<PAGE>
[Logo] M F S(R) SEMIANNUAL REPORT
INVESTMENT MANAGEMENT DECEMBER 31, 1999
WE INVENTED THE MUTUAL FUND(R)
[graphic omitted]
MFS(R) INSTITUTIONAL
INTERNATIONAL EQUITY FUND
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MFS(R) INSTITUTIONAL INTERNATIONAL EQUITY 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,
PORTFOLIO MANAGER contact your financial consultant.
David R. Mannheim*
CUSTODIAN
TREASURER State Street Bank and Trust Company
W. Thomas London*
WORLD WIDE WEB
ASSISTANT TREASURERS www.mfs.com
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
* MFS Investment Management
+ Independent Trustee
</TABLE>
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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 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
28.65% (including the reinvestment of any distributions). This compares to
returns of 30.83% for the average international fund tracked by Lipper
Analytical Services, Inc., an independent firm that reports mutual fund
performance, and 22.27% for the Morgan Stanley Capital International (MSCI)
Europe, Australia, Far East (EAFE) Index, an unmanaged, market-capitalization-
weighted total return index of developed-country global stock markets, excluding
the United States, Canada, and the South African mining component.
The market environment was supportive during the period, as the global economic
recovery continued. Instead of merely achieving positive gains within the very
largest companies, markets worldwide broadened to include some of the smaller-
and mid-capitalization stocks found in our Fund. Dollar-based investments in
foreign stocks benefited from the fact that the strengthening of the yen more
than offset the continued weakness of the euro. A stronger yen helped magnify
the returns of the Fund's Japanese investments when translated back into
dollars. Relative to the MSCI EAFE Index, the Fund's performance was helped by a
slightly overweighted position in telecommunications stocks, and an
underweighted position in the financial services sector.
Perhaps the most significant change -- both in terms of the make-up of the Fund
and contribution to performance -- was our increase in telecommunications
investments, which went from about 15.8% of the Fund six months ago to about
26.8% at the end of December.
Wireless communications companies made up the lion's share of this position.
Within the industry, subscriber growth was higher than expected. Revenues per
customer stabilized because of the increased usage of wireless data
transmission, halting a decline that had caused some concern. Among the larger
investments and better performers were NTT Mobile Communications Network in
Japan and Mannesmann in Germany.
The Fund's technology weighting increased from about 11.7% six months ago to
about 16% at the end of the period, an overweighted position relative to the
MSCI EAFE Index. Most of the new or increased positions were in Japanese
large-company stocks, including Hitachi, Fujitsu, and Toshiba. Not only have
these firms benefited from strong positions within their particular industries,
but they've also showed improved performance through significant restructuring
programs. For some time, well-established Japanese companies such as these,
undermanaged and overextended themselves and were involved in too many
businesses that didn't produce results. More recently, the companies have
started to sell off unprofitable businesses, choosing instead to focus on their
strengths. By doing so, the companies should dramatically enhance their growth
rates. We believe these stocks have done very well because investors have
started to recognize and appreciate these efforts.
The semiconductor industry was another component of the technology sector that
fared well, in particular computer chip firms that satisfy the needs of the
expanding telecommunications field. These businesses also benefited from a
rebound brought on by the awakening of Asian economies. STMicroelectronics, a
French semiconductor company, was one of our additions in this field.
We're coming off a number of years when financial services stocks -- and banks
in particular, especially in Europe -- benefited from falling interest rates and
improving asset quality. We believe that the situation has changed and the best
is behind us, and that these stocks won't be able to sustain the above-average
growth they've offered in recent years. As a result, we've looked for better
opportunities elsewhere.
Nevertheless, financial services stocks still represent about 15% of the
portfolio, down from over 20% six months ago and below that of the MSCI EAFE
Index weighting. We were able to find particular opportunities in Singapore
banks, including Development Bank of Singapore (DBS) and Overseas Union Bank.
The worst news regarding growth in Asia appears to be behind us, and these
stocks were selling at appealing valuations at a time when they looked ready to
benefit from improving asset quality.
Investors should remember that investments are chosen for the Fund based on
individual company prospects. Country or regional weightings are strictly a
byproduct of our bottom-up, company-by-company research. That said, Japan
represented the largest country weighting at about 23%, up from 14% six months
ago. This was still underweighted relative to the MSCI EAFE Index. We were able
to find more opportunities in Japan related to restructuring, as well as those
related to growth among Japanese companies that do their business domestically.
The United Kingdom was second, and France was third, with investments there
jumping from 11% six months ago to 14.6% at the end of December. New purchases
included health care firms Sanofi-Synthelabo and Aventis (formerly
Rhone-Poulenc).
The portfolio currently holds about 3% in emerging market stocks, including
investments in Greece, Mexico, Brazil, and Israel. Our attraction to individual
companies in emerging markets also depends on our comfort with the stability of
the individual country market. We found no compelling reason to highlight
emerging market countries over the past six months.
One area that struggled was the European aerospace and defense industry,
including Fund investments Saab and British Aerospace. Problems among U.S.
companies in this field brought down valuations for the whole group globally,
even though we believe there were no internal problems within the companies
themselves. We've maintained investments in these stocks because the companies'
fundamentals appear strong.
We are increasingly optimistic about the corporate earnings outlooks in both
Japan and Europe, where we think the short-term driver of growth will be the
continuing global economic recovery. Fiscal and monetary policies in those two
regions have been supportive. While interest rates have backed up over the past
year, they are still low on a historical level. The outlook for inflation is
sanguine, so we're not particularly concerned about interest rates continuing to
move higher.
Looking ahead, we think positive influences may include deregulation and
corporate restructuring at the company level. A more shareholder-friendly equity
culture is developing both in Europe and Japan. Management incentives have been
aligned with shareholder goals, including stock option programs. Corporations
have taken other steps such as share buybacks that help improve shareholder
value. These are very new developments within the European and Japanese markets
and are the same types of programs that have helped U.S. corporations beat
earnings forecasts over the past decade regardless of the economic backdrop.
However, valuations in general have reached the high end of their historical
range. That is, even though earnings growth has gone up, equity prices have gone
up even more. Nevertheless, we feel that the outlook for both inflation and
interest rates is positive. If corporate earnings growth continues to surprise
on the upside, there should be plenty of investment opportunities abroad.
Respectfully,
/s/ David R. Mannheim
David R. Mannheim
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and are
current only through the end of the period of the report as stated on the cover.
The manager's views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
It is not possible to invest directly in an index.
The portfolio is actively managed, and current holdings may be different.
<PAGE>
PORTFOLIO MANAGER'S PROFILE
David R. Mannheim is Senior Vice President of MFS Investment Management(R) and
Director of International Portfolio Management. He is portfolio manager of
MFS(R) Global Equity Fund, MFS(R) International Growth Fund, MFS(R)
Institutional International Equity Fund, and the International Growth Series
offered through MFS(R)/Sun Life annuity products.
Mr. Mannheim joined MFS in 1988 and was named Investment Officer in 1990,
Assistant Vice President in 1991, Vice President and portfolio manager in 1992,
Senior Vice President in 1997, and Director of International Portfolio
Management in 1999. He is a graduate of Amherst College and the Massachusetts
Institute of Technology Sloan School of Management.
All equity portfolio managers began their careers at MFS Investment
Management(R) as research analysts. Our portfolio managers are supported by an
investment staff of over 100 professionals utilizing MFS Original Research(R), a
global, company-oriented, bottom-up process of selecting securities.
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus. A prospectus containing more information,
including the exchange privilege and all charges and expenses, for any other MFS
product is available from your financial consultant, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
<PAGE>
FUND FACTS
Objective: Seeks to provide long-term growth of capital.
Commencement of investment operations: January 30, 1996
Size: $41.7 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 +28.65% +34.81% +63.26% +92.36%
- -----------------------------------------------------------------------------
Average Annual Total Return -- +34.81% +17.75% +18.16%
- -----------------------------------------------------------------------------
* For the period from the commencement of the Fund's investment operations,
January 30, 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
RETURNS 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.
Investments in foreign and emerging market securities may provide superior
returns but also involve greater risk than U.S. investments. Investments in
foreign and emerging market securities may be favorably or unfavorably affected
by changes in interest rates and currency exchange rates, market conditions, and
the economic and political conditions of the countries where investments are
made. These risks may increase share price volatility. See the prospectus for
details.
<PAGE>
PORTFOLIO OF INVESTMENTS (Unaudited) - December 31, 1999
Stocks - 96.7%
- -------------------------------------------------------------------------------
ISSUER SHARES VALUE
- -------------------------------------------------------------------------------
Foreign Stocks - 95.6%
Australia - 2.1%
QBE Insurance Group Ltd. (Insurance) 188,467 $ 874,726
- -------------------------------------------------------------------------------
Canada - 2.9%
BCE, Inc. (Telecommunications) 5,600 $ 506,965
Canadian National Railway Co. (Railroads) 26,900 707,806
-----------
$ 1,214,771
- -------------------------------------------------------------------------------
Finland - 2.9%
Helsingin Puhelin Oyj (Telecommunications) 13,500 $ 1,124,377
HPY Holding - HTF Holding Oyj Abp
(Telecommunications)* 1,950 73,153
-----------
$ 1,197,530
- -------------------------------------------------------------------------------
France - 14.6%
Aventis (Pharmaceuticals) 4,900 $ 284,737
Bouygues S.A. (Construction)* 1,060 673,609
Castorama Dubois Investisse (Stores) 2,250 684,325
Pernod Ricard Co. (Beverages) 9,500 543,431
Sanofi-Synthelabo S.A. (Medical and
Health Products)* 16,500 686,953
STMicroelectronics Co. (Electronics)* 3,300 507,820
Television Francaise (Entertainment) 985 515,837
Total S.A., "B" (Oils) 8,100 1,080,870
Union des Assurances Federales S.A.
(Insurance) 3,350 393,383
Vivendi (Business Services) 5,300 478,519
Wavecom S.A., ADR (Electronics)* 2,700 255,825
-----------
$ 6,105,309
- -------------------------------------------------------------------------------
Germany - 5.5%
Henkel KGaA, Preferred (Chemicals) 5,670 $ 374,022
Mannesmann AG (Conglomerate) 7,850 1,893,424
Wella AG, Preferred (Consumer Goods
and Services) 1,378 30,531
-----------
$ 2,297,977
- -------------------------------------------------------------------------------
Greece - 1.9%
Antenna TV S.A., ADR (Broadcasting)* 20,000 $ 342,500
Hellenic Telecommunication Organization S.A.,
GDR (Telecommunications) 18,144 429,850
-----------
$ 772,350
- -------------------------------------------------------------------------------
Ireland - 1.2%
Anglo Irish Bank Corp. PLC
(Banks and Credit Cos.) 207,629 $ 482,623
- -------------------------------------------------------------------------------
Israel - 0.8%
Partner Communications Co. Ltd., ADR
(Cellular Telephones) 13,125 $ 339,609
- -------------------------------------------------------------------------------
Italy - 2.3%
Telecom Italia Mobile S.p.A., Saving Shares
(Telecommunications)* 205,200 $ 977,487
- -------------------------------------------------------------------------------
Japan - 22.4%
Canon, Inc. (Special Products and Services) 25,000 $ 993,345
Chugai Pharmaceutical Co. Ltd.
(Pharmaceuticals) 61,000 659,669
Chukyo Coca-Cola Bottling Co. Ltd.
(Food and Beverage Products) 19,000 202,682
Don Quijote Co., Ltd. (Retail) 700 109,611
Fast Retailing Co. (Retail) 1,800 732,824
Fuji Heavy Industries Ltd. (Automotive) 59,000 404,189
Fujitsu Ltd. (Computer Hardware - Systems) 5,000 228,029
Hitachi Ltd. (Electronics) 83,000 1,332,159
Mikuni Coca-Cola Bottling Co. Ltd.
(Food and Beverage Products) 23,000 402,916
Mitsubishi Motor (Automotive) 71,000 242,503
Nippon Telephone & Telegraph Co.
(Utilities - Telephone) 44 753,572
NTT Mobile Communications Network, Inc.
(Telecommunications) 54 2,076,923
Sony Corp. (Electronics) 2,500 741,339
Toshiba Corp. (Electronics) 58,000 442,748
-----------
$ 9,322,509
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Mexico - 1.2%
Coca-Cola Femsa S.A., ADR (Beverages) 14,200 $ 249,388
Kimberly-Clark de Mexico S.A. de C.V.
(Forest and Paper Products) 67,300 263,085
-----------
$ 512,473
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Netherlands - 4.7%
Akzo Nobel N.V. (Chemicals) 17,700 $ 887,719
Fox Kids Europe N.V. (Telecommunications)* 2,170 27,755
ING Groep N.V. (Financial Services)* 12,589 759,942
Libertel N.V. (Cellular Telephones)* 11,600 303,741
-----------
$ 1,979,157
- -------------------------------------------------------------------------------
Norway - 2.5%
NetCom ASA (Telecommunications)* 2,080 $ 103,935
Sparebanken NOR (Banks and Credit Cos.) 23,300 541,386
Storebrand ASA (Insurance) 49,300 375,678
-----------
$ 1,020,999
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Portugal - 2.7%
Banco Pinto & Sotto Mayor S.A.
(Banks and Credit Cos.) 33,600 $ 720,085
PT Multimedia SGPS S.A. (Conglomerate)* 620 35,260
Telecel - Comunicacoes Pessoais, S.A.
(Telecommunications) 21,150 368,706
-----------
$ 1,124,051
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Singapore - 2.9%
DBS Group Holdings Ltd. (Financial Services)* 28,956 $ 474,774
Overseas Union Bank Ltd. (Banks and
Credit Cos.) 125,544 735,168
-----------
$ 1,209,942
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Spain - 1.2%
Jazztel, ADR (Telecommunications)* 330 $ 21,491
Repsol S.A. (Oils) 18,700 433,530
Terra Networks, S.A. (Internet)* 500 27,318
-----------
$ 482,339
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Sweden - 2.9%
NetCom AB (Telecommunications)* 1,600 $ 112,631
Saab AB, "B" (Aerospace) 114,483 1,105,074
-----------
$ 1,217,705
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Switzerland - 1.1%
Nestle S.A. (Food and Beverage Products) 255 $ 467,321
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United Kingdom - 19.8%
AstraZeneca Group PLC (Medical and
Health Products) 20,450 $ 866,627
BP Amoco PLC (Oils) 46,352 467,574
British Aerospace PLC (Aerospace)* 78,744 517,332
British Telecommunications PLC
(Telecommunications)* 50,780 1,229,536
Cable & Wireless Communications PLC
(Telecommunications)* 125,400 1,791,645
Cable & Wireless PLC, (Telecommunications)* 26,700 457,713
Capital Radio PLC (Broadcasting) 9,500 230,023
CGU PLC (Insurance) 41,000 661,160
NDS Group PLC, ADR (Internet)* 710 21,655
Next PLC (Stores) 52,200 500,512
TeleWest Communications PLC (Entertainment)* 102,217 542,021
Thus PLC (Internet)* 12,180 76,874
Tomkins PLC (Conglomerate) 81,600 266,072
United News & Media PLC (Broadcasting) 51,600 650,100
-----------
$ 8,278,844
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Total Foreign Stocks $39,877,722
- -------------------------------------------------------------------------------
U.S. Stocks - 1.1%
Consumer Goods and Services - 1.0%
Galileo International, Inc. 13,900 $ 416,131
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Telecommunications - 0.1%
Global TeleSystems Group, Inc.* 800 $ 27,700
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Total U.S. Stocks $ 443,831
- -------------------------------------------------------------------------------
Total Stocks (Identified Cost, $32,681,372) $40,321,553
- -------------------------------------------------------------------------------
Short-Term Obligations - 2.5%
- -------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- -------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.,
due 1/03/00, at Amortized Cost $ 1,055 $ 1,054,912
- -------------------------------------------------------------------------------
Total Investments (Identified Cost, $33,736,284) $41,376,465
Other Assets, Less Liabilities - 0.8% 326,684
- -------------------------------------------------------------------------------
Net Assets - 100.0% $41,703,149
- -------------------------------------------------------------------------------
* Non-income producing security.
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- --------------------------------------------------------------------------------
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $33,736,284) $41,376,465
Investments of cash collateral for securities loaned,
at value (identified cost $3,463,110) 3,463,110
Foreign currency, at value (identified cost, $20,059) 20,127
Receivable for investments sold 250,654
Interest and dividends receivable 45,393
Receivable from investment adviser 63,490
Deferred organization expenses 1,514
Other assets 135
-----------
Total assets $45,220,888
-----------
Liabilities:
Payable to custodian $ 20,240
Collateral for securities loaned, at value 3,463,110
Payable to affiliates -
Management fee 852
Shareholder servicing agent fee 6
Accrued expenses and other liabilities 33,531
-----------
Total liabilities $ 3,517,739
-----------
Net assets $41,703,149
===========
Net assets consist of:
Paid-in capital $32,835,032
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 7,640,076
Accumulated undistributed net realized gain on
investments and foreign currency transactions 1,260,888
Accumulated distributions in excess of net investment income (32,847)
-----------
Total $41,703,149
===========
Shares of beneficial interest outstanding 2,601,114
=========
Net asset value, offering price, and redemption price per share
(net assets / shares of beneficial interest outstanding) $16.03
======
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations (Unaudited)
- --------------------------------------------------------------------------------
SIX MONTHS ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 151,879
Interest 53,291
Foreign taxes withheld (13,161)
----------
Total investment income $ 192,009
----------
Expenses -
Management fee $ 116,791
Trustees' compensation 3,100
Shareholder servicing agent fee 1,165
Administrative fee 1,535
Custodian fee 29,956
Printing 2,787
Auditing fees 28,417
Legal fees 46
Amortization of organization expenses 704
Registration fees 12,548
Miscellaneous 62
----------
Total expenses $ 197,111
Fees paid indirectly (1,257)
Reduction of expenses by investment adviser (63,490)
----------
Net expenses $ 132,364
----------
Net investment income $ 59,645
----------
Realized and unrealized gain (loss) on investments:
Realized gain (identified cost basis) -
Investment transactions $1,645,864
Foreign currency transactions 21,783
----------
Net realized gain on investments and foreign
currency transactions $1,667,647
----------
Change in unrealized appreciation (depreciation) -
Investments $7,199,560
Translation of assets and liabilities in foreign
currencies (11,823)
----------
Net unrealized gain on investments and foreign
currency translation $7,187,737
----------
Net realized and unrealized gain on investments
and foreign currency $8,855,384
----------
Increase in net assets from operations $8,915,029
==========
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
DECEMBER 31, 1999 YEAR ENDED
(UNAUDITED) JUNE 30, 1999
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 59,645 $ 104,993
Net realized gain on investments and foreign currency
transactions 1,667,647 806,806
Net unrealized gain (loss) on investments and foreign
currency translation 7,187,737 (1,273,851)
------------ ------------
Increase (decrease) in net assets from operations $ 8,915,029 $ (362,052)
------------ ------------
Distributions declared to shareholders -
From net investment income $ (167,656) $ (99,690)
From net realized gain on investments and foreign
currency transactions (1,245,241) (367,595)
------------ ------------
Total distributions declared to shareholders $ (1,412,897) $ (467,285)
------------ ------------
Net increase (decrease) in net assets from Fund share
transactions $ 26,533,877 $ (3,980,435)
------------ ------------
Total increase (decrease) in net assets $ 34,036,009 $ (4,809,772)
Net assets:
At beginning of period 7,667,140 12,476,912
------------ ------------
At end of period (including accumulated distributions in
excess of net investment income of $32,847 and accumulated
undistributed net investment income of $75,164, respectively) $ 41,703,149 $ 7,667,140
============ ============
</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)
- ----------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $ 12.91 $ 13.88 $ 13.04 $ 10.96 $ 10.00
---------- ---------- ---------- ---------- ----------
Income from investment operations# -
Net investment income(S) $ 0.03 $ 0.15 $ 0.14 $ 0.23 $ 0.13
Net realized and unrealized gain (loss)
on investments and foreign currency 3.66 (0.10) 1.12 2.23 0.83
---------- ---------- ---------- ---------- ----------
Total from investment operations $ 3.69 $ 0.05 $ 1.26 $ 2.46 $ 0.96
---------- ---------- ---------- ---------- ----------
Less distributions declared to shareholders -
From net investment income $ (0.07) $ (0.22) $ (0.08) $ (0.13) $ --
From net realized gain on investments
and foreign currency transactions (0.50) (0.80) (0.34) (0.25) --
---------- ---------- ---------- ---------- ----------
Total distributions declared to
shareholders $ (0.57) $ (1.02) $ (0.42) $ (0.38) $ --
---------- ---------- ---------- ---------- ----------
Net asset value - end of period $ 16.03 $ 12.91 $ 13.88 $ 13.04 $ 10.96
========== ========== ========== ========== ==========
Total return 28.65%++ 0.74% 10.13% 22.97% 9.60%++
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 0.86%+ 0.87% 0.86% 0.87% 0.94%+
Net investment income 0.38%+ 1.18% 1.08% 1.98% 2.46%+
Portfolio turnover 42% 109% 64% 76% 19%
Net assets at end of period (000 Omitted) $ 41,703 $ 7,667 $ 12,477 $ 10,688 $ 2,498
(S) Effective May 3, 1996, the investment adviser voluntarily agreed to maintain the expenses of the Fund, exclusive of
management fees, at not more than 0.10% of average daily net assets. During the period January 30, 1996, through
May 2, 1996, the investment adviser voluntarily agreed to maintain the expenses of the Fund, exclusive of management
fees, at not more than 0.20% of average daily net assets. To the extent actual expenses were over these limitations,
the net investment income (loss) per share and the ratios would have been:
Net investment income (loss) $ -- +++ $ 0.06 $ 0.07 $ 0.10 $ (0.08)
Ratios (to average net assets):
Expenses## 1.26%+ 1.54% 1.39% 2.01% 4.91%+
Net investment income (loss) (0.02)%+ 0.51% 0.55% 0.84% (1.51)%+
* For the period from the commencement of the Fund's investment operations, January 30, 1996, through June 30, 1996.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
</TABLE>
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS Institutional International Equity Fund (the Fund) is a diversified series
of MFS Institutional Trust (the Trust). The Trust is organized as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as an open-end management investment company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. 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/or 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 agents. On loans
collateralized by U.S. Treasury securities, a fee is received from the Borrower,
and is allocated between the Fund and the lending agents. 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 $3,305,242. These loans
were collateralized by cash of $3,463,110 which was invested in the following
short-term obligation:
IDENTIFIED COST
SHARES AND VALUE
- ------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio 3,463,110 $3,463,110
Forward Foreign Currency Exchange Contracts - The Fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar. The Fund may enter into
forward contracts for hedging purposes as well as for non-hedging purposes. For
hedging purposes, the Fund may enter into contracts to deliver or receive
foreign currency it will receive from or require for its normal investment
activities. The Fund may also use contracts in a manner intended to protect
foreign currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the Fund may
enter into contracts with the intent of changing the relative exposure of the
Fund's portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains or
losses are recorded as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains or
losses on foreign currency transactions.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All discount is
accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Dividends received in cash are recorded on the
ex-dividend date. Dividend and interest payments received in additional
securities are recorded on the ex-dividend or ex-interest date in an amount
equal to the value of the security on such date.
Fees Paid Indirectly - The Fund's custody fee is calculated as a percentage of
the Fund's month end net assets. The fee is reduced according to an arrangement
that measures the value of cash deposited with the custodian by the Fund. This
amount is shown as a reduction of expenses on the Statement of Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The Fund
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits 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 0.75% of
the Fund's average daily net assets. The investment adviser has voluntarily
agreed to pay the Fund's operating expenses exclusive of management fees such
that the Fund's aggregate expenses do not exceed 0.10% of its average daily net
assets. This is reflected as a 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%
In excess of $3 billion 0.0000%
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the Fund's average daily net assets at an 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
$35,931,273 and $11,936,511, 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 $33,736,284
===========
Gross unrealized appreciation $ 8,920,291
Gross unrealized depreciation (1,280,110)
-----------
Net unrealized appreciation $ 7,640,181
===========
(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 1,961,090 $ 25,711,083 143,554 $ 1,797,619
Shares issued to shareholders in
reinvestment of distributions 89,029 1,412,894 38,083 467,280
Shares reacquired (42,738) (590,100) (487,062) (6,245,334)
------------ ------------ ------------ ------------
Net increase (decrease) 2,007,381 $ 26,533,877 (305,425) $ (3,980,435)
============ ============ ============ ============
</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 period ended December 31, 1999, was $126. The Fund had no
borrowings during the period.
<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. IIE-3 02/00 200
