<PAGE>
[Logo] M F S (R)
INVESTMENT MANAGEMENT ANNUAL REPORT
We invented the mutual fund(R) FOR YEAR ENDED
JUNE 30, 2000
[Graphic Omitted]
MFS(R) INSTITUTIONAL
RESEARCH FUND
<PAGE>
<TABLE>
MFS(R) INSTITUTIONAL RESEARCH FUND
<S> <C>
TRUSTEES INVESTMENT ADVISER
Jeffrey L. Shames* - Chairman, Chief Executive Officer, and Massachusetts Financial Services Company
Director, MFS Investment Management(R) 500 Boylston Street
Boston, MA 02116-3741
Nelson J. Darling, Jr.+ - Private investor and trustee
DISTRIBUTOR
William R. Gutow+ - Private investor and real estate consultant; MFS Fund Distributors, Inc.
Vice Chairman, Capitol Entertainment Management Company 500 Boylston Street
(video franchise) Boston, MA 02116-3741
CHAIRMAN AND PRESIDENT INVESTOR SERVICE
Jeffrey L. Shames* MFS Service Center, Inc.
P.O. Box 2281
ASSOCIATE DIRECTOR OF EQUITY RESEARCH Boston, MA 02107-9906
Alec C. Murray*
For additional information,
TREASURER contact your investment professional.
James O. Yost*
CUSTODIAN
ASSISTANT TREASURERS State Street Bank and Trust Company
Mark E. Bradley*
Ellen Moynihan* AUDITORS
Deloitte & Touche LLP
SECRETARY
Stephen E. Cavan* WORLD WIDE WEB
www.mfs.com
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
* MFS Investment Management
+ Independent Trustee
----------------------------------------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Shareholders,
I'm sure you've noticed that whenever financial markets suffer a large
decline, as they did very dramatically this past spring, there's a flurry of
information on "how to deal with market volatility" -- both in the popular
press and from those of us in the investment business. Our own thinking on
this is that, first, for long-term investors volatility is not necessarily
something to be feared; occasional volatility may in fact be healthy for the
markets.
Second, our experience has been that when markets begin to fall, it's often
too late to act. The best response may be to do nothing -- if you're properly
prepared with a long-term plan, created with the help of your investment
professional. To help you create or update that plan and take market
volatility in stride, here are some points you may want to consider the next
time you talk with your investment professional.
1. VOLATILITY CAN BE A GOOD THING
We would argue that the markets today are much healthier than they were before
the period of volatility this past spring, in the sense that stock prices have
returned to more reasonable levels and we have a stronger base for future
growth. Perhaps the worst of the market's wrath descended on companies with
very high prices, relative to their earnings, or with business concepts that
looked great in the euphoria of a booming market but in the end appeared to
have no fundamental backing. It has always been our view that one of the best
protections against market volatility is to invest in stocks and bonds of
fundamentally good companies selling at reasonable prices. When discussing
potential investments with your investment professional, you may want to ask
how they fared in previous periods of volatility, as well as in the good
times.
2. INVEST FOR THE LONG TERM
You've heard that before, but we think it's still probably the most important
concept in investing. Time is one of an investor's greatest allies. Over
nearly all long-term periods -- 5, 10, 20 years, and more -- stock and bond
returns, as represented by most common indices, have been positive and have
considerably outpaced inflation. Investing is the best way we know of to make
your money work for you while you're doing something else.
Where investors can get into trouble is by confusing investing with trading.
In our view, traders who buy securities with the intention of selling them at
a profit in a matter of hours, days, or weeks are gambling. We believe this
seldom turns out to be a good strategy for increasing your wealth.
3. INVEST REGULARLY
Waiting for the "right time" to invest is almost always a poor strategy,
because only in retrospect do we know when that right time really was. Periods
of volatility are probably the worst times to make an investment decision.
Faced with turmoil in the markets, many investors have opted to simply stay on
the sidelines.
On the other hand, we think one of the best techniques for investing is
through automatic monthly or quarterly deductions from a checking or savings
account. This approach has at least three major benefits. First, you can
formulate a long-term plan -- how much to invest, how often, and into what
portfolios -- in a calm, rational manner, working with your investment
professional. Second, with this approach you invest regularly without
agonizing over the decision each time you buy shares.
And, third, if you invest equal amounts of money at regular intervals, you'll
be taking advantage of a strategy called dollar-cost averaging: by investing a
fixed amount while the share cost fluctuates, you end up with an average share
cost to you that is lower than the average share price over your investment
period.(1) If all this sounds familiar, it's probably because you're already
taking advantage of dollar-cost averaging by investing regularly for
retirement through a 401(k) or similar account at work.
4. DIVERSIFY
One of the dangers of not having an investment plan is that you may be tempted
to simply chase performance, i.e., move money into whatever asset class appears
to be outperforming at the moment -- small, mid, or large cap; growth or value;
United States or international; stocks or bonds. The problem with this approach
is that by the time a particular area is generally recognized as "hot," you may
have already missed some of the best performance.
International investing offers a case in point. In the 1980s, international
investments, as represented by the Morgan Stanley Capital International (MSCI)
Europe, Australia, Far East (EAFE) Index, outperformed U.S. investments, as
represented by the Standard & Poor's 500 Composite Index (S&P 500), in 7 out
of 10 years.(2) For the decade, the MSCI EAFE's average annual performance was
23%, compared to 18% for the S&P 500. Going into the 1990s, then, an investor
looking only at recent performance might have favored international
investments over U.S. investments.
But the 1990s turned out to be virtually a mirror image of the '80s. Domestic
investments outperformed international investments in 7 out of 10 years, with
the S&P 500 returning an average of 18% annually for the decade and the MSCI
EAFE returning a 7% annual average. Looking ahead, however, we are optimistic
about international markets because we feel that many of the same forces that
propelled the current U.S. economic boom -- deregulation, restructuring, and
increased adoption of technology -- have taken root overseas.
The lesson to be learned is that nobody really knows what asset class will be
the next to outperform or how long that performance will be sustained. We
would suggest that one way to potentially profit from swings in the market --
to potentially be invested in various asset classes before the market shifts
in their favor -- is with a diversified portfolio covering several asset
classes.
If you haven't already done so, we encourage you to discuss these thoughts
with your investment professional and factor them into your long-range
financial planning. Hopefully, the next time the markets appear to be going
wild, you'll feel confident enough in your plan to view periods of volatility
as a time of potential opportunity -- or perhaps just a time to sit back and
do nothing.
As always, we appreciate your confidence in MFS 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(R)
July 17, 2000
(1) The use of a systematic investing program does not guarantee a profit or
protect against a loss in declining markets. You should consider your
financial ability to continue to invest through periods of low prices.
(2) Source: Lipper Inc. Decade performance: '80s -- 12/31/79-12/31/89,
'90s -- 12/31/89-12/31/99. The MSCI EAFE Index is an unmanaged,
market-capitalization-weighted total return index that measures the
performance of the same developed-country global stock markets included in
the MSCI World Index but excludes the United States, Canada, and the South
African mining component. The S&P 500 is a popular, unmanaged index of
common stock total return performance. It is not possible to invest directly
in an index. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
Investments in mutual funds will fluctuate and may be worth more or less upon
redemption.
Mutual funds are designed for long-term retirement investing. Please see your
investment professional for more information.
The opinions expressed in this letter are those of Jeffrey L. Shames, and no
forecasts can be guaranteed.
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
Dear Shareholders,
For the year ended June 30, 2000, the fund provided a total return of 21.67%,
including the reinvestment of any distributions. This compares to a return of
11.37% for the average large cap core fund tracked by Lipper Inc., an
independent firm that reports mutual fund performance, and 7.25% for the
fund's benchmark, the Standard & Poor's 500 (S&P 500) Composite Index. The S&P
500 is a popular, unmanaged index of common stock total return performance.
As we've seen during the first half of 2000, investment trends and styles go
in and out of favor with investors. Consequently, we don't spend too much time
trying to determine when value or growth, small-cap or large-cap stocks will
move in and out of the spotlight. Instead, we focus on finding dominant
business franchises with outstanding managements driving accelerating earnings
growth. It's a bottom-up approach that's based on intensive hands-on research
and the best ideas of our analysts. This approach has led us to some very
rewarding growth opportunities, and the fund has held on to its favorable
returns during the period despite the weakness we've seen in the market over
the past few months.
Beyond performance, however, we believe there are other factors that
distinguish this portfolio from its competitors. First and foremost, we
believe the depth and talent of our equity analysts are big advantages. We
have more than 35 equity research analysts at MFS, all contributing their best
ideas to the portfolio. As a result, there is a great deal of information
sharing, starting with our in-depth balance sheet and earnings analysis. At
the same time, we all spend a great deal of time on the road meeting with
company managements, as well as with employees, competitors, and suppliers. We
also have a lot of flexibility with the portfolio. We can look at any market
capitalization, location, or industry. Overall, we lean toward the more
dynamic areas of the economy, focusing on companies that we believe are at the
forefront of innovation and are benefiting from their competitive advantages.
We're finding opportunities in a wide range of areas, but some industries that
have recently performed well for the portfolio are energy, insurance, and
pharmaceuticals. In the energy sector, exploration and production companies
such as Global Marine and Transocean have rallied significantly due to the
rebound in oil and natural gas prices. Higher prices have spurred demand for
drilling services, resulting in strong revenue and earnings growth at many
energy services companies. Despite a fairly long stretch of weak performance
from insurance stocks such as Hartford Financial, we held on to companies in
this area because we believed in their long-term prospects and the possibility
of consolidation in the industry. Recently, we've seen an increase in merger
and acquisition activity in this group, which has boosted the performance of
these holdings. In the first quarter of 2000, we took advantage of weakness in
pharmaceutical stocks to increase our holdings in what we believe are top-
notch companies with strong track records, such as Pharmacia, American Home
Products, and Bristol-Myers Squibb. Some of these stocks have come back strong
in the second quarter, and we believe they still offer attractive growth
prospects.
We've also increased the portfolio's exposure to wireless communications
stocks because we see tremendous growth opportunities for these companies. A
few years ago, roughly 3% of worldwide communications were handled over
wireless networks. Our research indicates that now that percentage has grown
to double digits, and we believe similar growth could lie ahead. We expect
revenue growth for many wireless companies to rise 25% to 50% per year, and we
believe international revenues could be even higher. Given our outlook for
dramatic growth in this industry, we like the risk/reward profile of these
stocks.
Despite what we think may be a somewhat less robust environment for consumer
spending, we also like companies such as CVS and Safeway because they're
noncyclical. People have to buy prescriptions, household products, and
groceries, regardless of the economic environment. We also happen to think
these are two of the best-run companies in their respective industries.
Additionally, we've increased our positions in Intel and EMC Corp. because we
see accelerating demand for their products and services, their fundamental
business prospects are strong, and we ultimately believe they can maintain
their leadership positions in their markets.
Respectfully,
/s/ Alec C. Murray
Alec C. Murray
Associate Director of Equity Research
The committee of MFS research analysts is responsible for the day-to-day
management of the fund under the general supervision of Mr. 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: $73.2 million net assets as of June 30, 2000
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.)
GROWTH OF A HYPOTHETICAL $3,000,000 INVESTMENT
(For the period from the commencement of the fund's investment operations, May
20, 1996, through June 30, 2000. Index information is from June 1, 1996.)
MFS Institutional S&P 500
Research Fund Composite Index
--------------------------------------------------------
5/96 $3,000,000 $3,000,000
6/96 2,934,000 3,011,400
6/97 3,642,000 4,056,300
6/98 4,619,600 5,279,800
6/99 5,271,900 6,481,000
6/00 6,414,349 6,951,227
<TABLE>
TOTAL RATES OF RETURN THROUGH JUNE 30, 2000
<CAPTION>
1 Year 3 Years Life*
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return +21.67% +76.14% +113.81%
----------------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return +21.67% +20.77% + 20.30%
----------------------------------------------------------------------------------------------------------------------------------
COMPARATIVE INDICES(+)
<CAPTION>
1 Year 3 Years Life*
----------------------------------------------------------------------------------------------------------------------------------
Average large cap core fund+ +11.37% +18.89% + 20.83%
----------------------------------------------------------------------------------------------------------------------------------
S&P 500 Composite Index# + 7.25% +19.67% + 22.85%
----------------------------------------------------------------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations, May 20, 1996, through June 30, 2000. Index
information is from June 1, 1996.
(+) Average annual rates of return.
+ Source: Lipper Inc.
# Source: Standard & Poor's Micropal, Inc.
</TABLE>
NOTES TO PERFORMANCE SUMMARY
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. 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. MORE RECENT
RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. PAST PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS - June 30, 2000
Stocks - 97.7%
<CAPTION>
-----------------------------------------------------------------------------------------------------
Issuer Shares Value
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 88.0%
Aerospace - 1.8%
Boeing Co. 15,300 $ 639,731
General Dynamics Corp. 3,330 173,993
United Technologies Corp. 8,540 502,792
-----------
$ 1,316,516
-----------------------------------------------------------------------------------------------------
Banks and Credit Companies - 2.1%
Capital One Financial Corp. 6,510 $ 290,509
Chase Manhattan Corp. 9,165 422,163
PNC Bank Corp. 5,800 271,875
Providian Financial Corp. 4,150 373,500
U.S. Bancorp 9,900 190,575
-----------
$ 1,548,622
-----------------------------------------------------------------------------------------------------
Biotechnology - 2.3%
Pharmacia Corp. 32,600 $ 1,685,013
-----------------------------------------------------------------------------------------------------
Business Machines - 5.2%
Hewlett-Packard Co. 6,530 $ 815,434
International Business Machines Corp. 5,410 592,733
Seagate Technology, Inc.* 7,650 420,750
Sun Microsystems, Inc.* 21,340 1,940,606
-----------
$ 3,769,523
-----------------------------------------------------------------------------------------------------
Business Services - 2.5%
Automatic Data Processing, Inc. 12,360 $ 662,033
BEA Systems, Inc.* 2,240 110,740
Computer Sciences Corp.* 11,000 821,562
Digimarc Corp.* 240 9,240
Fiserv, Inc.* 4,900 211,925
-----------
$ 1,815,500
-----------------------------------------------------------------------------------------------------
Cellular Telephones - 2.2%
Motorola, Inc. 22,784 $ 662,160
Sprint Corp. (PCS Group)* 15,930 947,835
-----------
$ 1,609,995
-----------------------------------------------------------------------------------------------------
Chemicals - 0.3%
Rohm & Haas Co. 6,900 $ 238,050
-----------------------------------------------------------------------------------------------------
Computer Hardware - Systems - 0.7%
Compaq Computer Corp. 10,100 $ 258,181
Dell Computer Corp.* 5,680 280,095
-----------
$ 538,276
-----------------------------------------------------------------------------------------------------
Computer Software - Personal Computers - 3.4%
America Online, Inc.* 11,230 $ 592,382
Microsoft Corp.* 23,450 1,876,000
-----------
$ 2,468,382
-----------------------------------------------------------------------------------------------------
Computer Software - Services - 2.6%
EMC Corp.* 24,680 $ 1,898,817
-----------------------------------------------------------------------------------------------------
Computer Software - Systems - 4.4%
BMC Software, Inc.* 7,150 $ 260,863
Computer Associates International, Inc. 3,630 185,811
Comverse Technology, Inc.* 6,400 595,200
E.piphany, Inc.* 1,000 107,188
I2 Technologies, Inc.* 2,000 208,531
Liberate Technologies* 2,570 75,333
Oracle Corp.* 12,360 1,039,012
Rational Software Corp.* 1,620 150,559
Siebel Systems, Inc.* 940 153,749
VERITAS Software Corp.* 3,768 425,786
-----------
$ 3,202,032
-----------------------------------------------------------------------------------------------------
Conglomerates - 2.6%
Tyco International Ltd. 40,540 $ 1,920,582
-----------------------------------------------------------------------------------------------------
Consumer Goods and Services - 1.3%
Clorox Co. 9,650 $ 432,441
Colgate-Palmolive Co. 8,860 530,492
-----------
$ 962,933
-----------------------------------------------------------------------------------------------------
Containers - 0.1%
Owens Illinois, Inc.* 8,850 $ 103,434
-----------------------------------------------------------------------------------------------------
Electrical Equipment - 2.7%
General Electric Co. 37,290 $ 1,976,370
-----------------------------------------------------------------------------------------------------
Electronics - 9.5%
Analog Devices, Inc.* 5,106 $ 388,056
Atmel Corp.* 7,600 280,250
Fairchild Semiconductor International Co.* 3,660 148,230
Flextronics International Ltd.* 7,172 492,627
Intel Corp. 23,050 3,081,497
Lam Research Corp.* 9,500 356,250
LSI Logic Corp.* 6,850 370,756
Micron Technology, Inc.* 11,560 1,018,003
SCI Systems, Inc.* 2,300 90,131
Solectron Corp.* 8,400 351,750
Teradyne, Inc.* 5,000 367,500
-----------
$ 6,945,050
-----------------------------------------------------------------------------------------------------
Energy - 0.2%
Devon Energy Corp. 2,510 $ 141,031
-----------------------------------------------------------------------------------------------------
Entertainment - 3.1%
Infinity Broadcasting Corp., "A"* 15,630 $ 569,518
Macromedia, Inc.* 2,700 261,056
Time Warner, Inc. 8,420 639,920
Viacom, Inc., "B"* 11,187 762,814
-----------
$ 2,233,308
-----------------------------------------------------------------------------------------------------
Financial Institutions - 3.7%
Associates First Capital Corp., "A" 22,800 $ 508,725
Citigroup, Inc. 13,110 789,877
Freddie Mac Corp. 13,100 530,550
Lehman Brothers Holdings, Inc. 1,800 170,212
Merrill Lynch & Co., Inc. 3,620 416,300
Morgan Stanley Dean Witter & Co. 2,800 233,100
State Street Corp. 200 21,213
-----------
$ 2,669,977
-----------------------------------------------------------------------------------------------------
Financial Services - 0.5%
AXA Financial, Inc. 10,590 $ 360,060
-----------------------------------------------------------------------------------------------------
Food and Beverage Products - 1.2%
Anheuser-Busch Cos., Inc. 7,510 $ 560,903
Quaker Oats Co. 4,640 348,580
-----------
$ 909,483
-----------------------------------------------------------------------------------------------------
Forest and Paper Products - 0.2%
Bowater, Inc. 3,670 $ 161,939
-----------------------------------------------------------------------------------------------------
Insurance - 2.4%
American International Group, Inc. 6,015 $ 706,763
Hartford Financial Services Group, Inc. 7,090 396,597
Marsh & McLennan Cos., Inc. 2,570 268,404
MetLife, Inc.* 12,320 259,490
St. Paul Cos., Inc. 3,400 116,025
-----------
$ 1,747,279
-----------------------------------------------------------------------------------------------------
Internet - 0.9%
InterWorld Corp.* 600 $ 12,300
Selectica, Inc.* 590 41,337
VeriSign, Inc.* 3,500 617,750
-----------
$ 671,387
-----------------------------------------------------------------------------------------------------
Machinery - 1.0%
Deere & Co., Inc. 10,440 $ 386,280
Ingersoll Rand Co. 7,790 313,548
-----------
$ 699,828
-----------------------------------------------------------------------------------------------------
Medical and Health Products - 4.3%
American Home Products Corp. 10,050 $ 590,437
Bausch & Lomb, Inc. 4,740 366,758
Bristol-Myers Squibb Co. 23,170 1,349,652
Pfizer, Inc. 16,720 802,560
-----------
$ 3,109,407
-----------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 0.7%
Medtronic, Inc. 10,730 $ 534,488
-----------------------------------------------------------------------------------------------------
Metals and Minerals - 0.2%
Alcoa, Inc. 5,400 $ 156,600
-----------------------------------------------------------------------------------------------------
Oil Services - 2.2%
Baker Hughes, Inc. 7,900 $ 252,800
Cooper Cameron Corp.* 930 61,380
Global Marine, Inc.* 22,130 623,789
Noble Drilling Corp.* 9,060 373,159
Weatherford International, Inc.* 7,800 310,538
-----------
$ 1,621,666
-----------------------------------------------------------------------------------------------------
Oils - 4.3%
Conoco, Inc. 32,290 $ 793,123
EOG Resources, Inc. 9,340 312,890
Exxon Mobil Corp. 14,918 1,171,063
Santa Fe International Corp. 7,500 262,031
Transocean Sedco Forex, Inc. 11,100 593,157
-----------
$ 3,132,264
-----------------------------------------------------------------------------------------------------
Printing and Publishing - 0.4%
Tribune Co. 7,870 $ 275,450
-----------------------------------------------------------------------------------------------------
Retail - 3.5%
CVS Corp. 31,140 $ 1,245,600
Office Depot, Inc.* 32,870 205,438
RadioShack Corp. 12,650 599,294
Wal-Mart Stores, Inc. 9,260 533,607
-----------
$ 2,583,939
-----------------------------------------------------------------------------------------------------
Special Products and Services - 0.3%
SPX Corp.* 1,980 $ 239,456
-----------------------------------------------------------------------------------------------------
Supermarkets - 1.7%
Safeway, Inc.* 28,210 $ 1,272,976
-----------------------------------------------------------------------------------------------------
Telecommunications - 11.9%
Allegiance Telecom, Inc.* 900 $ 57,600
Ancor Communications, Inc.* 1,855 66,345
Bell Atlantic Corp. 6,100 309,956
Cabletron Systems, Inc.* 8,500 214,625
CIENA Corp.* 5,030 838,438
Cisco Systems, Inc.* 38,580 2,452,241
Corning, Inc. 4,571 1,233,599
Intermedia Communications, Inc.* 1,330 39,568
Level 3 Communications, Inc.* 2,100 184,800
Metromedia Fiber Network, Inc., "A"* 21,140 838,994
Qwest Communications International, Inc.* 10,200 506,813
Sprint Corp. 13,860 706,860
Tellabs, Inc.* 3,300 225,844
Time Warner Telecom, Inc.* 1,280 82,400
Winstar Communications, Inc.* 1,125 38,109
WorldCom, Inc.* 19,660 901,902
-----------
$ 8,698,094
-----------------------------------------------------------------------------------------------------
Telecommunications and Cable - 0.5%
Comcast Corp., "A"* 9,420 $ 381,510
-----------------------------------------------------------------------------------------------------
Utilities - Electric - 0.7%
AES Corp.* 11,540 $ 526,513
-----------------------------------------------------------------------------------------------------
Utilities - Gas - 0.4%
Williams Cos., Inc. 6,270 $ 261,381
-----------------------------------------------------------------------------------------------------
Total U.S. Stocks $64,387,131
-----------------------------------------------------------------------------------------------------
Foreign Stocks - 9.7%
Bermuda - 1.1%
FLAG Telecom Holdings Ltd. (Telecommunications)* 10,560 $ 157,080
Global Crossing Ltd. (Telecommunications)* 25,690 675,968
-----------
$ 833,048
-----------------------------------------------------------------------------------------------------
Canada - 2.2%
Nortel Networks Corp. (Telecommunications) 23,540 $ 1,606,605
-----------------------------------------------------------------------------------------------------
France - 0.2%
Business Objects S.A., ADR (Computer Software - Systems)* 500 $ 44,062
Total S.A., "B" (Oils) 760 116,515
-----------
$ 160,577
-----------------------------------------------------------------------------------------------------
Ireland - 0.1%
Trintech Group PLC, ADR (Computer Software - Products)* 3,880 $ 76,448
-----------------------------------------------------------------------------------------------------
Japan - 1.3%
AFLAC, Inc. (Insurance) 3,100 $ 142,406
Fast Retailing Co. (Retail) 500 209,276
Hitachi Ltd. (Electronics) 13,000 187,500
Nippon Telegraph & Telephone Co. (Utilities - Telephone) 30 398,756
-----------
$ 937,938
-----------------------------------------------------------------------------------------------------
Netherlands - 1.7%
ING Groep N.V. (Financial Services)* 1,715 $ 115,909
KPN N.V. (Telecommunications)* 9,130 408,321
Royal Dutch Petroleum Co. (Oils) 11,300 702,233
-----------
$ 1,226,463
-----------------------------------------------------------------------------------------------------
United Kingdom - 3.1%
AstraZeneca Group PLC (Medical and Health Products) 6,780 $ 316,380
BAE Systems PLC (Aerospace)* 67,700 421,901
BP Amoco PLC, ADR (Oils) 18,171 1,027,797
HSBC Holdings PLC (Banks and Credit Cos.)* 18,600 212,555
Lloyds TSB Group PLC (Banks and Credit Cos.) 70 661
Vodafone AirTouch PLC (Telecommunications)* 68,140 275,193
-----------
$ 2,254,487
-----------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 7,095,566
-----------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $55,745,328) $71,482,697
-----------------------------------------------------------------------------------------------------
Short-Term Obligation - 1.6%
-----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
-----------------------------------------------------------------------------------------------------
Federal Home Loan Bank, due 7/03/00 at Amortized Cost $ 1,155 $ 1,154,578
-----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $56,899,906) $72,637,275
Other Assets, Less Liabilities - 0.7% 521,672
-----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $73,158,947
-----------------------------------------------------------------------------------------------------
* Non-income producing security.
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
-------------------------------------------------------------------------------------------------------------
JUNE 30, 2000
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Investments, at value (identified cost, $56,899,906) $72,637,275
Investments of cash collateral for securities loaned, at identified cost and value 4,331,409
Cash 1,006
Foreign currency, at value (identified cost, $1,459) 1,437
Receivable for investments sold 903,940
Interest and dividends receivable 25,309
Receivable from investment adviser 74,854
Deferred organization expenses 1,244
Other assets 306
-----------
Total assets $77,976,780
-----------
Liabilities:
Payable for investments purchased $ 373,934
Payable for fund shares reacquired 70,917
Collateral for securities loaned, at value 4,331,409
Payable to affiliates -
Management fee 1,086
Shareholder servicing agent fee 15
Administrative fee 35
Accrued expenses and other liabilities 40,437
-----------
Total liabilities $ 4,817,833
-----------
Net assets $73,158,947
===========
Net assets consist of:
Paid-in capital $48,377,734
Unrealized appreciation on investments and translation of assets and liabilities in
foreign currencies 15,737,613
Accumulated undistributed net realized gain on investments and
foreign currency transactions 8,928,283
Accumulated undistributed net investment income 115,317
-----------
Total $73,158,947
===========
Shares of beneficial interest outstanding 4,429,573
=========
Net asset value, offering price, and redemption price per share
(net assets / shares of beneficial interest outstanding) $16.52
======
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Statement of Operations
-----------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 2000
-----------------------------------------------------------------------------------------------
<S> <C>
Net investment income:
Income -
Dividends $ 466,243
Interest 97,267
Foreign taxes withheld (6,993)
-----------
Total investment income $ 556,517
-----------
Expenses -
Management fee $ 389,245
Trustees' compensation 4,800
Shareholder servicing agent fee 4,866
Administrative fee 8,841
Custodian fee 33,878
Printing 9,314
Auditing fees 29,667
Legal fees 1,061
Amortization of organization expenses 1,398
Miscellaneous 20,201
-----------
Total expenses $ 503,271
Fees paid indirectly (6,826)
Reduction of expenses by investment adviser (74,854)
-----------
Net expenses $ 421,591
-----------
Net investment income $ 134,926
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 9,419,065
Foreign currency transactions (19,545)
-----------
Net realized gain on investments and foreign currency transactions $ 9,399,520
-----------
Change in unrealized appreciation -
Investments $ 3,058,417
Translation of assets and liabilities in foreign currencies 467
-----------
Net unrealized gain on investments and foreign currency translation $ 3,058,884
-----------
Net realized and unrealized gain on investments and foreign currency $12,458,404
-----------
Increase in net assets from operations $12,593,330
===========
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
<CAPTION>
--------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 134,926 $ 305,808
Net realized gain on investments and foreign
currency transactions 9,399,520 10,385,317
Net unrealized gain (loss) on investments and foreign
currency translation 3,058,884 (1,170,435)
------------ ------------
Increase in net assets from operations $ 12,593,330 $ 9,520,690
------------ ------------
Distributions declared to shareholders -
From net investment income $ (299,770) $ (211,336)
From net realized gain on investments and foreign
currency transactions (10,735,727) (3,357,558)
------------ ------------
Total distributions declared to shareholders $(11,035,497) $ (3,568,894)
------------ ------------
Net increase (decrease) in net assets from fund share
transactions $ 10,134,611 $(44,862,521)
------------ ------------
Total increase (decrease) in net assets $ 11,692,444 $(38,910,725)
Net assets:
At beginning of period 61,466,503 100,377,228
------------ ------------
At end of period (including accumulated undistributed net
investment income of $115,317 and $299,706, respectively) $ 73,158,947 $ 61,466,503
============ ============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Financial Highlights
-------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED JUNE 30, PERIOD ENDED
--------------------------------------------- JUNE 30,
2000 1999 1998 1997 1996*
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $16.27 $14.76 $12.10 $ 9.78 $10.00
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.03 $ 0.05 $ 0.07 $ 0.06 $ 0.02
Net realized and unrealized gain (loss)
on investments and foreign currency 3.24 1.99 3.07 2.29 (0.24)
------ ------ ------ ------ ------
Total from investment operations $ 3.27 $ 2.04 $ 3.14 $ 2.35 $(0.22)
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.08) $(0.03) $(0.05) $(0.03) $ --
From net realized gain on investments
and foreign currency transactions (2.94) (0.50) (0.43) -- --
------ ------ ------ ------ ------
Total distributions declared to shareholders $(3.02) $(0.53) $(0.48) $(0.03) $ --
------ ------ ------ ------ ------
Net asset value - end of period $16.52 $16.27 $14.76 $12.10 $ 9.78
====== ====== ====== ====== ======
Total return 21.67% 14.12% 26.86% 24.12% (2.20)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.66% 0.66% 0.65% 0.65% 0.65%+
Net investment income 0.21% 0.37% 0.49% 0.56% 1.52%+
Portfolio turnover 99% 99% 73% 84% 6%
Net assets at end of period (000 omitted) $73,159 $61,467 $100,377 $42,292 $22,779
(S) The investment adviser voluntarily agreed under a temporary expense agreement to pay all of the fund's operating expenses,
exclusive of management fees, in excess of 0.05% of average daily net assets.
To the extent actual expenses were over this limitation net investment income per share and the ratios would have been:
Net investment income $ 0.01 $ 0.04 $ 0.05 $ 0.03 $ --
Ratios (to average net assets):
Expenses## 0.77% 0.77% 0.76% 0.90% 2.03%+
Net investment income 0.10% 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.
## Ratios do not reflect reductions from certain expense offset arrangements.
See notes to financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Institutional Research Fund (the fund) is a diversified series of MFS
Institutional Trust (the trust). The trust is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The fund
can invest in foreign securities. 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 in good faith, at
fair value, 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 - State Street Bank and Trust Company ("State Street"), as
lending agent, may loan the securities of the fund to certain qualified
institutions (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.
Cash collateral is invested in short-term securities. 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 the lending agent. On loans
collateralized by U.S. Treasury securities, a fee is received from the
Borrower, and is allocated between the fund and the 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.
At June 30, 2000, the value of securities loaned was $4,196,805. These loans
were collateralized by cash of $4,331,409 which was invested in the following
short-term obligation:
IDENTIFIED COST
SHARES AND VALUE
--------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio 4,331,409 $4,331,409
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.
Fees Paid Indirectly - The fund's custody 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 total 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 net 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 be 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, 2000, $19,545 was reclassified from accumulated
undistributed net investment income to accumulated undistributed net realized
gain on investments and foreign currency transactions due to differences
between book and tax accounting for foreign 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 adviser has voluntarily
agreed to pay the fund's operating expenses exclusive of management fees such
that the fund's aggregate expenses do not exceed 0.05% of it daily net assets.
This is reflected as a reduction of total 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 incurs an administrative fee at
the following annual percentages of the fund's average daily net assets:
First $2 billion 0.0175%
Next $2.5 billion 0.0130%
Next $2.5 billion 0.0005%
In excess of $7 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 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
$62,997,892 and $63,792,549, 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 $57,315,178
-----------
Gross unrealized appreciation $17,805,308
Gross unrealized depreciation (2,483,211)
-----------
Net unrealized appreciation $15,322,097
===========
(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, 2000 YEAR ENDED JUNE 30, 1999
------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 615,461 $10,020,430 506,640 $ 7,453,881
Shares issued to shareholders in reinvestment
of distributions 721,745 11,035,482 240,978 3,568,894
Shares reacquired (686,034) (10,921,301) (3,768,134) (55,885,296)
-------- ----------- ---------- ------------
Net increase (decrease) 651,172 $10,134,611 (3,020,516) $(44,862,521)
======== =========== ========== ============
</TABLE>
(6) Line of Credit
The fund and other affiliated funds participate in a $1.1 billion unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made for temporary financing needs. 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, 2000, was $397. The fund had no significant borrowings during
the year.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Institutional Trust and Shareholders of MFS
Institutional Research Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Institutional Research Fund (one of the series comprising MFS Institutional
Trust), including the portfolio of investments,as of June 30, 2000, and the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Trust'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 auditing standards generally accepted
in the United States of America. 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 as of June 30, 2000, 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 as of June 30, 2000, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended, in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
August 10, 2000
--------------------------------------------
This report is prepared for the general information of shareholders.
It is authorized for distribution
<PAGE>
FEDERAL TAX INFORMATION
The fund has designated $10,735,727 as a capital gain dividend for the year
ended June 30, 2000.
For the year ended June 30, 2000, the amount of distributions from income
eligible for the 70% dividends received deduction for corporations is 100%.
<PAGE>
(C)2000 MFS Investment Management(R).
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
IRF-2 8/00 400
