<PAGE>
[Logo] M F S(R) SEMIANNUAL REPORT
INVESTMENT MANAGEMENT DECEMBER 31, 1998
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
MFS(R) INSTITUTIONAL
INTERNATIONAL EQUITY FUND
[Graphic Omitted]
<PAGE>
MFS(R) INSTITUTIONAL INTERNATIONAL EQUITY 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.
David R. Mannheim*
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
- -3.87%, which compares to a 3.66% return for the Morgan Stanley Capital
International (MSCI) Europe, Australia, Far East (EAFE) Index, an unmanaged,
market-capitalization-weighted total return index of developed-country global
stock markets, excluding the United States, Canada, and the South African mining
component.
The equity markets worldwide have had one of the more volatile years in recent
history. In the market's downturn during the late summer and early fall of 1998,
European equities were actually hit harder than those in the United States.
Though all markets have rebounded, foreign stocks have not come back with the
same strength as U.S. equities.
In developed markets, performance was impacted by investor flight to the
perceived quality of major European markets such as France and Germany and to
big-name stocks in those regions in the wake of the global market volatility
during the late summer and early fall. During this flight, investors sold off in
peripheral markets such as Italy, Ireland, and Portugal, where we have found
some attractive investments. These stocks continue to display attractive
fundamentals, and we plan to stick with them based on what we feel are solid
long-term prospects.
Another factor in the portfolio's underperformance was the difficult situation
in the emerging markets, despite our small portfolio exposure of less than 5% of
total assets. It is important to note, however, that the MSCI EAFE Index does
not take into account any emerging market stocks.
With regard to the portfolio's sector weightings, financial services is the top
sector, with an overweighting in insurance stocks as opposed to banking stocks.
A good company here has been QBE Insurance, an Australian-based company that
boasts strong management and has shown consistent growth. In the consumer
staples sector we favor companies that can demonstrate steady earnings growth,
such as Benckiser, the world's leading manufacturer of dishwashing detergent.
Industrial goods and services is our third-largest sector and is largely made up
of European defense stocks such as British Aerospace, Saab, and Thomson CSF, all
of which have shown an ability to generate steady earnings and overcome economic
cycles. Utilities and communications, our fourth-largest sector, is mostly made
up of cellular telecommunications companies that we feel will effectively
compete in a dynamic global market.
Turning to the troubled emerging markets, we have not invested in Russian
stocks, and we feel that the impact of Russia's problems on the world economy
will be minimal because it is only a small part of the global financial scene
despite its high geopolitical profile. Our exposure in Brazil hurt us in the
past six months, and we're closely monitoring that situation. We feel we have
selected good companies there, but we need to see if those stocks can overcome
the country's macroeconomic problems in the long term. The Series had minimal
investments in Southeast Asian companies because the macroeconomic situation
there has clearly overwhelmed even previously strong individual companies. We
expect negative growth there in 1999 and are likely to have limited holdings in
the immediate future.
In Japan, we're in the "show me" stage right now. Its economy is still in
trouble, and now even the big global exporting companies such as Sony and Canon
are being impacted by the strengthening yen, which has hurt exports and created
a drag on corporate earnings growth. While the various budget packages and
remedies that the Japanese government has proposed are steps in the right
direction, we still see a number of traditional barriers to economic reform.
Until more is done to move the country to a free-market system in which bad
companies are allowed to fail, restructuring and streamlining are encouraged,
and barriers to investment are removed, we believe that Japan will still have
problems.
We believe the recent drive toward European monetary union (EMU) is a positive
event for investors. As currency risk is eliminated and the cost of doing
business evens out among EMU member nations, there will be heightened
cross-border competition within industry sectors and an intensified focus on the
performance of individual companies. As a company that has always sought the
best individual companies in which to invest, as opposed to investing on a
top-down regional allocation basis, we believe the Fund is perfectly positioned
to thrive in the new environment. As far as currency implications are concerned,
we look at the euro, the common currency of the 11 member nations of the
economic union, as just another currency that we need to deal with, and we're
relatively neutral on its impact.
Overall, our international earnings growth outlook in 1999 is lower than it was
six months ago. We now expect average earnings growth of approximately 6% to 8%,
with Europe leading the way at about 6%, Japan flat to negative, and the
remainder of Asia negative. Latin America may be negative as well due to the
problems in Brazil.
Respectfully,
/s/ David R. Mannheim
David R. Mannheim
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 difficult.
It is not possible to invest directly in an index.
PORTFOLIO MANAGER'S PROFILE
David R. Mannheim is a Senior Vice President of MFS Investment Management(R) and
portfolio manager of MFS(R) Global Equity Fund, MFS(R) International Growth
Fund, MFS(R) Global Asset Allocation Fund, MFS(R) Meridian(SM) Global Equity
Fund, MFS(R) Global Growth Fund, and the International Series, the World Growth
Series, and the World Asset Allocation Series offered through MFS(R)/Sun Life
annuity products. Mr. Mannheim joined MFS in 1988 and was named Investment
Officer in 1990, Assistant Vice President in 1991, Vice President and portfolio
manager of MFS Global Equity Fund in 1992, and Senior Vice President in 1997. He
is a graduate of Amherst College and the Massachusetts Institute of Technology
Sloan School of Management.
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 to provide long-term growth of capital. The
Fund invests, under normal market conditions, at
least 80% of its total assets in foreign equity
securities of companies whose principal
activities are located outside the United States.
Commencement of
investment operations: January 31, 1996
Size: $6.1 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 of 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 -3.87% +9.28% +42.63%
- ------------------------------------------------------------------------------
Average Annual Total Return -- +9.28% +12.94%
- ------------------------------------------------------------------------------
*For the period from the commencement of the Fund's investment operations,
January 31, 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.
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 economic 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>
Stocks - 91.7%
- -------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Foreign Stocks - 87.4%
Australia - 3.1%
QBE Insurance Group Ltd. (Insurance)* 33,323 $ 137,455
Seven Network Ltd. (Entertainment) 16,500 54,146
----------
$ 191,601
- -------------------------------------------------------------------------------------------------
Brazil - 1.0%
Companhia Electricas est Rio de Janeiro (Utilities -
Electric)* 64,500 $ 21,358
Tele Sudeste Celular Participacoes S.A., ADR
(Telecommunications)* 300 6,206
Tele Sudeste Celular Participacoes S.A., Preferred
(Telecommunications)* 3,000 12,665
Telesp Celular Participacoes S.A., ADR
(Telecommunications)* 500 8,750
Telesp Celular Participacoes S.A., Preferred
(Telecommunications)* 1,300 9,578
----------
$ 58,557
- -------------------------------------------------------------------------------------------------
Canada - 2.0%
Canadian National Railway Co. (Railroads) 2,400 $ 124,500
- -------------------------------------------------------------------------------------------------
Finland - 4.9%
Helsingin Puhelin Oyj (Telecommunications) 2,050 $ 121,878
Pohjola Insurance Group (Insurance) 1,500 81,821
Rapala Normark Corp. (Consumer Goods and Services)* 755 6,518
Tieto Corp. (Computer Software - Systems) 2,050 91,308
----------
$ 301,525
- -------------------------------------------------------------------------------------------------
France - 8.8%
Pernod Ricard Co. (Beverages) 970 $ 62,939
Television Francaise (Broadcasting) 700 124,497
Thomson CSF (Aerospace and Defense) 3,150 135,133
Total S.A., "B" (Oils) 950 96,112
Union des Assurances Federales S.A. (Insurance) 910 120,693
----------
$ 539,374
- -------------------------------------------------------------------------------------------------
Germany - 5.0%
Henkel KGaA, Preferred (Chemicals) 1,600 $ 142,926
Mannesmann AG (Conglomerate) 885 101,340
Wella AG, Preferred (Consumer Goods and Services)* 72 60,000
----------
$ 304,266
- -------------------------------------------------------------------------------------------------
Greece - 1.9%
Hellenic Telecommunication Organization S.A., GDR
(Telecommunications) 3,144 $ 83,608
Panafon S.A. (Telecommunications)* 200 5,354
Stet Hellas Telecommunications S.A., ADR
(Telecommunications)* 900 29,138
----------
$ 118,100
- -------------------------------------------------------------------------------------------------
Ireland - 3.7%
Allied Irish Bank PLC (Banks and Credit Cos.) 3,900 $ 69,355
Anglo Irish Bank PLC (Banks and Credit Cos.)* 54,049 154,219
----------
$ 223,574
- -------------------------------------------------------------------------------------------------
Italy - 6.5%
Banca Carige S.p.A. (Banks and Credit Cos.) 8,000 $ 78,866
ERG S.p.A. (Oils) 15,100 52,211
Mediaset S.p.A. (Broadcasting) 14,600 118,469
Telecom Italia Mobile S.p.A., Saving Shares
(Telecommunications) 30,900 145,575
----------
$ 395,121
- -------------------------------------------------------------------------------------------------
Japan - 12.0%
Canon, Inc. (Special Products and Services) 5,000 $ 106,463
Fujitsu Ltd. (Electronics) 3,000 39,808
Kinki Coca-Cola Bottling Co. (Beverages) 2,000 26,433
Kirin Beverage Corp. (Beverages) 3,000 58,984
Mikuni Coca-Cola Bottling Co. (Beverages) 3,000 63,878
NTT Data Corp. (Computer Software - Systems) 10 49,462
Olympus Optical Co. (Conglomerate) 10,000 114,530
Osaka Sanso Kogyo Ltd. (Chemicals) 8,000 15,306
Sony Corp. (Electronics) 1,300 94,331
Takeda Chemical Industries Co. (Pharmaceuticals) 2,000 76,706
Tokyo Broadcasting System, Inc. (Entertainment) 4,000 44,542
Ushio, Inc. (Electronics) 5,000 43,687
----------
$ 734,130
- -------------------------------------------------------------------------------------------------
Netherlands - 9.9%
Akzo Nobel N.V. (Chemicals) 3,000 $ 136,472
Benckiser N.V., "B" (Consumer Goods and Services) 3,600 235,595
IHC Caland N.V. (Marine Equipment)* 1,000 41,500
ING Groep N.V. (Financial Services)* 2,091 127,385
Koninklijke Ahold N.V. (Supermarkets)* 1,000 36,925
Koninklijke Ahrend Groep N.V. (Consumer Goods and Services)* 1,230 28,075
----------
$ 605,952
- -------------------------------------------------------------------------------------------------
Norway - 1.1%
Storebrand ASA (Insurance) 8,700 $ 65,847
- -------------------------------------------------------------------------------------------------
Portugal - 2.2%
Banco Pinto & Sotto Mayor S.A. (Banks and Credit Cos.) 6,100 $ 115,479
Telecel - Comunicacaoes Pessoais S.A. (Telecommunications) 100 20,410
----------
$ 135,889
- -------------------------------------------------------------------------------------------------
Singapore - 0.6%
Natsteel Electronics Ltd. (Electronics) 14,000 $ 35,647
- -------------------------------------------------------------------------------------------------
Spain - 1.3%
Repsol S.A. (Oils) 1,450 $ 77,348
- -------------------------------------------------------------------------------------------------
Sweden - 6.0%
Astra AB (Pharmaceuticals) 5,316 $ 108,022
Saab AB, "B" (Aerospace)* 17,400 182,143
Volvo AB (Automotive) 3,400 77,882
----------
$ 368,047
- -------------------------------------------------------------------------------------------------
Switzerland - 2.5%
Barry Callebaut AG (Food and Beverage Products) 410 $ 93,134
Novartis AG (Medical and Health Products) 30 58,974
----------
$ 152,108
- -------------------------------------------------------------------------------------------------
United Kingdom - 14.9%
Avis Europe PLC (Auto Rental)## 17,500 $ 72,867
British Aerospace PLC (Aerospace and Defense)* 36,189 307,974
British Petroleum PLC (Oils)* 2,776 41,262
Capital Radio PLC (Broadcasting) 2,100 20,380
Kwik-Fit Holdings PLC (Automotive Repair Centers) 4,800 38,420
Lloyds TSB Group PLC (Banks and Credit Cos.) 3,268 46,460
LucasVarity PLC (Automotive) 25,800 86,027
Next PLC (Stores) 18,070 147,783
Taylor Nelson Sofres PLC (Market Research) 8,000 10,153
Tomkins PLC (Conglomerate)* 16,500 78,284
Zeneca Group PLC (Pharmaceuticals) 1,300 56,545
----------
$ 906,155
- -------------------------------------------------------------------------------------------------
Total Foreign Stocks $5,337,741
- -------------------------------------------------------------------------------------------------
U.S. Stocks - 4.3%
Consumer Goods and Services - 3.0%
Galileo International, Inc.* 4,250 $ 184,875
Oils - 1.3%
Amoco Corp. 1,300 76,700
----------
$ 261,575
- -------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $4,969,951) $5,599,316
- -------------------------------------------------------------------------------------------------
Short-Term Obligations - 6.8%
- -------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
OR SHARES
- -------------------------------------------------------------------------------------------------
Federal Home Loan Bank, due 1/04/99 $410,000 $ 409,853
Navigator Securities Lending Prime Portfolio 6,300 6,300
- -------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 416,153
- -------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $5,386,104) $6,015,469
Other Assets, Less Liabilities - 1.5% 91,415
- -------------------------------------------------------------------------------------------------
Net Assets - 100.0% $6,106,884
- -------------------------------------------------------------------------------------------------
* Non-income producing security.
## SEC Rule 144A restriction.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Statement of Assets and Liabilities (Unaudited)
- ---------------------------------------------------------------------------------------
DECEMBER 31, 1998
- ---------------------------------------------------------------------------------------
<S> <C>
Investments, at value (identified cost, $5,386,104) $6,015,469
Cash 41,153
Foreign currency, at value (identified cost, $65,570) 64,481
Receivable for Fund shares sold 10,000
Receivable for investments sold 35,697
Dividends and interest receivable 19,965
Receivable from investment adviser 34,981
Deferred organization expenses 2,911
Other assets 71
----------
Total assets $6,224,728
----------
Liabilities:
Payable for investments purchased $ 90,764
Net payable for foreign currency exchange contracts closed or subject to
master netting agreements 1,927
Collateral for securities loaned, at value 6,300
Payable to affiliates -
Management fee 125
Shareholder servicing agent fee 12
Accrued expenses and other liabilities 18,716
----------
Total liabilities $ 117,844
----------
Net assets $6,106,884
==========
Net assets consist of:
Paid-in capital $5,090,955
Unrealized appreciation on investments and translation of assets and
liabilities in foreign currencies 627,066
Accumulated undistributed net realized gain on investment and foreign
currency transactions 354,142
Accumulated undistributed net investment income 34,721
----------
Total $6,106,884
==========
Shares of beneficial interest outstanding 497,386
=======
Net asset value, offering price, and redemption price per share
(net assets / shares of beneficial interest outstanding) $12.28
======
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations (Unaudited)
- --------------------------------------------------------------------------
SIX MONTHS ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 84,475
Interest 11,472
Foreign taxes withheld (9,862)
-----------
Total investment income $ 86,085
-----------
Expenses -
Management fee $ 40,193
Trustees' compensation 2,200
Shareholder servicing agent fee 411
Administrative fee 562
Custodian fee 10,810
Printing 6,235
Postage 3
Auditing fees 10,694
Legal fees 499
Amortization of organization expenses 704
Registration fees 9,005
Miscellaneous 529
-----------
Total expenses $ 81,845
Fees paid indirectly (928)
Preliminary reduction of expenses by investment adviser (34,981)
-----------
Net expenses $ 45,936
-----------
Net investment income $ 40,149
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 376,610
Foreign currency transactions (29,746)
-----------
Net realized gain on investments and foreign
currency transactions $ 346,864
-----------
Change in unrealized appreciation (depreciation) -
Investments $(1,113,150)
Translation of assets and liabilities in
foreign currencies 14,026
-----------
Net unrealized loss on investments and foreign
currency translation $(1,099,124)
-----------
Net realized and unrealized loss on investments
and foreign currency $ (752,260)
-----------
Decrease in net assets from operations $ (712,111)
===========
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 $ 40,149 $ 123,867
Net realized gain on investments and foreign currency
transactions 346,864 402,556
Net unrealized gain (loss) on investments and foreign
currency translation (1,099,124) 585,568
------------ -----------
Increase (decrease) in net assets from operations $ (712,111) $ 1,111,991
------------ -----------
Distributions declared to shareholders -
From net investment income $ (99,690) $ (68,852)
From net realized gain on investments and foreign currency
transactions (367,595) (292,025)
------------ -----------
Total distributions declared to shareholders $ (467,285) $ (360,877)
------------ -----------
Net increase (decrease) in net assets from Fund share
transactions $ (5,190,632) $ 1,037,376
------------ -----------
Total increase (decrease) in net assets $ (6,370,028) $ 1,788,490
Net assets:
At beginning of period 12,476,912 10,688,422
------------ -----------
At end of period (including accumulated undistributed net
investment income of $34,721 and $94,262, respectively) $ 6,106,884 $12,476,912
============ ===========
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
SIX MONTHS ENDED -----------------------------------------------
DECEMBER 31, 1998 1998 1997 1996*
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C>
Net asset value - beginning of period $13.88 $13.04 $10.96 $10.00
------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.05 $ 0.14 $ 0.23 $ 0.13
Net realized and unrealized gain (loss) on
investments and foreign currency (0.63) 1.12 2.23 0.83
------ ------ ------ ------
Total from investment operations $(0.58) $ 1.26 $ 2.46 $ 0.96
------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.22) $(0.08) $(0.13) $ --
From net realized gain on investments and foreign
currency transactions (0.80) (0.34) (0.25) --
------ ------ ------ ------
Total distributions declared to shareholders $ (1.02) $ (0.42) $ (0.38) $ --
------ ------ ------ ------
Net asset value - end of period $12.28 $13.88 $13.04 $10.96
====== ====== ====== ======
Total return (3.87)%++ 10.13% 22.97% 9.60%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.87%+ 0.86% 0.87% 0.94%+
Net investment income 0.74%+ 1.08% 1.98% 2.46%+
Portfolio turnover 45% 64% 76% 19%
Net assets at end of period (000 omitted) $6,107 $12,477 $10,688 $2,498
* For the period from the commencement of the Fund's investment operations, January 31, 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) Effective May 3, 1996, the investment adviser voluntarily agreed to maintain the expenses of the Fund, exclusive of management
fees, at not more than 0.10% of average daily net assets. During the period January 31, 1996, through May 2, 1996, the
investment adviser voluntarily agreed to maintain the expenses of the Fund, exclusive of management fees, at no more than
0.20% of average daily net assets. To the extent actual expenses were over these limitations, the net investment income
(loss) per share and ratios would have been:
Net investment income (loss) $ 0.01 $ 0.07 $ 0.10 $ (0.08)
Ratios (to average net assets):
Expenses## 1.52%+ 1.39% 2.01% 4.91%+
Net investment income (loss) 0.09%+ 0.54% 0.85% (1.51)%+
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS Institutional International Equity 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. Debt securities (other than short-term obligations which mature in 60
days or less), including forward contracts, 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.
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.
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. Dividends received in cash are recorded on the
ex-dividend date. Dividend and interest payments received in additional
securities are recorded on the ex-dividend or ex-interest date in an amount
equal to the value of the security on such date.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its 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.
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 0.75% 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 0.10% of its average daily net
assets. This is reflected as a preliminary reduction of expenses in the
Statement of Operations.
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 $4,514,917
and $10,475,169, 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 $5,386,104
----------
Gross unrealized appreciation $ 792,672
Gross unrealized depreciation (163,307)
----------
Net unrealized appreciation $ 629,365
==========
(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 29,316 $ 366,088 96,523 $1,273,048
Shares issued to shareholders in
reinvestment of distributions 38,083 467,280 27,197 329,631
Shares reacquired (469,171) (6,024,000) (44,030) (565,303)
-------- ----------- ------- ----------
Net increase (decrease) (401,772) $(5,190,632) 79,690 $1,037,376
======== =========== ======= ==========
</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 $54.
(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 foreign currency exchange rates. These financial instruments include
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.
Forward foreign currency purchases and sales under master netting agreements
amounted to a net payable of $1,927 with Merrill Lynch & Co. at December 31,
1998.
At December 31, 1998, the Fund had sufficient cash and/or securities to cover
any commitments under these contracts.
(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 ("State Street"),
as agent, to certain brokers (the "Borrowers") approved by the Fund. 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 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 $6,206. These loans
were collateralized by cash of $6,300. 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. 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.
<PAGE>
(C)1999 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
IIE-3 2/99 .3M
