<PAGE>
[Logo] M F S (R)
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
SEMIANNUAL REPORT
DECEMBER 31, 1999
[Graphic Omitted]
MFS(R) INSTITUTIONAL
RESEARCH FUND
<PAGE>
<TABLE>
<S> <C>
MFS(R) INSTITUTIONAL RESEARCH FUND
TRUSTEES INVESTMENT ADVISER
Jeffrey L. Shames* Massachusetts Financial Services Company
Chairman and Chief Executive Officer, 500 Boylston Street
MFS Investment Management(R) Boston, MA 02116-3741
Nelson J. Darling, Jr.+ DISTRIBUTOR
Private investor and trustee MFS Fund Distributors, Inc.
500 Boylston Street
William R. Gutow+ Boston, MA 02116-3741
Private investor and real estate consultant;
Vice Chairman, Capitol Entertainment INVESTOR SERVICE
Management Company (video franchise) MFS Service Center, Inc.
P.O. Box 2281
CHAIRMAN AND PRESIDENT Boston, MA 02107-9906
Jeffrey L. Shames*
For additional information,
ASSOCIATE DIRECTOR contact your financial consultant.
OF EQUITY RESEARCH
Alec C. Murray* CUSTODIAN
State Street Bank and Trust Company
TREASURER
W. Thomas London* WORLD WIDE WEB
www.mfs.com
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
* MFS Investment Management
+ Independent Trustee
</TABLE>
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Shareholders,
One could easily argue that the Internet represents the greatest technological
development most of us may see in our lifetimes. There is no disputing that
this new communication medium is changing forever the way we work, play, and
shop. One might also argue that investing in this new technology represents
the investment opportunity of a lifetime. The question for any investor is
whether and how to take advantage of it.
The popular press, it seems, would have us believe that by surfing the Web, we
can learn everything we need to know about investing. Indeed, there is no
doubt that Internet-delivered information and brokerage services enable
individual investors to be well-informed and to trade at bargain prices. But
we believe the facts argue that, for most of us, professionally managed
investment portfolios purchased through a financial consultant will continue
to be one of the best products for long-term investing in this new millennium.
Why do we believe managed portfolios plus professional advice will continue to
define the best course of action for many investors? Let's look at some of the
characteristics of a successful long-term investment approach:
o HAVING A PLAN AND STICKING TO IT: Our experience is that successful investors
-- those whose lives are enriched by the fruits of their investing -- share
two characteristics. They have a plan for reaching their monetary goals, and
they stick with that plan through up markets and down. And for many investors,
working with a financial consultant may be the best way to develop a plan.
Although the Internet abounds with calculators for developing all sorts of
investment plans, none has your consultant's high level of experience and an
understanding of your unique situation. And no calculator can counsel you
during a down market, when you may be tempted to abandon your goals and your
plan.
o DIVERSIFICATION: Few individual investors can afford to own a large number of
holdings, so poor performance of one company can potentially drag down their
entire personal portfolio. This is especially true when investing in volatile
new areas such as the Internet. On the other hand, a diversified,
professionally managed investment portfolio that owns dozens or even hundreds
of holdings is better positioned to survive a disappointment in one or several
investments.
o GOOD IN A DOWN MARKET: As we enter the tenth year of the greatest bull market
in history, it's easy to forget that market downturns are an almost inevitable
part of investing. Few investment portfolios, of course, are going to be up
when the overall market is down. But we believe diversified, professionally
managed investment portfolios may be less likely to suffer the extreme
downturns experienced by a large number of individual holdings when the market
heads south.
o MFS ORIGINAL RESEARCH(R): The Internet is one of the greatest research tools
ever invented, but it's still not the same as being eyeball to eyeball with
the management of a company and discussing their plans for their firm's
future.
o GOOD PERFORMANCE AT AN ACCEPTABLE LEVEL OF RISK: Investing in individual
stocks or bonds does indeed offer the potential of exhilarating performance
that few managed portfolios even attempt. The downside is that the most
exciting investments are also likely to be the ones that give you sleepless
nights. The diversification and professional management of investment
portfolios help make them inherently less risky than individual stock picking,
and managed portfolios are available in a wide range of risk profiles.
We believe that now, more than ever, managed investment portfolios sold by an
investment professional may offer many investors the best way to participate
in whatever investment opportunities the new millennium may bring. The
combination of professional portfolio management and professional advice
recognizes the key reason that investors give us their money: because they
don't want to make a hobby or a second profession out of investing; they
simply want their money to work for them so they have a better likelihood of
realizing their dreams.
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)
January 15, 2000
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
financial consultant for more information.
The opinions expressed in this letter are those of Jeffrey L. Shames, and no
forecasts can be guaranteed.
MANAGEMENT REVIEW AND OUTLOOK
Dear Shareholders,
For the six months ended December 31, 1999, the Fund provided a total return
of 13.79% (including the reinvestment of any distributions). This compares to
a return of 15.57% for the average growth fund tracked by Lipper Analytical
Services, Inc., an independent firm that reports mutual fund performance, and
7.69% for the Standard & Poor's 500 Composite Index (the S&P 500), a popular,
unmanaged index of common stock total return performance.
The Fund maintained significant exposure to large-cap telecommunications and
technology stocks, which added considerably to total return. Despite our
overweighting in technology stocks, we avoided Internet companies with what we
believe were expensive valuations, weak business models, or unproven track
records. At the same time, we recognized early on that the growth in Internet
services and data traffic is likely to continue for some time. Consequently,
we invested in a number of technology and communications stocks in the
networking and telecommunications equipment industries. Some examples that met
our strict investment criteria include Cisco, Nortel, Ericsson, and Motorola.
We believe these companies are the key beneficiaries of the demand for
Internet and wireless services because they represent the nuts and bolts of
Internet and telecommunications infrastructure and helped the Fund outpace its
benchmark.
The Fund also maintained considerable exposure to software stocks, such as
Microsoft, Oracle, and VERITAS. Our software holdings hurt performance in the
first quarter of this past year, but we stuck to our guns and held on to these
positions because we believe their long-term business prospects looked
positive. Over the past six months, they've come roaring back to provide a
significant boost to performance due to increased demand for data storage and
software products.
Other leading contributors were semiconductor companies, such as LSI Logic and
Analog Devices. The semiconductor industry was hurt in 1998 by the Asian
economic slowdown and by a buildup in supply in some market segments, which
lowered prices. Now, demand is beginning to catch up with supply as a result
of economic strength in the United States and the Asian recovery. If this
scenario persists, we believe semiconductor stocks should continue to benefit.
Outside the technology and telecommunications sectors, the Fund benefited from
a number of stocks in the financial services, media, and energy sectors. Gains
in financial services came primarily from brokerage and investment banking
stocks, such as Citigroup and Morgan Stanley Dean Witter, both of which have
been well-managed industry leaders. Entertainment and telecommunications
holdings such as Infinity Broadcasting, EchoStar Communications, and CBS
benefited from the tremendous growth in advertising spending due to the highly
competitive business environment, especially among Internet companies.
While the Fund maintained a slightly underweighted position in health care
stocks versus the index, in general this group hurt performance. Nursing
homes, hospitals, HMOs, and pharmaceutical companies were hurt by fears of
Medicare reform and potential government price controls. Despite this
generally negative environment, we believe we found good opportunities in the
medical device area, such as Medtronic. They have a number of new products in
their pipelines that could drive revenues and earnings growth higher.
Other detractors to performance included Nabisco, Safeway, and CVS. Despite
what we viewed as solid fundamental business and growth prospects, these
companies suffered from generally downbeat industry outlooks and weak investor
sentiment. In the consumer goods and services sector, electronics equipment
conglomerate Tyco International was a major disappointment for the Fund. Its
shares plunged during the period after an analyst raised suspicions regarding
the company's accounting of recent acquisitions. We've met with management a
number of times and we continue to believe that its business fundamentals are
strong. As a result, we decided to maintain our holding in the Fund.
During the past year, the equity market has been extremely narrow, with 25
large-growth stocks outperforming the rest of the stocks in the S&P 500. While
market leadership has started to show signs of broadening, which has helped
performance, we believe the long-term opportunities for small- and mid-cap
stocks are attractive primarily because they are selling at much cheaper
prices relative to the earnings and expected growth rates of large-cap growth
stocks. In addition, we believe our exposure to stocks with lower prices
relative to earnings may make the Fund less vulnerable to negative events such
as earnings disappointments or a broad market downturn.
Looking ahead, we believe, much of the market's fate rests on corporate
earnings and the performance of the economy. While opinions range from total
conviction in a new era of trouble-free prosperity to a view that inflation is
just around the corner and the market is in a classic asset bubble waiting to
burst, we believe the truth most likely lies somewhere in the middle. Given
this uncertain environment, however, we continue to focus our energy on
finding what we believe are top-quality companies that should provide
favorable long-term performance.
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.
It is not possible to invest directly in an index.
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: $67.5 million net assets as of December 31, 1999
PERFORMANCE SUMMARY
Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for
the applicable time periods. Investment results reflect the percentage change
in net asset value, including reinvestment of dividends. The minimum initial
investment is generally $3 million. Shares of the Fund are purchased at net
asset value. (See Notes to Performance Summary.)
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN THROUGH DECEMBER 31, 1999
6 Months 1 Year 3 Years Life*
- --------------------------------------------------------------------------------
Cumulative Total Return +13.79% +24.18% +85.94% +99.96%
- --------------------------------------------------------------------------------
Average Annual Total Return -- +24.18% +22.97% +21.12%
- --------------------------------------------------------------------------------
* For the period from the commencement of the Fund's investment operations, May
20, 1996, through December 31, 1999.
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.
MORE RECENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. PAST PERFORMANCE IS
NO GUARANTEE OF FUTURE RESULTS. Performance results reflect any applicable
expense subsidies and waivers, without which the results would have been less
favorable. Subsidies and waivers may be rescinded at any time. See the
prospectus for details.
<PAGE>
PORTFOLIO OF INVESTMENTS (Unaudited) - December 31, 1999
<TABLE>
<CAPTION>
Stocks - 98.0%
- -------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 91.0%
Aerospace - 1.8%
General Dynamics Corp. 9,900 $ 522,225
United Technologies Corp. 10,920 709,800
-----------
$ 1,232,025
- -------------------------------------------------------------------------------------------------------
Automotive - 0.3%
Federal-Mogul Corp. 10,680 $ 214,935
- -------------------------------------------------------------------------------------------------------
Banks and Credit Companies - 3.0%
Bank America Corp. 6,930 $ 347,800
Bank One Corp. 7,750 248,484
Capital One Financial Corp. 6,880 331,530
Chase Manhattan Corp. 3,680 285,890
Providian Financial Corp. 4,370 397,943
U.S. Bancorp 11,210 266,938
Wells Fargo Co. 4,210 170,242
-----------
$ 2,048,827
- -------------------------------------------------------------------------------------------------------
Biotechnology - 0.8%
Guidant Corp.* 10,850 $ 509,950
- -------------------------------------------------------------------------------------------------------
Business Machines - 5.0%
Hewlett-Packard Co. 3,300 $ 375,994
International Business Machines Corp. 5,700 615,600
Seagate Technology, Inc.* 8,070 375,759
Sun Microsystems, Inc.* 26,010 2,014,149
-----------
$ 3,381,502
- -------------------------------------------------------------------------------------------------------
Business Services - 0.6%
BEA Systems, Inc.* 1,180 $ 82,526
Digimarc Corp.* 470 23,500
First Data Corp. 6,020 296,862
-----------
$ 402,888
- -------------------------------------------------------------------------------------------------------
Cellular Telephones - 2.5%
Sprint Corp. (PCS Group)* 16,250 $ 1,665,625
- -------------------------------------------------------------------------------------------------------
Chemicals - 0.3%
Cambrex Corp. 5,240 $ 180,453
- -------------------------------------------------------------------------------------------------------
Computer Software - Personal Computers - 4.5%
America Online, Inc.* 5,500 $ 414,906
Microsoft Corp.* 22,410 2,616,368
-----------
$ 3,031,274
- -------------------------------------------------------------------------------------------------------
Computer Software - Services - 1.7%
EMC Corp.* 10,230 $ 1,117,627
- -------------------------------------------------------------------------------------------------------
Computer Software - Systems - 7.9%
Ariba, Inc.* 1,000 $ 177,375
BMC Software, Inc.* 10,420 832,949
Citrix Systems, Inc.* 2,110 259,530
Computer Associates International, Inc. 4,620 323,111
Compuware Corp.* 13,290 495,052
Liberate Technologies* 1,355 348,235
Oracle Corp.* 13,745 1,540,299
VERITAS Software Corp.* 9,325 1,334,641
-----------
$ 5,311,192
- -------------------------------------------------------------------------------------------------------
Conglomerates - 1.9%
Tyco International Ltd. 33,770 $ 1,312,809
- -------------------------------------------------------------------------------------------------------
Consumer Goods and Services - 3.1%
Clorox Co. 10,190 $ 513,321
Colgate-Palmolive Co. 10,430 677,950
Dial Corp. 15,810 384,381
Procter & Gamble Co. 4,470 489,744
-----------
$ 2,065,396
- -------------------------------------------------------------------------------------------------------
Containers - 0.4%
Owens Illinois, Inc.* 11,650 $ 291,978
- -------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.8%
General Electric Co. 3,670 $ 567,933
- -------------------------------------------------------------------------------------------------------
Electronics - 7.2%
Analog Devices, Inc.* 22,333 $ 2,076,969
DII Group, Inc.* 2,560 181,680
Flextronics International Ltd.* 6,180 284,280
Intel Corp. 3,630 298,794
LSI Logic Corp.* 22,340 1,507,950
Micron Technology, Inc.* 3,830 297,783
SCI Systems, Inc.* 2,260 185,744
-----------
$ 4,833,200
- -------------------------------------------------------------------------------------------------------
Energy - 0.1%
Devon Energy Corp. 2,640 $ 86,790
- -------------------------------------------------------------------------------------------------------
Entertainment - 4.3%
Carnival Corp. 7,970 $ 381,066
CBS Corp.* 7,670 490,400
Comcast Corp., "A" 7,500 379,219
Infinity Broadcasting Corp.* 16,470 596,008
Macromedia, Inc.* 2,060 150,637
Time Warner, Inc. 12,530 907,642
-----------
$ 2,904,972
- -------------------------------------------------------------------------------------------------------
Financial Institutions - 2.7%
Associates First Capital Corp.,"A" 11,240 $ 308,397
Citigroup, Inc. 11,380 632,301
Federal Home Loan Mortgage Corp. 8,650 407,091
Merrill Lynch & Co., Inc. 1,600 133,600
Morgan Stanley Dean Witter & Co. 2,420 345,455
-----------
$ 1,826,844
- -------------------------------------------------------------------------------------------------------
Financial Services - 0.7%
AXA Financial, Inc. 13,970 $ 473,234
- -------------------------------------------------------------------------------------------------------
Food and Beverage Products - 2.2%
Anheuser-Busch Cos., Inc. 11,100 $ 786,712
Nabisco Holdings Corp., "A" 9,060 286,523
Quaker Oats Co. 6,480 425,250
-----------
$ 1,498,485
- -------------------------------------------------------------------------------------------------------
Forest and Paper Products - 0.5%
Bowater, Inc. 6,690 $ 363,351
- -------------------------------------------------------------------------------------------------------
Insurance - 4.3%
American International Group, Inc. 6,975 $ 754,172
Aon Corp. 2,500 100,000
CIGNA Corp. 9,410 758,093
Hartford Financial Services Group, Inc. 7,460 353,417
Lincoln National Corp. 10,600 424,000
Marsh & McLennan Cos., Inc. 2,400 229,650
ReliaStar Financial Corp. 8,100 317,419
-----------
$ 2,936,751
- -------------------------------------------------------------------------------------------------------
Internet - 1.2%
FreeMarkets, Inc.* 20 $ 6,826
Phone.com, Inc.* 560 64,925
VeriSign, Inc.* 3,690 704,560
-----------
$ 776,311
- -------------------------------------------------------------------------------------------------------
Machinery - 1.2%
Danaher Corp. 11,660 $ 562,595
Deere & Co., Inc. 3,100 134,462
Ingersoll Rand Co. 1,500 82,594
-----------
$ 779,651
- -------------------------------------------------------------------------------------------------------
Medical and Health Products - 3.8%
American Home Products Corp. 24,380 $ 961,487
Boston Scientific Corp.* 10,110 221,156
Bristol-Myers Squibb Co. 10,860 697,076
Pharmacia & Upjohn, Inc. 15,140 681,300
-----------
$ 2,561,019
- -------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 1.8%
Medtronic, Inc. 16,340 $ 595,389
United Healthcare Corp. 6,570 349,031
VISX, Inc.* 5,010 259,267
-----------
$ 1,203,687
- -------------------------------------------------------------------------------------------------------
Oil Services - 0.6%
Cooper Cameron Corp.* 3,530 $ 172,749
Noble Drilling Corp.* 6,760 221,390
-----------
$ 394,139
- -------------------------------------------------------------------------------------------------------
Oils - 3.8%
Atlantic Richfield Co. 2,250 $ 194,625
Conoco, Inc. 31,320 779,085
EOG Resources, Inc. 9,900 173,869
Exxon Mobil Corp. 14,408 1,160,744
Transocean Sedco Forex, Inc. 8,600 289,713
-----------
$ 2,598,036
- -------------------------------------------------------------------------------------------------------
Photographic Products - 0.2%
Polaroid Corp. 6,860 $ 129,054
- -------------------------------------------------------------------------------------------------------
Printing and Publishing - 0.9%
Tribune Co. 10,510 $ 578,707
- -------------------------------------------------------------------------------------------------------
Restaurants and Lodging - 0.1%
Cendant Corp.* 2,740 $ 72,781
- -------------------------------------------------------------------------------------------------------
Special Products and Services - 0.1%
SPX Corp.* 780 $ 63,034
- -------------------------------------------------------------------------------------------------------
Stores - 4.5%
Costco Wholesale Corp.* 4,200 $ 383,250
CVS Corp. 16,520 659,768
Gap, Inc. 6,480 298,080
Office Depot, Inc.* 21,450 234,609
Tandy Corp. 2,900 142,644
TJX Cos., Inc. 10,300 210,506
Wal-Mart Stores, Inc. 16,440 1,136,415
-----------
$ 3,065,272
- -------------------------------------------------------------------------------------------------------
Supermarkets - 1.7%
Kroger Co.* 15,470 $ 291,996
Safeway, Inc.* 23,410 832,518
-----------
$ 1,124,514
- -------------------------------------------------------------------------------------------------------
Telecommunications - 13.2%
Ancor Communications, Inc.* 415 $ 28,168
Bell Atlantic Corp. 15,920 980,075
Cisco Systems, Inc.* 19,830 2,124,289
Corning, Inc. 3,930 506,724
EchoStar Communications Corp.* 2,200 214,500
General Instrument Corp.* 780 66,300
GTE Corp. 2,650 186,991
MCI WorldCom, Inc.* 19,870 1,054,378
Motorola, Inc. 9,990 1,471,027
Nortel Networks Corp. 8,650 873,650
Oak Industries, Inc. 3,640 386,295
SBC Communications, Inc. 8,450 411,938
Sprint Corp. 9,040 608,505
-----------
$ 8,912,840
- -------------------------------------------------------------------------------------------------------
Utilities - Electric - 1.0%
AES Corp.* 3,340 $ 249,665
CMS Energy Corp. 6,500 202,719
Texas Utilities Co. 6,440 229,022
-----------
$ 681,406
- -------------------------------------------------------------------------------------------------------
Utilities - Gas - 0.3%
Columbia Energy Group 3,590 $ 227,068
- -------------------------------------------------------------------------------------------------------
Total U.S. Stocks $61,425,560
- -------------------------------------------------------------------------------------------------------
Foreign Stocks - 7.0%
Canada - 0.1%
Abitibi-Consolidated, Inc. (Forest and Paper Products) 4,870 $ 57,831
- -------------------------------------------------------------------------------------------------------
France - 1.6%
Sanofi-Synthelabo S.A. (Medical and Health Products)* 12,670 $ 527,497
Total Fina S.A., ADR (Oils) 1,170 81,022
Total Fina S.A., "B" (Oils) 3,820 509,744
-----------
$ 1,118,263
- -------------------------------------------------------------------------------------------------------
Germany - 0.8%
Mannesmann AG (Conglomerate) 2,220 $ 535,465
- -------------------------------------------------------------------------------------------------------
Ireland - 0.8%
Bank of Ireland (Banks and Credit Cos.)* 53,780 $ 427,879
Trintech Group PLC, ADR (Computer Software - Products)* 2,050 101,475
-----------
$ 529,354
- -------------------------------------------------------------------------------------------------------
Japan - 1.8%
Hitachi Ltd. (Electronics) 23,000 $ 369,153
Nippon Telephone & Telegraph Co. (Utilities - Telephone) 32 548,052
Orix Corp. (Financial Services) 1,400 315,404
-----------
$ 1,232,609
- -------------------------------------------------------------------------------------------------------
Netherlands - 0.2%
ING Groep N.V. (Financial Services)* 1,815 $ 109,564
- -------------------------------------------------------------------------------------------------------
Sweden - 0.4%
Ericsson LM, "B" (Telecommunications) 4,320 $ 278,168
- -------------------------------------------------------------------------------------------------------
United Kingdom - 1.3%
BP Amoco PLC, ADR (Oils) 7,768 $ 460,739
Zeneca Group PLC (Medical and Health Products) 10,660 442,574
-----------
$ 903,313
- -------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 4,764,567
- -------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $47,425,392) $66,190,127
- -------------------------------------------------------------------------------------------------------
Short-Term Obligation - 2.1%
- -------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- -------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., due 1/03/00 at
Amortized Cost $ 1,425 $ 1,424,881
- -------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $48,850,273) $67,615,008
Other Assets, Less Liabilities - (0.1%) (99,863)
- -------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $67,515,145
- -------------------------------------------------------------------------------------------------------
* Non-income producing security.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- -------------------------------------------------------------------------------
DECEMBER 31, 1999
- -------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $48,850,273) $67,615,008
Investments of cash collateral for securities loaned, at value
(identified cost, $3,182,002) 3,182,002
Cash 10,060
Foreign currency, at value (identified cost, $548) 549
Receivable for Fund shares sold 8,401
Receivable for investments sold 235,829
Interest and dividends receivable 33,373
Receivable from investment adviser 25,402
Deferred organization expenses 1,939
Other assets 858
-----------
Total assets $71,113,421
-----------
Liabilities:
Distributions payable $ 15
Payable for Fund shares reacquired 105,377
Payable for investments purchased 294,312
Collateral for securities loaned, at value 3,182,002
Payable to affiliates -
Management fee 1,087
Shareholder servicing agent fee 14
Accrued expenses and other liabilities 15,469
-----------
Total liabilities $ 3,598,276
-----------
Net assets $67,515,145
===========
Net assets consist of:
Paid-in capital $47,169,253
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 18,764,502
Accumulated undistributed net realized gain on investments and
foreign currency transactions 1,509,193
Accumulated undistributed net investment income 72,197
-----------
Total $67,515,145
===========
Shares of beneficial interest outstanding 4,370,866
=========
Net asset value, offering price, and redemption price per share
(net assets / shares of beneficial interest outstanding) $15.45
======
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations (Unaudited)
- -------------------------------------------------------------------------------
SIX MONTHS ENDED DECEMBER 31, 1999
- -------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 234,128
Interest 39,760
Foreign taxes withheld (2,948)
-----------
Total investment income $ 270,940
-----------
Expenses -
Management fee $ 183,395
Trustees' compensation 3,100
Shareholder servicing agent fee 2,292
Administrative fee 3,246
Custodian fee 15,028
Printing 6,039
Auditing fees 667
Legal fees 853
Amortization of organization expenses 703
Registration fees 12,939
Miscellaneous 958
-----------
Total expenses $ 229,220
Fees paid indirectly (5,139)
Reduction of expenses by investment adviser (25,402)
-----------
Net expenses $ 198,679
-----------
Net investment income $ 72,261
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 2,016,376
Foreign currency transactions (16,401)
-----------
Net realized gain on investments and foreign currency
transactions $ 1,999,975
-----------
Change in unrealized appreciation (depreciation) -
Investments $ 6,085,783
Translation of assets and liabilities in foreign currencies (10)
-----------
Net unrealized gain on investments and foreign currency
translation $ 6,085,773
-----------
Net realized and unrealized gain on investments and
foreign currency $ 8,085,748
-----------
Increase in net assets from operations $ 8,158,009
===========
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1999 JUNE 30, 1999
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 72,261 $ 305,808
Net realized gain on investments and foreign
currency transactions 1,999,975 10,385,317
Net unrealized gain (loss) on investments and foreign
currency translation 6,085,773 (1,170,435)
------------- -------------
Increase in net assets from operations $ 8,158,009 $ 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 $ 8,926,130 $ (44,862,521)
------------- -------------
Total increase (decrease) in net assets $ 6,048,642 $ (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 $72,197 and $299,706, respectively) $ 67,515,145 $ 61,466,503
============= =============
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
SIX MONTHS ENDED --------------------------------------- PERIOD ENDED
DECEMBER 31, 1999 1999 1998 1997 JUNE 30, 1996*
(UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------
<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) $ 0.02 $ 0.05 $ 0.07 $ 0.06 $ 0.02
Net realized and unrealized gain (loss)
on investments and foreign currency 2.18 1.99 3.07 2.29 (0.24)
------ ------ ------ ------ ------
Total from investment operations $ 2.20 $ 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 $15.45 $16.27 $14.76 $12.10 $ 9.78
====== ====== ====== ====== ======
Total return 13.79%++ 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 0.24%+ 0.37% 0.49% 0.56% 1.52%+
Portfolio turnover 39% 99% 73% 84% 6%
Net assets at end of period (000 Omitted) $67,515 $61,467 $100,377 $42,292 $22,779
(S) The investment adviser voluntarily agreed to maintain the other expenses of the Fund, exclusive of management fees, at
not more than 0.05% of average daily net assets. To the extent actual expenses were over this limitation, the net
investment income per share and the ratios would have been:
Net investment income $ 0.01 $ 0.04 $ 0.05 $ 0.03 $ --
Ratios (to average net assets)
Expenses## 0.74%+ 0.77% 0.76% 0.90% 2.03%+
Net investment income 0.16%+ 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.
</TABLE>
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS Institutional Research Fund (the Fund) is a diversified series of MFS
Institutional Trust (the Trust). The Trust is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. 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 December 31, 1999, the value of securities loaned was $3,099,879. These
loans were collateralized by U.S. cash of $3,182,002 which was invested in the
following short-term obligation:
AMORTIZED
COST AND
SHARES VALUE
- -------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio 3,182,002 $3,182,002
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All discount
is accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Dividends received in cash are recorded on the
ex-dividend date. Dividend payments received in additional securities are
recorded on the ex-dividend date in an amount equal to the value of the
security on such date.
Fees Paid Indirectly - The Fund's custody fee is calculated as a percentage of
the Fund's month end net assets. The fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the Fund. This amount is shown as a reduction of expenses on the Statement of
Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net 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.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.60%
of the Fund's average daily net assets. The investment adviser has voluntarily
agreed to pay the Fund's operating expenses exclusive of management fees such
that the Fund's aggregate expenses do not exceed 0.05% of its average daily
net assets. This is reflected as a reduction of expenses in the Statement of
Operations.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive
remuneration for their services to the Fund from MFS. Certain officers and
Trustees of the Fund are officers or directors of MFS and MFS Service Center,
Inc. (MFSC).
Administrator - The Fund has an administrative services agreement with MFS to
provide the Fund with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Fund pays MFS an administrative fee
at the following annual percentages of the Fund's average daily net assets:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
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
$23,458,331 and $25,170,452, 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 $48,850,273
-----------
Gross unrealized appreciation $21,071,507
Gross unrealized depreciation (2,306,772)
-----------
Net unrealized appreciation $18,764,735
===========
(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, 1999 YEAR ENDED JUNE 30, 1999
---------------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 139,161 $ 2,274,826 506,640 $ 7,453,881
Shares issued to shareholders in
reinvestment of distributions 721,745 11,035,482 240,978 3,568,894
Shares reacquired (268,441) (4,384,178) (3,768,134) (55,885,296)
--------- ----------- ---------- ------------
Net increase (decrease) 592,465 $ 8,926,130 (3,020,516) $(44,862,521)
========= =========== ========== ============
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in an $820 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made to temporarily finance the repurchase of
Fund shares. Interest is charged to each fund, based on its borrowings, at a
rate equal to the bank's base rate. In addition, a commitment fee, based on
the average daily unused portion of the line of credit, is allocated among the
participating funds at the end of each quarter. The commitment fee allocated
to the Fund for the six months ended December 31, 1999, was $145. The Fund had
no significant borrowings during the period.
--------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
<PAGE>
MFS' YEAR 2000 READINESS DISCLOSURE
MFS Investment Management(R), as an investment adviser and
on behalf of the MFS funds, is committed to the effective
use of technology in managing our portfolio investments,
delivering high-quality service to MFS fund shareholders, [Graphic Omitted]
retirement plan participants, and MFS' institutional
clients, and supporting the financial consultants who sell
our products.
MFS can now say that it is ready for the Year 2000. Our testing has demonstrated
that MFS' computer hardware and software will recognize "00" as the Year 2000
and will not confuse those digits with 1900. All of our critical business
applications and processes have been successfully tested, and we have adopted
companywide policies that will help us maintain our readiness through the
remainder of the year. Any new technology that is brought into the company
before the end of the year will be held to the same stringent standards as our
current technology. We have also developed a vendor readiness survey, contacted
over 700 of our vendors, and established an ongoing process to review responses,
as well as to review readiness statements of new vendors and products.
MFS recognizes that fund shareholders and institutional clients also are
concerned about whether the companies whose securities are held in their
portfolios are addressing Y2K issues. As part of the MFS Original Research(R)
process of evaluating portfolio investments, one of the many relevant factors
that MFS' portfolio managers and research analysts may consider is a company's
Y2K readiness.
Y2K readiness is an enormously complex, worldwide issue. No company or
institution can guarantee that it will be unaffected by the Y2K issue. While MFS
is taking significant steps to protect the integrity of its internal systems,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact on MFS fund shareholders, retirement plan participants, or
institutional clients.
If you have further questions regarding MFS' Year 2000 Readiness Program, please
visit our Web site at www.mfs.com, call our toll-free line, 1-800-637-4406, or
write to the MFS Year 2000 Program Management Office by e-mail at [email protected] or
by letter at 500 Boylston Street, Boston, MA 02116-3741.
<PAGE>
(C) 2000 MFS Investment Management(R).
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
IRF-3 02/00 200
