<PAGE>
[Logo] M F S(SM) SEMIANNUAL REPORT
INVESTMENT MANAGEMENT DECEMBER 31, 1998
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
MFS(R) INSTITUTIONAL
GLOBAL FIXED INCOME FUND
[Graphic Omitted]
<PAGE>
MFS(R) INSTITUTIONAL GLOBAL FIXED INCOME 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,
PORTFOLIO MANAGER contact your financial adviser.
Stephen C. Bryant*
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.*
</TABLE>
*Affiliated with the Investment Adviser
- -------------------------------------------------------------------------------
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 13.81% (including the reinvestment of distributions), which compares to a
return of 12.17% for the Salomon Brothers World Government Bond Index (the
Salomon Index), an unmanaged index of complete universes of government bonds
with remaining maturities of at least five years.
Almost all the activity in the global fixed-income universe during 1998
occurred in the last six months of the year. In many respects, the third
quarter was a historic one, highlighted by Russia's devaluation and domestic
debt restructuring. By late September, extreme volatility existed in many
financial markets, primarily due to the partial liquidation of a large U.S.
hedge fund and continued uncertainty in the Asian markets.
As concerns over a global recession increased, bond markets were dominated by
a flight to quality. Largely due to the Federal Reserve Board's (the Fed's)
lowering short-term interest rates for the first time since 1996, yields on
10-year U.S., German, and Japanese bonds fell approximately 100 basis points
(1.00%) during the third quarter. In fact, U.S. Treasury yields fell to their
lowest level in over 30 years. (Principal value and interest on Treasury
securities are guaranteed by the U.S. government if held to maturity.)
After such a volatile third quarter, more stability and normalcy returned
during the fourth quarter. Helped by further interest-rate cuts by the Fed and
by most European central banks, along with approval for an increase in funding
for the International Monetary Fund, credit spreads began to contract. Longer-
term interest rates in most developed markets actually edged slightly higher
after reaching historic lows during the third quarter.
Japan, however, was the exception, as both government bond yields and the yen
were quite volatile toward the end of the year. First, the yen appreciated 17%
against the U.S. dollar due to central bank support and massive unwinding of
leveraged positions. Second, 10-year Japanese interest rates increased from
0.75% to 1.70% as concerns grew over larger budget deficits and possible new
issuance of debt.
During the year, the Fund performed well both in nominal terms and relative to
the Salomon Index. Although 1998 will be remembered as the worst year since
1990 for credit risk, this portfolio benefited by being invested in secure
global government bonds. All countries within the Salomon Index registered
positive returns when measured in local currency. The Fund benefited by being
overweighted in the better performers, namely the United Kingdom and the
noncore European countries.
In addition, underweighting the Japanese bond market for most of the year
enhanced results. Performance was somewhat constrained during the first half,
however, by the portfolio's having a lower duration than the Salomon Index.
Duration was lengthened by the beginning of the third quarter, and the Fund
was thus well positioned for the significant rally that ensued. In addition, a
weaker U.S. dollar helped to produce higher returns, both in absolute terms
and relative to the Salomon Index.
As we begin 1999, many unresolved global issues overhang the financial
markets. Concerns remain over the financial stability of both Brazil and
Russia. In addition, the launch of the new euro currency, as well as the
impeachment trial in Washington, obviously bears close scrutiny. However,
similar to 1998, we believe global growth and inflation should continue to
fall, which will be positive for most bond markets. In addition, both the Fed
and the new European central bank are ready to again provide liquidity in case
another credit crisis develops. We believe bond markets such as the United
Kingdom and Greece should continue to perform well in this environment.
Respectfully,
/s/ Stephen C. Bryant
Stephen C. Bryant
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and
are only through the end of the period of the report as stated on the cover.
The manager's views are subject to change at any time based on market and
other conditions, and no forecasts can be guaranteed.
The portfolio is actively managed, and current holdings may be different.
It is not possible to invest directly in an index.
PORTFOLIO MANAGER'S PROFILE
Stephen C. Bryant is Senior Vice President of MFS Investment Management(R) and
portfolio manager of the World Governments Series offered through MFS(R)/Sun
Life annuity products. He also is a member of the team that manages MFS(R)
World Governments Fund and MFS(R) World Governments Series (part of MFS(R)
Variable Insurance Trust(SM)), MFS(R) Institutional Global Fixed Income Fund,
and MFS(R) Government Markets Income Trust, a closed-end fund. He also manages
the foreign bond portions of MFS(R) Global Total Return Fund and MFS(R)
Intermediate Income Fund.
He joined MFS in 1987 as Assistant Vice President -- Investments. He was named
Vice President -- Investments in 1989 and Senior Vice President in 1993. Mr.
Bryant is a graduate of Wesleyan University.
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus. A prospectus containing more information,
including the exchange privilege and all charges and expenses, for any other
MFS product is available from your financial adviser, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
<PAGE>
FUND FACTS
Objective: Seeks income and capital appreciation. The Fund invests,
under normal market conditions, at least 80% of its
assets in globally diverse fixed-income securities.
Commencement of
investment operations: September 30, 1992
Size: $16.0 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
<TABLE>
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years/Life*
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return +13.81% +15.94% +21.00% +32.69% +48.89%
- -----------------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +15.94% + 6.56% + 5.82% + 6.57%
- -----------------------------------------------------------------------------------------------------------------------------------
*For the period from the commencement of the Fund's investment operations, September 30, 1992, through December 31, 1998.
</TABLE>
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.
Investments in foreign and emerging market securities may provide superior
returns but also involve greater risk than U.S. investments. Investments in
foreign and emerging market securities may be favorably or unfavorably
affected by changes in interest rates and currency exchange rates, market
conditions, and the ecomomic and political conditions of the countries where
investments are made. These risks may increase share price volatility. See the
prospectus for details.
<PAGE>
PORTFOLIO OF INVESTMENTS (Unaudited) - December 31, 1998
<TABLE>
<CAPTION>
Bonds - 103.6%
- ----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign Bonds - 57.7%
Canada - 2.2%
Government of Canada, 5.25s, 2008 $ 350 $ 351,586
- ----------------------------------------------------------------------------------------------------
Denmark - 2.2%
Kingdom of Denmark, 7s, 2007 DKK 1,823 $ 344,230
- ----------------------------------------------------------------------------------------------------
Germany - 14.1%
Germany Federal Republic, 6s, 2007 DEM 3,286 $ 2,250,752
- ----------------------------------------------------------------------------------------------------
Greece - 3.2%
Hellenic Republic, 8.6s, 2008 GRD 40,000 $ 158,487
Hellenic Republic, 8.9s, 2003 95,000 355,720
-----------
$ 514,207
- ----------------------------------------------------------------------------------------------------
Italy - 7.2%
Republic of Italy, 6.75s, 2007 ITL 1,595,000 $ 1,149,841
- ----------------------------------------------------------------------------------------------------
Japan - 4.4%
International Bank Recon & Dev, 2s, 2008 (Banks
and Credit Cos.) JPY 80,000 $ 706,048
- ----------------------------------------------------------------------------------------------------
New Zealand - 3.3%
Government of New Zealand, 8s, 2006 NED 300 $ 182,943
Government of New Zealand, 8s, 2004 580 340,580
-----------
$ 523,523
- ----------------------------------------------------------------------------------------------------
Sweden - 2.1%
Kingdom of Sweden, 6s, 2005 SEK 2,500 $ 341,780
- ----------------------------------------------------------------------------------------------------
United Kingdom - 19.0%
United Kingdom Treasury, 7.25s, 2007 GBP 1,289 $ 2,588,439
United Kingdom Treasury, 6.5s, 2003 246 447,062
-----------
$ 3,035,501
- ----------------------------------------------------------------------------------------------------
Total Foreign Bonds $ 9,217,468
- ----------------------------------------------------------------------------------------------------
U.S. Bonds - 45.9%
U.S. Treasury Obligations - 39.2%
U.S. Treasury Notes, 5.375s, 2003 $ 3,180 $ 3,272,411
U.S. Treasury Notes, 5.625s, 2008 2,800 2,987,684
-----------
$ 6,260,095
- ----------------------------------------------------------------------------------------------------
U.S. Federal Agencies - 6.7%
Federal National Mortgage Association, 2.125s, 2007 $ 120,000 $ 1,069,124
- ----------------------------------------------------------------------------------------------------
Total U.S. Bonds $ 7,329,219
- ----------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $15,951,559) $16,546,687
- ----------------------------------------------------------------------------------------------------
Short-Term Obligations - 4.3%
- ----------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. due 1/04/99 at
Amortized Cost $ 680 $ 679,745
- ----------------------------------------------------------------------------------------------------
Call Options Purchased - 0.2%
- ----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
OF CONTRACTS
DESCRIPTION/EXPIRATION MONTH/STRIKE PRICE (000 OMITTED) VALUE
- ----------------------------------------------------------------------------------------------------
Deutsche Marks/British Pounds/January/2.637 DEM 1,625 $ 20
Japanese Yen/February/112 JPY 156,719 29,463
Swedish Krona/British Pounds/March/12.5 SEK 7,212 2,892
---------------------------------------------------------------------------------------------------
Total Call Options Purchased (Identified Cost, $41,618) $ 32,375
- ----------------------------------------------------------------------------------------------------
Put Options Purchased - 0.1%
- ----------------------------------------------------------------------------------------------------
Deutsche Marks/November/1.95 DEM 117 $ 4,809
Deutsche Marks/British Pounds/January/2.8065 DEM 1,730 2,031
Japanese Yen/March/125 JPY 174,909 9,095
Japanese Yen/Deutsche Marks/May/85 JPY 229,500 688
- ----------------------------------------------------------------------------------------------------
Total Put Options Purchased (Identified Cost, $41,702) $ 16,623
- ----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $16,714,624 ) $17,275,430
- ----------------------------------------------------------------------------------------------------
Call Options Written - (0.2)%
- ----------------------------------------------------------------------------------------------------
Japanese Yen/February/108.00 JPY 151,122 (12,090)
Japanese Yen/Deutsche Marks/May/64.82 JPY 70,006 (15,681)
- ----------------------------------------------------------------------------------------------------
Total Call Options Written (Premiums Received, $20,414) $ (27,771)
- ----------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (8.0)% (1,284,869)
- ----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $15,962,790
- ----------------------------------------------------------------------------------------------------
Abbreviations have been used throughout this report to indicate amounts shown in currencies other than
the U.S. dollar. A list of abbreviations is shown below.
AUD = Australian Dollars
DEM = Deutsche Marks
DKK = Danish Kroner
GBP = British Pounds
GRD = Greek Drachma
ITL = Italian Lira
JPY = Japanese Yen
NLG = Netherland Guilder
NZD = New Zealand Dollars
SEK = Swedish Krona
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Statement of Assets and Liabilities (Unaudited)
- -------------------------------------------------------------------------------------------
DECEMBER 31, 1998
- -------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (identified cost, $16,714,624) $17,275,430
Cash 1,963
Net receivable for forward foreign currency exchange contracts to
purchase 5,899
Net receivable for forward foreign currency exchange contracts subject
to master netting agreements 79,064
Receivable from investment adviser 57,403
Interest receivable 251,463
Receivable for investments sold 12,033
Other assets 739
-----------
Total assets $17,683,994
-----------
Liabilities:
Written options outstanding, at value (premiums received, $20,414) $ 27,771
Net payable for forward foreign currency exchange contracts to sell 3,004
Payable for Fund shares reacquired 1,620,800
Payable for investments purchased 25,537
Payable to affiliates -
Management fee 309
Shareholder servicing agent fee 4
Accrued expenses and other liabilities 43,779
-----------
Total liabilities $ 1,721,204
-----------
Net assets $15,962,790
===========
Net assets consist of:
Paid-in capital $20,338,255
Unrealized appreciation on investments and translation of assets and
liabilities in foreign currencies 643,208
Accumulated net realized loss on investments and foreign currency
transactions (4,165,651)
Accumulated distributions in excess of net investment income (853,022)
-----------
Total $15,962,790
===========
Shares of beneficial interest outstanding 1,715,045
=========
Net asset value, redemption price, and offering price per share
(net assets of $15,962,790 / 1,715,045 shares of beneficial interest
outstanding) $9.31
=====
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations (Unaudited)
- ----------------------------------------------------------------------------
SIX MONTHS ENDED DECEMBER 31, 1998
- ----------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 605,642
----------
Expenses -
Management fee $ 69,681
Trustees' compensation 2,100
Shareholder servicing agent fee 812
Administrative fee 1,230
Custodian fee 11,135
Auditing fees 39,848
Registration fees 3,289
Printing 2,766
Legal fees 560
Miscellaneous 298
----------
Total expenses $ 131,719
Fees paid indirectly (4,350)
Preliminary reduction of expenses by investment adviser (56,978)
----------
Net expenses $ 70,391
----------
Net investment income $ 535,251
----------
Realized and unrealized gain on investments:
Realized gain (identified cost basis) -
Investment transactions $1,298,238
Written option transactions 136,963
Foreign currency transactions 187,647
----------
Net realized gain on investments and foreign
currency transactions $1,622,848
----------
Change in unrealized appreciation (depreciation) -
Investments $ 380,922
Written options (48,268)
Translation of assets and liabilities in foreign currencies 641,933
----------
Net unrealized gain on investments and foreign
currency translation $ 974,587
----------
Net realized and unrealized gain on investments
and foreign currency $2,597,435
----------
Increase in net assets from operations $3,132,686
==========
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 $ 535,251 $ 2,198,641
Net realized gain on investments and foreign currency
transactions 1,622,848 73,634
Net unrealized gain (loss) on investments and foreign
currency translation 974,587 (196,467)
------------- --------------
Increase in net assets from operations $ 3,132,686 $ 2,075,808
------------- --------------
Distributions declared to shareholders -
From net investment income $ -- $ (4,643,503)
From paid-in capital -- (458,167)
------------- --------------
Total distributions declared to shareholders $ -- $ (5,101,670)
------------- --------------
Net decrease in net assets from Fund share transactions $ (13,185,973) $ (24,474,987)
------------- --------------
Total decrease in net assets $ (10,053,287) $ (27,500,849)
Net assets:
At beginning of period 26,016,077 53,516,926
------------- --------------
At end of period (including accumulated distributions in
excess of net investment income of $853,022 and
$1,388,273, respectively) $ 15,962,790 $ 26,016,077
============= ==============
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
SIX MONTHS ENDED ----------------------------------------------------------------------
DECEMBER 31, 1998 1998 1997 1996 1995 1994
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $ 8.18 $ 9.07 $ 9.28 $10.13 $ 9.64 $10.50
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.22 $ 0.48 $ 0.58 $ 0.64 $ 0.65 $ 0.63
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions 0.91 (0.16) (0.25) (0.48) 0.70 (0.63)
------ ------ ------ ------ ------ ------
Total from investment operations $ 1.13 $ 0.32 $ 0.33 $ 0.16 $ 1.35 $ --
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- $ (1.10) $ (0.54) $ (0.48) $ (0.23) $ (0.31)
In excess of net investment income -- -- -- -- -- (0.55)
From net realized gain on
investments and foreign currency
transactions -- -- -- (0.31) (0.63) --
In excess of net realized gain on
investments and foreign currency
transactions -- -- -- (0.22) -- --
From paid-in capital -- (0.11) -- -- -- --
------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $ -- $ (1.21) $ (0.54) $ (1.01) $ (0.86) $ (0.86)
------ ------ ------ ------ ------ ------
Net asset value - end of period $ 9.31 $ 8.18 $ 9.07 $ 9.28 $10.13 $ 9.64
====== ====== ====== ====== ====== ======
Total return 13.81%++ 3.70% 3.40% 1.51% 15.10% (0.57)%
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.69%+ 0.65% 0.65% 0.65% 0.72% 0.75%
Net investment income 4.92%+ 5.51% 6.09% 6.52% 6.66% 6.09%
Portfolio turnover 156% 413% 365% 425% 279% 212%
Net assets at end of period
(000 omitted) $15,963 $26,016 $53,517 $62,807 $76,078 $42,364
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, 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 expenses of the Fund excluding management fee at not more than 0% of
average daily net assets. To the extent that actual expenses were over these limitations, the net investment income per share
and the ratios would have been:
Net investment income $ 0.20 $ 0.45 $ 0.55 $ 0.61 $ 0.61 $ 0.58
Ratios (to average net assets):
Expenses## 1.21%+ 1.01% 0.97% 0.95% 1.14% 1.23%
Net investment income 4.40%+ 5.17% 5.78% 6.22% 6.23% 5.61%
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS Institutional Global Fixed Income Fund (the Fund), is a non-diversified
series of MFS Institutional Trust (the Trust). The Trust is organized as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as an open-end management investment company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Investments
in foreign securities are vulnerable to the effects of changes in the relative
values of the local currency and the U.S. dollar and to the effects of changes
in each country's legal, political, and economic environment.
Investment Valuations - Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues, forward contracts, and swap
agreements, are valued on the basis of valuations furnished by dealers or by a
pricing service with consideration to factors such as institutional-size trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data, without exclusive
reliance upon exchange or over-the-counter prices. Short-term obligations, which
mature in 60 days or less, are valued at amortized cost, which approximates
market value. Non-U.S. dollar denominated short-term obligations are valued at
amortized cost as calculated in the foreign currency and translated into U.S.
dollars at the closing daily exchange rate. Futures contracts, options, and
options on futures contracts listed on commodities exchanges are reported at
market value using closing settlement prices. Over-the-counter options on
securities are valued by brokers. Over-the-counter currency options are valued
through the use of a pricing model which takes into account foreign currency
exchange spot and forward rates, implied volatility, and short-term repurchase
rates. Securities for which there are no such quotations or valuations are
valued at fair value as determined in good faith by or at the direction of the
Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates of
such transactions. Gains and losses attributable to foreign currency exchange
rates on sales of securities are recorded for financial statement purposes as
net realized gains and losses on investments. Gains and losses attributable to
foreign exchange rate movements on income and expenses are recorded for
financial statement purposes as foreign currency transaction gains and losses.
That portion of both realized and unrealized gains and losses on investments
that results from fluctuations in foreign currency exchange rates is not
separately disclosed.
Written Options - The Fund may write call or put options in exchange for a
premium. The premium is initially recorded as a liability which is subsequently
adjusted to the current value of the options contract. When a written option
expires, the Fund realizes a gain equal to the amount of the premium received.
When a written call option is exercised or closed, the premium received is
offset against the proceeds to determine the realized gain or loss. When a
written put option is exercised, the premium reduces the cost basis of the
security purchased by the Fund. The Fund, as writer of an option, may have no
control over whether the underlying securities may be sold (call) or purchased
(put) and, as a result, bears the market risk of an unfavorable change in the
price of the securities underlying the written option. In general, written call
options may serve as a partial hedge against decreases in value in the
underlying securities to the extent of the premium received. Written options may
also be used as part of an income producing strategy reflecting the view of the
Fund's management on the direction of interest rates.
Forward Foreign Currency Exchange Contracts - The Fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar. The Fund may enter into
forward contracts for hedging purposes as well as for non-hedging purposes. For
hedging purposes, the Fund may enter into contracts to deliver or receive
foreign currency it will receive from or require for its normal investment
activities. The Fund may also use contracts in a manner intended to protect
foreign currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the Fund may
enter into contracts with the intent of changing the relative exposure of the
Fund's portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains or
losses are recorded as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains or
losses on foreign currency transactions.
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. Interest payments received in additional
securities are recorded on the ex-interest date in an amount equal to the value
of the security on such date.
Fees Paid Indirectly - The Fund's custody fee is calculated as a percentage of
the Fund's 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.
At December 31, 1998, the Fund, for federal income tax purposes, had a capital
loss carryforward of $4,676,613 which may be applied against any net taxable
realized gains of each succeeding year until the earlier of its utilization or
expiration on June 30, 2004.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.65% of
the Funds average daily net assets. The investment adviser has voluntarily
agreed to pay the Fund's operating expenses exclusive of management fees. This
is reflected as a reduction of the 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 - 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 purchased option transactions
and short-term obligations, were as follows:
PURCHASES SALES
- -----------------------------------------------------------------------------
U.S. government securities $20,824,841 $28,752,675
----------- -----------
Investments (non-U.S. government securities) $11,086,241 $13,564,142
----------- -----------
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 $16,767,836
-----------
Gross unrealized appreciation $ 657,947
Gross unrealized depreciation (150,353)
-----------
Net unrealized appreciation $ 507,594
===========
(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 -- $ -- 1,216,802 $ 10,686,382
Shares issued to shareholders in
reinvestment of distributions -- -- 376,093 3,035,070
Shares reacquired (1,466,943) (13,185,973) (4,312,333) (38,196,439)
-------------- ---------------- -------------- ----------------
Net decrease (1,466,943) $ (13,185,973) (2,719,438) $ (24,474,987)
============== ================ ============== ================
</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 $141.
(7) Financial Instruments
The Fund trades financial instruments with off-balance-sheet risk in the
normal course of its investing activities in order to manage exposure to
market risks such as interest rates and foreign currency exchange rates. These
financial instruments include written options and forward foreign currency
exchange contracts. The notional or contractual amounts of these instruments
represent the investment the Fund has in particular classes of financial
instruments and does not necessarily represent the amounts potentially subject
to risk. The measurement of the risks associated with these instruments is
meaningful only when all related and offsetting transactions are considered.
Written Option Transactions
<TABLE>
<CAPTION>
1998 CALLS 1998 PUTS
----------------------------------- ------------------------------------
PRINCIPAL AMOUNTS PRINCIPAL AMOUNTS
OF CONTRACTS OF CONTRACTS
(000 OMITTED) PREMIUMS (000 OMITTED) PREMIUMS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding, beginning of period
Canadian Dollar -- $ -- 1,857 $ 6,946
Japanese Yen/Deutsche Marks 297,964 69,293 -- --
Options written -
Australian Dollar 1,473 25,579 964 11,928
British Pounds 742 5,707 -- --
Canadian Dollar 4,533 23,300 -- --
Deutsche Marks/British Pounds 2,319 11,131 2,471 12,360
Japanese Yen/Deutsche Marks 70,006 8,380 -- --
Japanese Yen 1,461,717 114,221 213,461 11,276
Options terminated in closing transactions -
Australian Dollar (1,104) (20,768) (964) (11,928)
British Pounds (742) (5,707) -- --
Canadian Dollar (1,164) (9,075) (1,857) (6,946)
Deutsche Marks/British Pounds (2,319) (11,131) (735) (6,561)
Japanese Yen (294,202) (29,079) -- --
Options exercised -
Australian Dollar (369) (4,811) -- --
Japanese Yen (1,016,393) (73,108) -- --
Options expired -
Canadian Dollar (3,369) (14,225) -- --
Deutsche Marks/British Pounds -- -- (1,736) (5,799)
Japanese Yen/Deutsche Marks (297,964) (69,293) -- --
Japanese Yen -- -- (213,461) (11,276)
----------- --------
Outstanding, end of period $ 20,414 $
Options outstanding at end of
period consist of:
Japanese Yen/Deutsche Marks 70,006 8,380 -- --
Japanese Yen 151,122 12,034 -- --
----------- --------
Outstanding, end of period $ 20,414 $
=========== ========
At December 31, 1998, the Fund had sufficient cash and/or securities at least equal to the value of the written options.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Forward Foreign Currency Exchange Contracts
NET
UNREALIZED
CONTRACTS TO CONTRACTS APPRECIATION
SETTLEMENT DATE DELIVER/RECEIVE IN EXCHANGE FOR AT VALUE (DEPRECIATION)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales 3/15/99 AUD 259,886 $ 162,754 $ 158,907 $ 3,847
3/15/99 DKK 2,296,113 363,103 361,625 1,478
3/15/99 NLG 27,911 14,931 14,903 28
3/15/99 NZD 1,108,018 574,535 582,892 (8,357)
---------- ---------- -------
$1,115,323 $1,118,327 $(3,004)
========== ========== =======
Purchases 3/15/99 AUD 703,683 $ 434,173 $ 430,266 $(3,907)
3/15/99 JPY 34,468,326 296,975 306,781 9,806
---------- ---------- -------
$ 731,148 $ 737,047 $ 5,899
========== ========== =======
</TABLE>
Forward foreign currency purchases and sales under master netting agreements
excluded above amounted to a net receivable of $4,043 with Deutsche Bank,
$10,256 with C.S. First Boston, and $64,765 with Merrill Lynch at December 31,
1998.
At December 31, 1998, the Fund had sufficient cash and/or securities to cover
commitments under these contracts.
<PAGE>
(C)1999 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
IGF-3 2/99 .5M
