<PAGE>
[Logo] M F S(R) ANNUAL REPORT
INVESTMENT MANAGEMENT JUNE 30, 1999
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
[graphic omitted]
MFS(R) INSTITUTIONAL
RESEARCH FUND
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MFS(R) INSTITUTIONAL RESEARCH FUND
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
Private investor and real estate consultant MFS Service Center, Inc.
P.O. Box 2281
CHAIRMAN AND PRESIDENT Boston, MA 02107-9906
Jeffrey L. Shames*
For additional information,
ASSOCIATE DIRECTOR contact your financial adviser.
OF EQUITY RESEARCH
Alec C. Murray*
CUSTODIAN
TREASURER State Street Bank and Trust Company
W. Thomas London*
AUDITORS
ASSISTANT TREASURERS Deloitte & Touche LLP
Mark E. Bradley*
Ellen Moynihan* WORLD WIDE WEB
James O. Yost* www.mfs.com
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Shareholders,
It has been almost two years since financial turmoil began to rock markets in
Asia, Russia, and Latin America. Even developed markets such as Europe and the
United States were not immune. In the U.S. equity market, for example,
investors focused on a narrow group of 50 of the largest-company growth stocks
because they seemed to offer less volatility in uncertain times. Fixed-income
investors also became more concerned about risk, moving money into U.S.
Treasury securities and out of corporate and municipal bonds and mortgage-
backed securities.
The narrowness of the market was just one of three broad issues that dominated
the U.S. equity market until recently. The other two were a slowdown in
corporate earnings growth and high valuations, with stocks of many companies
selling at extremely high prices relative to their earnings.
Although these have been challenging issues, we now see signs that we feel
demonstrate each one is changing for the better. Today, we believe the markets
are presenting more opportunities for investors to diversify, for our
portfolio managers to find good values, and for us to show the benefits of
staying with our long-term objectives and strategies. Investors seem to be
regaining confidence in a wider range of companies. Stocks of some small and
mid-sized companies, as well as some large industrial companies, have begun to
perform better in the past few months than they had for the previous year or
so. These companies appear to have benefited from early signs of stability in
emerging markets and a continuation of economic growth in the United States.
U.S. companies also have produced better earnings. Corporate earnings were, on
average, relatively flat in 1998. However, we expect earnings to grow 12% to
14% this year because more companies have benefited from the strong economy
and from aggressive consolidation and cost-cutting measures they have taken
over the past several years.
Based on their earnings projections, our analysts estimate that the U.S. stock
market is still about 30% overvalued. While there has been some shift to a
wider group of stocks, many investors are still focusing on the large-company
stocks. As a result, most of the overvaluation is in the 50 largest stocks in
the Standard & Poor's 500 Composite Index (the S&P 500), a popular, unmanaged
index of common stock total return performance. That means about 450 stocks
are selling at more attractive prices, particularly given what we see as the
improved earnings outlooks for these and many small and mid-sized companies
not in the S&P 500. These companies also benefit from consolidation, cost
cutting, and global growth. Because they are smaller, they may be able to
respond to these changes more quickly, and thus they have the potential to
grow faster than the big companies.
The fixed-income markets, meanwhile, seem to be approaching the level of
relative stability they enjoyed before the Asian turmoil. Some credit for this
stability goes to the Federal Reserve Board (the Fed), which has reassured
investors that it will act to prevent rapid economic growth from causing
higher inflation and reduced purchasing power. Also, once investors saw that
the overseas turmoil had little, if any, effect on the financial strength of
most domestic bond issuers, the major non-Treasury markets -- corporate,
municipal, and mortgage -- began to rebound. Our portfolio managers are now
finding more opportunities to buy bonds with relatively stable prices and
attractive yields.
The past two years have challenged investors. However, we believe we are well
positioned for the current environment because our analysts and portfolio
managers continue to rely on MFS(R) Original Research(SM) to help evaluate the
long-term investment potential of each holding being considered for our
portfolios. Also, we believe our discipline of staying with our clearly
defined investment strategies can help us offer investment products with the
potential to sustain returns over a variety of market cycles.
We appreciate your confidence and welcome any questions or comments you may
have.
Respectfully,
/s/Jeffrey Shames
- ----------------------------
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
July 15, 1999
MANAGEMENT REVIEW AND OUTLOOK
Dear Shareholders,
For the 12 months ended June 30, 1999, the Fund provided a total return of
14.12% (including the reinvestment of any distributions), which compares to
returns of 18.90% for the average growth fund tracked by Lipper Analytical
Services, Inc., an independent firm that reports mutual fund performance, and
22.76% for the Standard & Poor's 500 Composite Index (the S&P 500), a popular,
unmanaged index of common stock total return performance.
The Fund relies on MFS(R) Original Research(SM) to incorporate the best ideas
of our more than 30 equity analysts, who cover small-, mid-, and large-cap
companies; therefore, the portfolio is broadly diversified. However, the
equity market has, until recently, been very narrow, with 25 to 50 large-cap
growth stocks outperforming the rest of the stocks in the S&P 500. This Fund
is not designed to outperform in a market favoring a small group of stocks. As
the market continues to broaden, we expect the Fund to benefit.
The Fund is underweighted relative to the S&P 500 in stocks with a market
capitalization of $25 billion or more and is overweighted in stocks with all
other capitalizations. We believe stocks with the smaller capitalizations are
selling at more attractive valuations at this time. As the market broadens to
include those smaller capitalization stocks, we think the Fund will benefit.
At the same time, we generally are avoiding Internet stocks or other companies
trading at what we see as unsustainably high prices relative to their
earnings.
Two sectors have helped performance: financial services and technology. The
Fund's gains in financial services largely came from brokerage and investment
banking stocks. Specifically, the Fund had a large holding in Morgan Stanley
Dean Witter, which is well managed and experienced in the markets it serves.
Companies around the world are using firms like Morgan Stanley to help arrange
their mergers.
The leading contributors to technology performance were semiconductor
companies such as LSI Logic and Analog Devices. The semiconductor industry was
hurt in 1998 by the Asian economic slowdown as well as by the fact that it had
built up its manufacturing capability to a point at which there was too much
supply in some market segments, so prices came down. Now, demand is beginning
to catch up with supply and Asia seems to be recovering, both of which have
helped semiconductor companies.
The continuing strength of the U.S. economy has supported cyclical companies,
that is, companies whose businesses can benefit from strengthening economic
cycles. For example, the Fund has benefited from paper holdings such as
Bowater, the number-two newsprint producer worldwide. Bowater recently
acquired a competitor, Avenor, which should give Bowater greater market share
as well as the cost-savings benefits that can come from consolidation. Bowater
is global in scope and is benefiting from a favorable supply/demand
environment, which may result in price increases.
A few of the Fund's retailing holdings have underperformed. Although the
retailing environment has been very good and Dayton Hudson, the department
store chain, has performed well, the Fund was hurt by two stocks, Rite Aid and
CompUSA. We have had a significant position in Rite Aid because we believe
that as the population ages people will use more prescription medicines.
However, Rite Aid opened too many stores in a short period of time and
underestimated the costs of closing old stores. The company also had inventory
and accounting problems. Over the long term, however, we believe Rite Aid will
continue to benefit from increasing prescription sales. CompUSA, meanwhile, is
losing computer and software sales to companies that sell over the telephone
or on the Internet. Also, some business customers, who tend to buy more
expensive equipment, are cutting orders to prepare for any Year 2000 (Y2K)
computer problems. By the end of this year, we think the Y2K issue will
largely be resolved, and the company should perform better.
Respectfully,
/s/ Alec C. Murray
- ---------------------------
Alec C. Murray
Associate Director of Equity Research
A committee of MFS research analysts is responsible for the day-to-day
management of the Fund under the general supervision of Mr. Murray.
The opinions expressed in this report are those of the Associate Director of
Equity Research and are current only through the end of the period of the
report as stated on the cover. His 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.
<PAGE>
FUND FACTS
Objective: Seeks to provide long-term growth of capital.
Commencement of investment operations: May 20, 1996
Size: $61.5 million net assets as of June 30, 1999
PERFORMANCE SUMMARY
The information below illustrates the historical performance of the Fund in
comparison to various market indicators. Benchmark comparisons are unmanaged
and do not reflect any fees or expenses. It is not possible to invest directly
in an index. The minimum initial investment is generally $3 million. Shares of
the Fund are purchased at net asset value. (See Notes to Performance Summary
for more information.)
GROWTH OF A HYPOTHETICAL $3,000,000 INVESTMENT
(For the period from May 20, 1996, through June 30, 1999)
[Graphic Omitted]
MFS Institutional S&P 500
Research Fund Composite Index
- -------------------------------------------------------------------------------
5/96 $3,000,000 $3,000,000
6/97 3,641,000 4,056,000
6/98 4,619,000 5,279,000
6/99 5,271,930 6,481,370
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN THROUGH JUNE 30, 1999
1 Year 3 Years Life*
- ------------------------------------------------------------------------
Cumulative Total Return +14.12% +79.68% +75.73%
- ------------------------------------------------------------------------
Average Annual Total Return +14.12% +21.57% +19.86%
- ------------------------------------------------------------------------
COMPARATIVE INDICES
- ------------------------------------------------------------------------
Average growth fund+ +18.90% +22.76% +21.61%
- ------------------------------------------------------------------------
S&P 500 Composite Index** +22.76% +29.11% +28.38%
- ------------------------------------------------------------------------
*For the period from the commencement of the Fund's investment operations,
May 20, 1996, through June 30, 1999. Index returns are from June 1, 1996.
+Source: Lipper Analytical Services, Inc.
**Source: Standard & Poor's Micropal, Inc.
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 - June 30, 1999
Stocks - 97.3%
- -----------------------------------------------------------------------------
ISSUER SHARES VALUE
- -----------------------------------------------------------------------------
U.S. Stocks - 91.1%
Aerospace - 4.2%
Gulfstream Aerospace Corp.* 9,500 $ 641,844
Raytheon Co., "B" 6,000 422,250
United Technologies Corp. 21,300 1,526,943
-----------
$ 2,591,037
- -----------------------------------------------------------------------------
Automotive - 1.0%
Federal-Mogul Corp. 11,400 $ 592,800
- -----------------------------------------------------------------------------
Banks and Credit Companies - 4.5%
Bank America Corp. 4,400 $ 322,575
Bank of New York Co., Inc. 12,700 465,931
Chase Manhattan Corp. 4,500 389,813
PNC Bank Corp. 10,700 616,587
US Bancorp 7,200 244,800
Wells Fargo Co. 16,800 718,200
-----------
$ 2,757,906
- -----------------------------------------------------------------------------
Broadcasting - 0.7%
Infinity Broadcasting Corp.* 14,600 $ 434,350
- -----------------------------------------------------------------------------
Business Machines - 0.9%
Xerox Corp. 9,000 $ 531,563
- -----------------------------------------------------------------------------
Business Services - 0.5%
First Data Corp. 6,400 $ 313,200
Modis Professional Services, Inc.* 800 11,000
-----------
$ 324,200
- -----------------------------------------------------------------------------
Chemicals - 0.2%
Cambrex Corp. 5,600 $ 147,000
- -----------------------------------------------------------------------------
Computer Hardware - Systems - 0.6%
Hewlett-Packard Co. 3,500 $ 351,750
- -----------------------------------------------------------------------------
Computer Software - Personal Computers - 4.3%
Intuit, Inc.* 100 $ 9,012
Microsoft Corp.* 29,300 2,642,494
-----------
$ 2,651,506
- -----------------------------------------------------------------------------
Computer Software - Services - 2.2%
EMC Corp.* 7,800 $ 429,000
Sun Microsystems, Inc.* 13,800 950,475
-----------
$ 1,379,475
- -----------------------------------------------------------------------------
Computer Software - Systems - 5.7%
BMC Software, Inc.* 17,000 $ 918,000
Cadence Design Systems, Inc.* 20,700 263,925
Citrix Systems, Inc.* 1,800 101,700
Computer Associates International, Inc. 4,850 266,750
Compuware Corp.* 13,700 435,831
Oracle Corp.* 35,675 1,324,435
Synopsys, Inc.* 3,900 215,231
-----------
$ 3,525,872
- -----------------------------------------------------------------------------
Consumer Goods and Services - 8.1%
Clorox Co. 5,400 $ 576,787
Colgate-Palmolive Co. 3,200 316,000
Dial Corp. 12,600 468,563
Gillette Co. 12,000 492,000
Newell Rubbermaid, Inc. 9,800 455,700
Procter & Gamble Co. 8,800 785,400
Tyco International Ltd. 19,720 1,868,470
-----------
$ 4,962,920
- -----------------------------------------------------------------------------
Containers - 0.8%
Owens Illinois, Inc.* 9,000 $ 294,187
Smurfit-Stone Container Corp.* 9,621 197,832
-----------
$ 492,019
- -----------------------------------------------------------------------------
Electrical Equipment - 0.8%
Honeywell, Inc. 4,100 $ 475,088
- -----------------------------------------------------------------------------
Electronics - 4.1%
Analog Devices, Inc.* 28,433 $ 1,426,981
LSI Logic Corp.* 23,700 1,093,163
------------
$ 2,520,144
- -----------------------------------------------------------------------------
Entertainment - 4.2%
CBS Corp.* 8,100 $ 351,844
Comcast Corp., "A" 6,100 234,469
Disney (Walt) Co. 26,400 813,450
MediaOne Group, Inc.* 4,100 304,937
Time Warner, Inc. 12,300 904,050
-----------
$ 2,608,750
- -----------------------------------------------------------------------------
Financial Institutions - 3.6%
Associates First Capital Corp., "A" 15,620 $ 692,161
CIT Group, Inc., "A" 7,100 205,012
Citigroup, Inc. 14,150 672,125
Goldman Sachs Group, Inc.* 500 36,125
Morgan Stanley Dean Witter & Co. 3,100 317,750
Providian Financial Corp. 1,400 130,900
Schwab (Charles) Corp. 1,300 142,838
-----------
$ 2,196,911
- -----------------------------------------------------------------------------
Food and Beverage Products - 3.0%
Anheuser-Busch Cos., Inc. 6,600 $ 468,187
Coca-Cola Co. 5,900 368,750
Nabisco Holdings Corp., "A" 7,200 311,400
Ralston-Ralston Purina Co. 22,100 672,669
-----------
$ 1,821,006
- -----------------------------------------------------------------------------
Forest and Paper Products - 0.5%
Bowater, Inc. 6,200 $ 292,950
- -----------------------------------------------------------------------------
Insurance - 6.5%
American International Group, Inc. 4,400 $ 515,075
CIGNA Corp. 9,700 863,300
Conseco, Inc. 7,758 236,134
Equitable Cos., Inc. 8,400 562,800
Hartford Financial Services Group, Inc. 9,600 559,800
Lincoln National Corp. 12,000 627,750
Nationwide Financial Services, Inc., "A" 4,900 221,725
ReliaStar Financial Corp. 8,850 387,188
-----------
$ 3,973,772
- -----------------------------------------------------------------------------
Internet
Phone.com, Inc.* 400 $ 22,400
Software.com, Inc.* 100 2,319
-----------
$ 24,719
- -----------------------------------------------------------------------------
Manufacturing - 1.0%
Danaher Corp. 11,000 $ 639,375
- -----------------------------------------------------------------------------
Medical and Health Products - 4.9%
American Home Products Corp. 19,400 $ 1,115,500
Bristol-Myers Squibb Co. 14,200 1,000,212
Pharmacia & Upjohn, Inc. 15,400 874,913
-----------
$ 2,990,625
- -----------------------------------------------------------------------------
Medical and Health Technology and Services - 4.7
Cardinal Health, Inc. 8,900 $ 570,712
Guidant Corp. 14,200 730,412
HEALTHSOUTH Corp.* 29,045 433,860
Medtronic, Inc. 6,900 537,338
United HealthCare Corp. 9,600 601,200
VISX, Inc.* 500 39,594
-----------
$ 2,913,116
- -----------------------------------------------------------------------------
Oils - 2.4%
Atlantic Richfield Co. 700 $ 58,494
Conoco, Inc., "A" 11,400 317,775
Mobil Corp. 11,200 1,108,800
-----------
$ 1,485,069
- -----------------------------------------------------------------------------
Printing and Publishing - 0.5%
Gannett Co., Inc. 4,500 $ 321,188
- -----------------------------------------------------------------------------
Restaurants and Lodging - 1.5%
CKE Restaurants, Inc. 100 $ 1,625
McDonald's Corp. 22,200 917,137
-----------
$ 918,762
- -----------------------------------------------------------------------------
Special Products and Services - 1.0%
Backweb Technologies Ltd.* 200 $ 5,475
Carnival Corp. 7,700 373,450
Newport News Shipbuilding, Inc. 800 23,600
SPX Corp.* 800 66,800
Verisign, Inc.* 1,600 138,000
-----------
$ 607,325
- -----------------------------------------------------------------------------
Stores - 4.3%
CompUSA, Inc.* 11,500 $ 85,531
CVS Corp. 14,900 756,175
Dayton Hudson Corp. 5,700 370,500
Office Depot, Inc.* 15,150 334,247
Rite Aid Corp. 18,800 462,950
TJX Cos., Inc. 8,800 293,150
Wal-Mart Stores, Inc. 7,100 342,575
-----------
$ 2,645,128
- -----------------------------------------------------------------------------
Supermarkets - 2.2%
Kroger Co.* 24,600 $ 687,262
Safeway, Inc.* 12,900 638,550
-----------
$ 1,325,812
- -----------------------------------------------------------------------------
Telecommunications - 10.8%
Bell Atlantic Corp. 16,900 $ 1,104,838
Cisco Systems, Inc.* 19,200 1,237,200
MCI WorldCom, Inc.* 17,407 1,498,090
Motorola, Inc. 11,600 1,099,100
Sprint Corp. 9,200 485,875
Sprint Corp. (PCS Group) 21,700 1,239,612
-----------
$ 6,664,715
- -----------------------------------------------------------------------------
Utilities - Electric - 1.0%
CMS Energy Corp. 6,900 $ 288,938
Midamerica Energy Holdings Co. 9,300 322,012
-----------
$ 610,950
- -----------------------------------------------------------------------------
Utilities - Gas - 0.4%
Columbia Energy Group 3,750 $ 235,078
- -----------------------------------------------------------------------------
Total U.S. Stocks $56,012,881
- -----------------------------------------------------------------------------
Foreign Stocks - 6.2%
Canada - 0.1%
Abitibi-Consolidated, Inc. (Forest and Paper
Products) 5,200 $ 59,150
- -----------------------------------------------------------------------------
France - 0.1%
TOTALFINA S.A., ADR (Oils) 1,200 $ 77,325
- -----------------------------------------------------------------------------
Germany - 0.9%
Mannesmann AG (Conglomerate) 3,500 $ 522,979
- -----------------------------------------------------------------------------
Netherlands - 0.2%
ING Groep N.V. (Financial Services)* 1,953 $ 105,660
- -----------------------------------------------------------------------------
Spain - 0.5%
Repsol S.A. (Oils) 14,900 $ 304,018
- -----------------------------------------------------------------------------
Sweden - 1.3%
Ericsson LM, "B" (Telecommunications) 22,900 $ 735,532
Ericsson LM, ADR (Telecommunications) 2,600 85,637
-----------
$ 821,169
- -----------------------------------------------------------------------------
Switzerland - 1.0%
UBS AG (Banks and Credit Cos.)* 2,100 $ 626,785
- -----------------------------------------------------------------------------
United Kingdom - 2.1%
BP Amoco PLC, ADR (Oils) 7,709 $ 836,426
British Aerospace PLC (Aerospace)* 383 2,493
Zeneca Group PLC (Medical and Health
Products 11,300 436,850
-----------
$ 1,275,769
- -----------------------------------------------------------------------------
Total Foreign Stocks $ 3,792,855
- -----------------------------------------------------------------------------
Total Stocks (Identified Cost, $47,126,784) $59,805,736
- -----------------------------------------------------------------------------
Short-Term Obligations - 2.9%
- -----------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- -----------------------------------------------------------------------------
Federal Home Loan Bank, due 7/01/99,
at Amortized Cost $ 1,800 $ 1,800,000
- -----------------------------------------------------------------------------
Other Short-Term Obligations - 3.9%
- -----------------------------------------------------------------------------
SHARES
- -----------------------------------------------------------------------------
Navigator Securities Lending
Prime Portfolio, (Identified
Cost $2,388,410) 2,388,410 $ 2,388,410
- -----------------------------------------------------------------------------
Total Investments (Identified Cost, $51,315,194) $63,994,146
Other Assets, Less Liabilities - (4.1)% (2,527,643)
- -----------------------------------------------------------------------------
Net Assets - 100.0% $61,466,503
- -----------------------------------------------------------------------------
*Non-income producing security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
JUNE 30, 1999
- --------------------------------------------------------------------------------------------
Assets:
<S> <C>
Investments, at value (identified cost, $51,315,194) $63,994,146
Cash 26,302
Foreign currency, at value (identified cost, $127) 122
Receivable for Fund shares sold 33,658
Receivable for investments sold 557,729
Interest and dividends receivable 29,229
Receivable from investment adviser 95,108
Deferred organization expenses 2,642
Other assets 858
-----------
Total assets $64,739,794
-----------
Liabilities:
Payable for Fund shares reacquired $ 5,377
Payable for investments purchased 839,954
Collateral for securities loaned, at value 2,388,410
Payable to affiliates -
Management fee 984
Shareholder servicing agent fee 13
Administrative fee 25
Accrued expenses and other liabilities 38,528
-----------
Total liabilities $ 3,273,291
-----------
Net assets $61,466,503
===========
Net assets consist of:
Paid-in capital $38,243,123
Unrealized appreciation on investments and translation of assets and
liabilities in foreign currencies 12,678,729
Accumulated undistributed net realized gain on investments and
foreign currency transactions 10,244,945
Accumulated undistributed net investment income 299,706
-----------
Total $61,466,503
===========
Shares of beneficial interest outstanding 3,778,401
=========
Net asset value, offering price, and redemption price per share
(net assets / shares of beneficial interest outstanding) $16.27
======
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999
- ------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 739,309
Interest 114,498
Foreign taxes withheld (12,427)
-----------
Total investment income $ 841,380
-----------
Expenses -
Management fee $ 494,374
Trustees' compensation 5,300
Shareholder servicing agent fee 6,180
Administrative fee 9,977
Custodian fee 34,881
Printing 10,827
Postage 45
Auditing fees 46,257
Legal fees 2,256
Amortization of organization expenses 1,394
Miscellaneous 26,870
-----------
Total expenses $ 638,361
Fees paid indirectly (7,681)
Reduction of expenses by investment adviser (95,108)
-----------
Net expenses $ 535,572
-----------
Net investment income $ 305,808
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $10,391,042
Foreign currency transactions (5,725)
-----------
Net realized gain on investments and foreign
currency transactions $10,385,317
-----------
Change in unrealized depreciation -
Investments $(1,170,266)
Translation of assets and liabilities in
foreign currencies (169)
-----------
Net unrealized loss on investments and
foreign currency tranlation $(1,170,435)
-----------
Net realized and unrealized gain on investments
and foreign currency $ 9,214,882
-----------
Increase in net assets from operations $ 9,520,690
===========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ---------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999 1998
- -------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
<S> <C> <C>
Net investment income $ 305,808 $ 302,383
Net realized gain on investments and foreign
currency transactions 10,385,317 4,853,932
Net unrealized gain (loss) on investments and foreign
currency translation (1,170,435) 8,733,252
------------ ------------
Increase in net assets from operations $ 9,520,690 $ 13,889,567
------------ ------------
Distributions declared to shareholders -
From net investment income $ (211,336) $ (191,092)
From net realized gain on investments and foreign
currency transactions (3,357,558) (1,547,045)
------------ ------------
Total distributions declared to shareholders $ (3,568,894) $ (1,738,137)
------------ ------------
Net increase (decrease) in net assets from Fund share
transactions $(44,862,521) $ 45,934,074
------------ ------------
Total increase (decrease) in net assets $(38,910,725) $ 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 $299,706 and $211,305,
respectively) $ 61,466,503 $100,377,228
============ ============
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, PERIOD ENDED
------------------------------------------- JUNE 30,
1999 1998 1997 1996*
- -----------------------------------------------------------------------------------------------------------------------------
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) $ 0.05 $ 0.07 $ 0.06 $ 0.02
Net realized and unrealized gain (loss) on
investments and foreign currency 1.99 3.07 2.29 (0.24)
------ ------ ------ ------
Total from investment operations $ 2.04 $ 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 $16.27 $14.76 $12.10 $ 9.78
====== ====== ====== ======
Total return 14.12% 26.86% 24.12% (2.20)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.66% 0.65% 0.65% 0.65%+
Net investment income 0.37% 0.49% 0.56% 1.52%+
Portfolio turnover 99% 73% 84% 6%
Net assets at end of period (000 omitted) $61,467 $100,377 $42,292 $22,779
<CAPTION>
(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:
<S> <C> <C> <C> <C>
Net investment income $ 0.04 $ 0.05 $ 0.03 $ --
Ratios (to average net assets):
Expenses## 0.77% 0.76% 0.90% 2.03%+
Net investment income 0.26% 0.38% 0.31% 0.14%+
*For the period from the commencement of the Fund's investment operations, May 20, 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.
</TABLE>
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 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 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.
Security Loans - 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. State Street Bank and Trust Company ("State Street"), as
agent, loans the securities to certain brokers (the "Borrowers") approved by
the Fund. The loans are collateralized at all times by cash and U.S. Treasury
securities in an amount at least equal to the market value of the securities
loaned. State Street provides the Fund with indemnification against Borrower
default. The Fund bears the risk of loss with respect to the investment of
cash collateral.
At June 30, 1999, the value of securities loaned was $2,309,483. These loans
were collateralized by cash of $2,388,410. 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 in its capacity as lending agent. On loans collateralized by U.S.
Treasury securities, a fee is received from the Borrower, and is allocated
between the Fund and State Street. Income from securities lending is included
in interest 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.
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.
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 distributions from paid-in
capital. Differences in the recognition or classification of income between
the financial statements and tax earnings and profits, which result in
temporary over-distributions for financial statement purposes, are classified
as distributions in excess of net investment income or net realized gains.
During the year ended June 30, 1999, $6,071 was reclassified from accumulated
undistributed net investment income to accumulated net realized gain on
investments and foreign currency transactions 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.
(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 advisor 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 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
$79,929,897 and $127,105,960, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the Fund, as computed on a federal income tax basis, are
as follows:
Aggregate cost $51,805,640
-----------
Gross unrealized appreciation $13,290,772
Gross unrealized depreciation (1,102,266)
-----------
Net unrealized appreciation $12,188,506
===========
(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>
YEAR ENDED JUNE 30, 1999 YEAR ENDED JUNE 30, 1998
----------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 506,640 $ 7,453,881 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 (3,768,134) (55,885,296) (588,716) (7,837,880)
---------- ------------ --------- -----------
Net increase (decrease) (3,020,516) $(44,862,521) 3,303,525 $45,934,074
========== ============ ========= ===========
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in a $820 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, 1999, was $830. The Fund had no
significant borrowings during the year.
<PAGE>
INDEPENDENT AUDITOR'S 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 as
of June 30, 1999, the related statement of operations for the year then ended,
the statement of changes in net assets for the years ended June 30, 1999 and
1998, and the financial highlights for each of the years in the four-year
period ended June 30, 1999. 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, 1999 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, 1999, 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 6, 1999
-------------------------------------------
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>
FEDERAL TAX INFORMATION
In January 2000, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 1999.
The Fund has designated $3,237,130 as a capital gain dividend.
For the year ended June 30, 1999, the amount of distributions from income
eligible for the 70% dividends-received deduction for corporations came to
35.43%.
<PAGE>
MFS' YEAR 2000 READINESS DISCLOSURE
MFS Investment Management(R), as an investment adviser and on behalf of the MFS
funds, is committed to the effective use of technology in managing our portfolio
investments, delivering high-quality service to MFS fund shareholders,
retirement plan participants, and MFS' institutional clients, and supporting the
financial advisers who sell our products. With that in mind, we created a
separately funded Year 2000 Program Management Office in 1996 comprised of a
specialized staff reporting directly to MFS senior management.
The Year 2000 (Y2K) problem arises because calendar-year fields in computers
and software applications traditionally have used two-digit codes so that, for
example, the year 1998 is coded as "98," with the "19" being implied. In the
year 2000, unless necessary corrections have been made, computer applications
may assume "00" refers to 1900 rather than 2000, thus resulting in systems
failures or miscalculations. To address this issue, our team of dedicated
business and technology managers, working with outside experts, is taking
steps to ascertain the Y2K readiness of MFS' internal systems and is working
with our external systems vendors to determine whether they expect their
systems to be ready.
MFS recognizes that fund shareholders and institutional clients also are
concerned about whether the companies whose securities are held in their
portfolios are addressing Y2K issues. As part of the MFS(R) Original Research
(SM) process of evaluating portfolio investments, one of the many relevant
factors that MFS' portfolio managers and research analysts may consider is a
company's Y2K readiness. Each year, MFS' research analysts and portfolio
managers conduct more than 1,000 on-site meetings with companies whose
securities are, or may be, held in fund and client portfolios, and host an
additional 1,500 meetings at MFS' headquarters. When assessing the Y2K
readiness of these companies, MFS' research analysts and portfolio managers
may rely upon discussions at these meetings as well as SEC disclosure
documents and third-party reports.
Y2K readiness is an enormously complex, worldwide issue. No company or
institution can guarantee that it will be unaffected by the Y2K issue. While
MFS is taking significant steps to protect the integrity of its internal
systems, there can be no assurance that these steps will be sufficient to
avoid any adverse impact on MFS, shareholders of MFS funds, participants in
retirement plans administered by MFS, or MFS' institutional clients.
If you have further questions regarding MFS' Year 2000 Readiness Program,
please visit our Web site at www.mfs.com or contact the MFS Year 2000 Program
Management Office by e-mail at [email protected] or by letter at 500 Boylston
Street, Boston, MA 02116-3741.
<PAGE>
(C)1999 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
IRF-2 8/99 .5M
