------------------------------------------------------
Netherlands - 0.9%
ING Groep N.V. (Financial Services)* 16,153 $ 984,048
- --------------------------------------------------------------------------------------------------
Switzerland - 0.1%
Amoco Corp. (Oils) 1,200 $ 70,800
- --------------------------------------------------------------------------------------------------
United Kingdom - 2.7%
British Aerospace PLC (Aerospace and Defense)* 68,035 $ 578,989
British Petroleum PLC, ADR (Oils) 19,162 1,820,390
Jarvis Hotels PLC (Restaurants and Lodging)+ 77,500 150,421
LucasVarity PLC (Automotive) 73,600 245,411
------------
$ 2,795,211
- --------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 6,314,212
- --------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $83,185,762) $103,495,488
- --------------------------------------------------------------------------------------------------
Short-Term Obligations - 16.6%
- --------------------------------------------------------------------------------------------------
SHARES OR
PRINCIPAL AMOUNT
- --------------------------------------------------------------------------------------------------
General Electric Capital Corp. due 1/04/99 944,605 $ 944,605
Navigator Securities Lending Prime Portfolio 16,290,787 16,290,787
- --------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 17,235,392
- --------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $100,421,154) $120,730,880
Other Assets, Less Liabilities - (16.4)% (16,978,655)
- --------------------------------------------------------------------------------------------------
Net Assets - 100.0% $103,752,225
- --------------------------------------------------------------------------------------------------
* - Non-income producing security.
+ - Restricted security.SEE NOTES TO FINANCIAL STATEMENTS
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- ------------------------------------------------------------------------------
DECEMBER 31, 1998
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $100,421,154) $120,730,880
Cash 2,676
Receivable for Fund shares sold 116,527
Receivable for investments sold 629,399
Dividends receivable 60,603
Receivable from investment adviser 48,702
Deferred organization expenses 3,333
Other assets 6,951
------------
Total assets $121,599,071
------------
Liabilities:
Payable for Fund shares reacquired $ 26,564
Payable for investments purchased 1,513,498
Collateral for securities loaned, at value 16,290,787
Payable to affiliates -
Management fee 1,681
Shareholder servicing agent fee 21
Accrued expenses and other liabilities 14,295
------------
Total liabilities $ 17,846,846
------------
Net assets $103,752,225
============
Net assets consist of:
Paid-in capital $ 85,614,364
Unrealized appreciation on investments and
translation of assets and liabilities in
foreign currencies 20,309,591
Accumulated net realized loss on investments
and foreign currency transactions (2,393,303)
Accumulated undistributed net investment income 221,573
------------
Total $103,752,225
============
Shares of beneficial interest outstanding 6,961,501
=========
Net asset value, offering price, and redemption
price per share (net assets of $103,752,225
/ 6,961,501 shares of beneficial interest
outstanding) $14.90
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations (Unaudited)
- ------------------------------------------------------------------------------
FOR SIX MONTHS ENDED DECEMBER 31, 1998
- ------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 465,628
Interest 71,432
Foreign taxes withheld (10,024)
-----------
Total investment income $ 527,036
-----------
Expenses -
Management fee $ 281,937
Trustees' compensation 2,500
Shareholder servicing agent fee 3,523
Administrative fee 4,670
Custodian fee 21,672
Printing 7,830
Auditing fees 17,103
Legal fees 1,214
Amortization of organization expenses 703
Registration fees 18,862
-----------
Total expenses $ 360,014
Fees paid indirectly (4,931)
Preliminary reduction of expenses by investment adviser (49,651)
-----------
Net expenses $ 305,432
-----------
Net investment income $ 221,604
-----------
Realized and unrealized gain (loss) on investments:
Realized loss (identified cost basis) -
Investment transactions $(2,244,367)
Foreign currency transactions (2,493)
-----------
Net realized loss on investments and foreign
currency transactions $(2,246,860)
-----------
Change in unrealized appreciation (depreciation) -
Investments $ 6,460,508
Translation of assets and liabilities in
foreign currencies (81)
-----------
Net unrealized gain on investments and foreign
currency translation $ 6,460,427
-----------
Net realized and unrealized gain on
investments and foreign currency $ 4,213,567
-----------
Increase in net assets from operations $ 4,435,171
===========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ----------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1998 JUNE 30, 1998
(UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 221,604 $ 302,383
Net realized gain (loss) on investments and foreign
currency transactions (2,246,860) 4,853,932
Net unrealized gain on investments and foreign currency
translation 6,460,427 8,733,252
------------- -------------
Increase in net assets from operations $ 4,435,171 $ 13,889,567
------------- -------------
Distributions declared to shareholders -
From net investment income $ (211,336) $ (191,092)
From net realized gain on investments (3,357,558) (1,547,045)
------------- -------------
Total distributions declared to shareholders $ (3,568,894) $ (1,738,137)
------------- -------------
Net increase in net assets from Fund share transactions $ 2,508,720 $ 45,934,074
------------- -------------
Total increase in net assets $ 3,374,997 $ 58,085,504
Net assets:
At beginning of period $ 100,377,228 $ 42,291,724
------------- -------------
At end of period (including accumulated undistributed net
investment income of $221,573 and $211,305 respectively) $ 103,752,225 $ 100,377,228
============= =============
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED
JUNE 30,
SIX MONTHS ENDED ----------------------------- PERIOD ENDED
DECEMBER 31, 1998 1998 1997 JUNE 30, 1996*
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C>
Net asset value - beginning of period $14.76 $12.10 $ 9.78 $10.00
------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.06 $ 0.07 $ 0.06 $ 0.02
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 0.61 3.07 2.29 (0.24)
------ ------ ------ ------
Total from investment operations $ 0.67 $ 3.14 $ 2.35 $(0.22)
------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.03) $(0.05) $(0.03) $ --
From net realized gain on investments and
foreign currency transactions (0.50) (0.43) -- --
------ ------ ------ ------
Total distributions declared to
shareholders $(0.53) $(0.48) $(0.03) $ --
------ ------ ------ ------
Net asset value - end of period $14.90 $14.76 $12.10 $ 9.78
====== ====== ====== ======
Total return 4.57%++ 26.86% 24.12% (2.20)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.66%+ 0.66% 0.66% 0.65%+
Net investment income 0.47%+ 0.49% 0.56% 1.52%+
Portfolio turnover 48% 73% 84% 6%
Net assets at end of period (000 omitted) $103,752 $100,377 $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 has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash maintained
by the Fund with its custodian and dividend disbursing agent. The Fund's expenses are calculated without reduction for this
expense offset arrangement.
(S) The investment adviser voluntarily agreed to maintain the other expenses of the Fund, exclusive of management fees, at not
more than 0.05% 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 $ 0.05 $ 0.05 $ 0.03 --
Ratios (to average net assets):
Expenses## 0.76%+ 0.77% 0.90% 2.03%+
Net investment income 0.36%+ 0.38% 0.31% 0.14%+
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(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 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 Fund
operations.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All discount is
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 month end 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.
(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 0.60% of
the Fund's 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 0.05% 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, MFS Fund Distributors, Inc. (MFD), and
MFS Service Center, Inc. (MFSC).
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%
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 U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$45,504,198 and $43,985,875, 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 $100,421,154
------------
Gross unrealized appreciation $ 23,253,589
Gross unrealized depreciation (2,943,863)
------------
Net unrealized appreciation $ 20,309,726
============
(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. Transactions in
Fund shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31, 1998 YEAR ENDED JUNE 30, 1998
---------------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 250,480 $3,528,901 3,750,333 $52,046,353
Shares issued to shareholders in
reinvestment of distributions 240,978 3,568,894 141,908 1,725,601
Shares reacquired (328,874) (4,589,075) (588,716) (7,837,880)
-------- ---------- --------- -----------
Net increase 162,584 $2,508,720 3,303,525 $45,934,074
======== ========== ========= ===========
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in an $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 six months ended December 31, 1998, was $564.
(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 December 31,
1998, the Fund owned the following restricted security (constituting 0.14% 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
furnished by dealers or by a pricing service, or if not available, is valued
at fair value as determined in good faith by or at the direction of the
Trustees.
SHARE/PAR
DESCRIPTION DATE OF ACQUISITION AMOUNT COST VALUE
- ------------------------------------------------------------------------------
Javis Hotels PLC 6/21/96 - 7/20/97 77,500 $207,830 $150,421
(8) Security Lending
The Fund may lend its securities to member banks of the Federal Reserve System
and to member firms of the New York Stock Exchange or subsidiaries thereof.
The securities are loaned by State Street Bank and Trust Company, as agent, to
certain brokers approved by the Fund (the "Borrowers"). The loans are
collateralized at all times by cash in an amount at least equal to the market
value of the securities loaned. State Street Bank provides the Fund with
indemnification against borrower default. The Fund bears the risk of loss with
respect to the investment of cash collateral.
At December 31, 1998, the value of securities loaned was $16,183,377. These
loans were collateralized by cash of $16,290,787. Cash collateral is invested
in short-term securities which are included in the Portfolio of Investments. A
portion of the income generated upon investment of the collateral is remitted
to the Borrowers, and the remainder is allocated between the Fund and State
Street Bank in its capacity as lending agent. Income from securities lending
is included in investment income on the Statement of Operations. The dividend
and interest income earned on the securities loaned is accounted for in the
same manner as other dividend and interest income.
--------------------------------------------
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)1999 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
IRF-3 2/99 .5M
