<PAGE>
[Logo] M F S (R)
INVESTMENT MANAGEMENT ANNUAL REPORT
We invented the mutual fund(R) FOR YEAR ENDED
JUNE 30, 2000
[Graphic Omitted]
MFS(R) INSTITUTIONAL
HIGH YIELD FUND
<PAGE>
<TABLE>
MFS(R) INSTITUTIONAL HIGH YIELD FUND
<S> <C>
TRUSTEES INVESTMENT ADVISER
Jeffrey L. Shames* - Chairman and Chief Executive Officer Massachusetts Financial Services Company
MFS Investment Management(R) 500 Boylston Street
Boston, MA 02116-3741
Nelson J. Darling, Jr.+ - Private investor and trustee
DISTRIBUTOR
William R. Gutow+ - Private investor and real estate consultant; MFS Fund Distributors, Inc.
Vice Chairman, Capitol Entertainment Management Company 500 Boylston Street
(video franchise) Boston, MA 02116-3741
CHAIRMAN AND PRESIDENT INVESTOR SERVICE
Jeffrey L. Shames* MFS Service Center, Inc.
P.O. Box 2281
PORTFOLIO MANAGER Boston, MA 02107-9906
Bernard Scozzafava*
For additional information,
TREASURER contact your investment professional.
James O. Yost*
CUSTODIAN
ASSISTANT TREASURERS State Street Bank and Trust Company
Mark E. Bradley*
Ellen Moynihan* AUDITORS
Deloitte & Touche LLP
SECRETARY
Stephen E. Cavan* WORLD WIDE WEB
www.mfs.com
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
* MFS Investment Management
+ Independent Trustee
----------------------------------------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Shareholders,
I'm sure you've noticed that whenever financial markets suffer a large decline,
as they did very dramatically this past spring, there's a flurry of information
on "how to deal with market volatility" -- both in the popular press and from
those of us in the investment business. Our own thinking on this is that, first,
for long-term investors volatility is not necessarily something to be feared;
occasional volatility may in fact be healthy for the markets.
Second, our experience has been that when markets begin to fall, it's often
too late to act. The best response may be to do nothing -- if you're properly
prepared with a long-term plan, created with the help of your investment
professional. To help you create or update that plan and take market
volatility in stride, here are some points you may want to consider the next
time you talk with your investment professional.
1. VOLATILITY CAN BE A GOOD THING
We would argue that the markets today are much healthier than they were before
the period of volatility this past spring, in the sense that stock prices have
returned to more reasonable levels and we have a stronger base for future
growth. Perhaps the worst of the market's wrath descended on companies with
very high prices, relative to their earnings, or with business concepts that
looked great in the euphoria of a booming market but in the end appeared to
have no fundamental backing. It has always been our view that one of the best
protections against market volatility is to invest in stocks and bonds of
fundamentally good companies selling at reasonable prices. When discussing
potential investments with your investment professional, you may want to ask
how they fared in previous periods of volatility, as well as in the good
times.
2. INVEST FOR THE LONG TERM
You've heard that before, but we think it's still probably the most important
concept in investing. Time is one of an investor's greatest allies. Over
nearly all long-term periods -- 5, 10, 20 years, and more -- stock and bond
returns, as represented by most common indices, have been positive and have
considerably outpaced inflation. Investing is the best way we know of to make
your money work for you while you're doing something else.
Where investors can get into trouble is by confusing investing with trading.
In our view, traders who buy securities with the intention of selling them at
a profit in a matter of hours, days, or weeks are gambling. We believe this
seldom turns out to be a good strategy for increasing your wealth.
3. INVEST REGULARLY
Waiting for the "right time" to invest is almost always a poor strategy,
because only in retrospect do we know when that right time really was. Periods
of volatility are probably the worst times to make an investment decision.
Faced with turmoil in the markets, many investors have opted to simply stay on
the sidelines.
On the other hand, we think one of the best techniques for investing is
through automatic monthly or quarterly deductions from a checking or savings
account. This approach has at least three major benefits. First, you can
formulate a long-term plan -- how much to invest, how often, and into what
portfolios -- in a calm, rational manner, working with your investment
professional. Second, with this approach you invest regularly without
agonizing over the decision each time you buy shares.
And, third, if you invest equal amounts of money at regular intervals, you'll
be taking advantage of a strategy called dollar-cost averaging: by investing a
fixed amount while the share cost fluctuates, you end up with an average share
cost to you that is lower than the average share price over your investment
period.(1) If all this sounds familiar, it's probably because you're already
taking advantage of dollar-cost averaging by investing regularly for
retirement through a 401(k) or similar account at work.
4. DIVERSIFY
One of the dangers of not having an investment plan is that you may be tempted
to simply chase performance, i.e., move money into whatever asset class appears
to be outperforming at the moment -- small, mid, or large cap; growth or value;
United States or international; stocks or bonds. The problem with this approach
is that by the time a particular area is generally recognized as "hot," you may
have already missed some of the best performance.
International investing offers a case in point. In the 1980s, international
investments, as represented by the Morgan Stanley Capital International (MSCI)
Europe, Australia, Far East (EAFE) Index, outperformed U.S. investments, as
represented by the Standard & Poor's 500 Composite Index (S&P 500), in 7 out
of 10 years.(2) For the decade, the MSCI EAFE's average annual performance was
23%, compared to 18% for the S&P 500. Going into the 1990s, then, an investor
looking only at recent performance might have favored international
investments over U.S. investments.
But the 1990s turned out to be virtually a mirror image of the '80s. Domestic
investments outperformed international investments in 7 out of 10 years, with
the S&P 500 returning an average of 18% annually for the decade and the MSCI
EAFE returning a 7% annual average. Looking ahead, however, we are optimistic
about international markets because we feel that many of the same forces that
propelled the current U.S. economic boom -- deregulation, restructuring, and
increased adoption of technology -- have taken root overseas.
The lesson to be learned is that nobody really knows what asset class will be
the next to outperform or how long that performance will be sustained. We would
suggest that one way to potentially profit from swings in the market -- to
potentially be invested in various asset classes before the market shifts in
their favor -- is with a diversified portfolio covering several asset classes.
If you haven't already done so, we encourage you to discuss these thoughts with
your investment professional and factor them into your long-range financial
planning. Hopefully, the next time the markets appear to be going wild, you'll
feel confident enough in your plan to view periods of volatility as a time of
potential opportunity -- or perhaps just a time to sit back and do nothing.
As always, we appreciate your confidence in MFS and welcome any questions or
comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
July 17, 2000
(1) The use of a systematic investing program does not guarantee a profit or
protect against a loss in declining markets. You should consider your
financial ability to continue to invest through periods of low prices.
(2) Source: Lipper Inc. Decade performance: '80s -- 12/31/79-12/31/89,
'90s -- 12/31/89-12/31/99. The MSCI EAFE Index is an unmanaged,
market-capitalization-weighted total return index that measures the
performance of the same developed-country global stock markets included in
the MSCI World Index but excludes the United States, Canada, and the South
African mining component. The S&P 500 is a popular, unmanaged index of
common stock total return performance. It is not possible to invest directly
in an index. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
Investments in mutual funds will fluctuate and may be worth more or less upon
redemption.
Mutual funds are designed for long-term retirement investing. Please see your
investment professional for more information.
The opinions expressed in this letter are those of Jeffrey L. Shames, and no
forecasts can be guaranteed.
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
Dear Shareholders,
For the year ended June 30, 2000, the fund provided a total return of 0.55%,
including the reinvestment of any distributions. During the same period, the
average high current yield fund tracked by Lipper Inc., an independent firm
that reports mutual fund performance, returned 0.77%. The fund's return also
compares to a return of -1.45% for the fund's benchmark, the Salomon Brothers
High Yield Market Index (the Salomon Index). The Salomon Index is an unmanaged
index that captures the performance of below investment-grade debt issued by
corporations domiciled in the United States or Canada.
The high-yield market remained plagued by a number of difficulties during most
of the period. First, high-yield portfolios experienced approximately $6.5
billion in outflows this year, which hurt demand for high-yield securities.
Second, while default rates have recently come down a bit, they remained
relatively high during the period. Finally, concerns about inflation and
unsustainable economic growth kept investors nervous about future interest- rate
hikes. While we are starting to see signs that the economy is slowing and the
Federal Reserve Board (the Fed) may be nearing the end of its rate hikes, we
think the possibility of one or two more increases is not out of the question.
On a more positive note, we've recently started to see money flowing back into
the high-yield market as the interest-rate environment has improved and
investors are being drawn to some extremely attractive yields relative to U.S.
Treasury and investment-grade bonds. (The principal value and interest on
Treasury securities are guaranteed by the U.S. government if held to maturity.)
In a market where most high-yield bonds traded lower, the portfolio's
performance compared to its benchmarks benefited from favorable security
selection and industry diversification. During the second quarter of 2000,
many telecommunications and media securities experienced a dramatic selloff
along with the equity market. However, our holdings in these sectors, as well
as holdings in industries such as gaming and industrial manufacturing, held up
well during the period. We maintained our positions in telecommunications
bonds, and it remained the largest industry exposure in the portfolio.
Companies like Nextel Communications are among the fund's holdings, and these
investments provided a positive contribution to performance. Our position in
Nextel provided steady gains due to persistent strength in wireless subscriber
growth. We also weren't afraid to take some profits in energy-company bonds,
as oil and natural gas prices reached historically high levels.
In addition to favorable security selection, our successful avoidance of the
credit problems and bankruptcies that hurt a variety of industries helped the
fund's performance. The key to avoiding credit defaults is in-depth research,
and we believe MFS' research capabilities are second to none in the industry.
MFS(R) Institutional High Yield Fund is backed by a large group of investment
professionals dedicated exclusively to the high-income market. Our research
analysts use a variety of models to analyze the credit risk and business
prospects of the companies they cover. We carefully measure and manage the
underlying financial stability of each company we hold in the portfolio.
Similar to our equity research, it's an intensive, company-by-company, bottom-
up approach. First, we look at a company's business risks, then we consider
the financial risks. Finally, we look at all the different ways of investing
in the company and how the market is pricing each one of the securities. From
this analysis, we try to pick the bond that offers the best risk-adjusted
return. Our holding in U.S. Can Corp., one of the world's largest aerosol can
manufacturers, is a good example of a bond that met our stringent investment
criteria and benefited the fund's performance. The company's management
instituted a number of cost-saving efficiencies in their plants, which
improved profitability and cash flow. The company then began to buy back their
bonds, which resulted in substantial price appreciation.
After telecommunications, our second largest exposure was in media. Core
holdings included cable television and radio entities such as Charter
Communications, one of the fastest-growing companies in the field. Controlled
by Paul Allen, the co-founder of Microsoft, Charter's valuation has risen
following the increased utilization of cable networks as a means of accessing
the Internet.
In many ways, we view telecom and media as defensive industries that offer
attractive growth and income opportunities. Most people are not going to turn
off their cable or mobile phones if the economy slows down. On the other hand,
some of the big-ticket capital items such as industrial machinery, building
materials, and autos may experience a slowdown in business and consumer
spending due to higher interest rates. Given the current economic environment,
we like the telecom and media sectors, and we've increased our exposure to
these industries since the beginning of the year. We've taken some money off
the table in some of the more cyclical industries such as steel and paper
packaging, as well as in general manufacturing. We increased holdings in
gaming bonds, which we also view as a somewhat defensive industry. These
securities have gained ground because there are fewer and fewer regions of the
country that permit gaming, and we believe these companies will continue to
produce exceptional earnings and cash flow growth.
Looking ahead, we're cautiously optimistic regarding a recovery in high-yield
securities. While it's difficult to rule out further volatility given the
uncertain interest-rate environment, the high-income market has been weak for
quite some time now. Yield spreads, the yield difference between
noninvestment-grade debt and Treasuries, have widened significantly during the
past year, making the yields on high-income bonds very attractive relative to
other fixed-income securities in our view. In addition, we believe the economy
will remain healthy and corporate earnings will remain strong. And,
ultimately, the high-yield market usually tracks corporate earnings.
Respectfully,
/s/ Bernard Scozzafava
Bernard Scozzafava
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.
The portfolio is actively managed, and current holdings may be different.
<PAGE>
PORTFOLIO MANAGER'S PROFILE
Bernard Scozzafava is Senior Vice President of MFS Investment Management(R).
He is portfolio manager of the MFS(R) Institutional High Yield Fund, the High
Yield Series offered through MFS(R)/Sun Life annuity products and MFS(R) High
Income Series (part of MFS(R) Variable Insurance Trust(SM)).
He joined MFS in 1989 as Investment Officer and was named Assistant Vice
President in 1991, Vice President in 1993, portfolio manager in 1994, and
Senior Vice President in 2000. Prior to joining MFS, he worked as a securities
trader and a research analyst for the Federal Reserve Bank of New York. Mr.
Scozzafava is a graduate of Hamilton College and earned a Master of Science
degree from the Massachusetts Institute of Technology.
All portfolio managers at MFS Investment Management(R) 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 all charges and expenses, for any other MFS product is available
from your investment professional or by calling MFS at 1-800-225-2606. Please
read it carefully before investing or sending money.
<PAGE>
FUND FACTS
Objective: Seeks high current income.
Commencement of investment operations: December 31, 1998
Size: $2.1 million net assets as of June 30, 2000
PERFORMANCE SUMMARY
The information below illustrates the historical performance of the fund in
comparison to various market indicators. Benchmark comparisons are unmanaged
and do not reflect any fees or expenses. It is not possible to invest directly
in an index. The minimum initial investment is generally $3 million. Shares of
the fund are purchased at net asset value. (See Notes to Performance Summary.)
GROWTH OF A HYPOTHETICAL $3,000,000 INVESTMENT
(For the period from the commencement of the fund's investment operations,
December 31, 1998, through June 30, 2000. Index information is from
January 1, 1999.)
MFS Institutional Salomon Brothers
High Yield Fund High Yield Index
----------------- ----------------
12/98 $3,000,000 $3,000,000
6/99 3,102,070 3,052,940
6/00 3,119,091 3,008,606
TOTAL RATES OF RETURN THROUGH JUNE 30, 2000
1 Year Life*
--------------------------------------------------------------------------------
Cumulative Total Return +0.55% +3.97%
--------------------------------------------------------------------------------
Average Annual Total Return +0.55% +2.64%
--------------------------------------------------------------------------------
COMPARATIVE INDICES(+) 1 Year Life*
--------------------------------------------------------------------------------
Average high current yield fund+ -0.77% +1.73%
--------------------------------------------------------------------------------
Salomon Brothers High Yield Market Index++ -1.45% +0.19%
--------------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations,
December 31, 1998, through June 30, 2000. Index information is from
January 1, 1999.
(+) Average annual rates of return.
+ Source: Lipper Inc.
++ Source: Standard & Poor's Micropal, Inc.
NOTES TO PERFORMANCE SUMMARY
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Subsidies and
waivers may be rescinded at any time. See the prospectus for details. All
results are historical and assume the reinvestment of dividends and capital
gains. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MORE RECENT
RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. PAST PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS.
Lower-rated securities may provide greater returns, but they are also
associated with greater-than-average risk. These risks may increase share
price volatility. See the prospectus for details.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS - June 30, 2000
Bonds - 46.4%
-----------------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Bonds - 42.2%
Aerospace - 1.5%
Argo Tech Corp., 8.625s, 2007 $ 20 $ 14,000
BE Aerospace, Inc., 8s, 2008 20 16,900
----------
$ 30,900
-----------------------------------------------------------------------------------------------------
Building - 1.8%
Nortek, Inc., 9.25s, 2007 $ 20 $ 18,700
Williams Scotsman, Inc., 9.875s, 2007 20 18,000
----------
$ 36,700
-----------------------------------------------------------------------------------------------------
Business Services - 1.8%
Iron Mountain, Inc., 8.75s, 2009 $ 20 $ 18,400
Unisys Corp., 7.875s, 2008 20 18,600
----------
$ 37,000
-----------------------------------------------------------------------------------------------------
Chemicals - 1.7%
Lyondell Chemical Co., 9.625s, 2007 $ 15 $ 14,850
NL Industries, Inc., 11.75s, 2003 20 20,400
----------
$ 35,250
-----------------------------------------------------------------------------------------------------
Consumer Goods and Services - 2.1%
Kindercare Learning Centers, Inc., 9.5s, 2009 $ 20 $ 18,400
Polymer Group, Inc., 8.75s, 2008 20 16,600
Simmons Co., 10.25s, 2009 10 8,875
----------
$ 43,875
-----------------------------------------------------------------------------------------------------
Container, Forest and Paper Products - 3.7%
Buckeye Cellulose Corp., 9.25s, 2008 $ 20 $ 20,050
Gaylord Container Corp., 9.875s, 2008 20 13,000
Silgan Holdings, Inc., 9s, 2009 20 18,900
U.S. Can Corp., 10.125s, 2006 25 25,562
----------
$ 77,512
-----------------------------------------------------------------------------------------------------
Energy - 2.8%
Cheasapeake Energy Corp., 9.625s, 2005 $ 20 $ 19,550
P&L Coal Holdings Corp., 9.625s, 2008 20 18,550
Pioneer Natural Resources Co., 9.625s, 2010 20 20,600
----------
$ 58,700
-----------------------------------------------------------------------------------------------------
Financial Institutions - 0.8%
Willis Corroon Corp., 9s, 2009 $ 20 $ 16,750
-----------------------------------------------------------------------------------------------------
Gaming and Hotels - 3.9%
Aztar Corp., 8.875s, 2007 $ 25 $ 23,500
Boyd Gaming Corp., 9.5s, 2007 20 19,200
MGM Grand, Inc., 9.75s, 2007 20 20,300
Station Casinos, Inc., 8.875s, 2008 20 18,800
----------
$ 81,800
-----------------------------------------------------------------------------------------------------
Media - 7.5%
Benedek Communications Corp., 0s to 2001, 13.25s to 2006 $ 20 $ 15,600
Chancellor Media Corp., 8.125s, 2007 20 20,050
Charter Communications Holdings, 8.25s, 2007 25 22,125
Classic Cable, Inc., 10.5s, 2010## 10 9,225
CSC Holdings, Inc., 8.125s, 2009 20 19,441
Cumulus Media, Inc., 10.375s, 2008 10 8,700
Echostar DBS Corp., 9.375s, 2009 25 24,125
Frontiervision Operating Partnership LP, 11s, 2006 15 15,150
Telemundo Holdings, Inc., 0s to 2003, 11.5s to 2008 30 21,000
----------
$ 155,416
-----------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 0.9%
Tenet Healthcare Corp., 8.125s, 2008 $ 20 $ 18,250
-----------------------------------------------------------------------------------------------------
Metals and Minerals - 1.4%
AK Steel Holdings Corp., 9.125s, 2006 $ 15 $ 14,363
Metal Management, Inc., 10s, 2008 30 15,000
----------
$ 29,363
-----------------------------------------------------------------------------------------------------
Retail - 1.9%
J.Crew Operating Corp., 10.375s, 2007 $ 25 $ 21,750
Musicland Group, Inc., 9s, 2003 20 18,200
----------
$ 39,950
-----------------------------------------------------------------------------------------------------
Telecommunications - 10.4%
Adelphia Communications Corp., 7.5s, 2004 $ 20 $ 18,200
Centennial Cellular Operating Co., 10.75s, 2008 20 19,500
Focal Communications Corp., 0s to 2003, 12.125s to 2008 15 10,125
Focal Communications Corp., 11.875s, 2010## 15 15,113
Global Crossing Holdings Ltd., 9.625s, 2008 20 19,500
ITC Deltacom, Inc., 9.75s, 2008 15 14,250
Level 3 Communications, Inc., 9.125s, 2008 20 17,950
Nextel Communications, Inc., 0s to 2003, 9.95s to 2008 35 25,812
Nextlink Communications, Inc., 10.75s, 2009 5 4,950
Psinet, Inc., 11s, 2009 25 23,250
Spectrasite Holdings, Inc., 0s to 2004, 11.25s to 2009 35 20,475
Voicestream Wireless Corp., 10.375s, 2009## 25 25,750
----------
$ 214,875
-----------------------------------------------------------------------------------------------------
Total U.S. Bonds $ 876,341
-----------------------------------------------------------------------------------------------------
Foreign Bonds - 4.2%
Netherlands - 2.1%
United Pan Europe Commerce, 11.25s, 2010 (Media)## $ 25 $ 22,250
Versatel Telecom B.V., 13.25s, 2008
(Telecommunications) 20 20,400
----------
$ 42,650
-----------------------------------------------------------------------------------------------------
United Kingdom - 2.1%
Colt Telecom Group PLC, 0s to 2001, 12s to 2006
(Telecommunications) $ 25 $ 22,000
Telewest Communications PLC, 9.875s, 2010
(Telecommunications)## 25 23,250
----------
$ 45,250
-----------------------------------------------------------------------------------------------------
Total Foreign Bonds $ 87,900
-----------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $1,035,447) $ 964,241
-----------------------------------------------------------------------------------------------------
Stocks - 1.1%
-----------------------------------------------------------------------------------------------------
SHARES
-----------------------------------------------------------------------------------------------------
Foreign Stocks - 1.1%
Netherlands - 1.1%
Versatel Telecom International ADR* (Telecommunications) 524 $ 22,598
-----------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $430) $ 22,598
-----------------------------------------------------------------------------------------------------
Short-Term Obligations - 5.1%
-----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
-----------------------------------------------------------------------------------------------------
Federal Home Loan Bank, due 7/03/00, at Amortized Cost $106 $ 105,961
-----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,141,838) $1,092,800
Other Assets, Less Liabilities - 47.4% 983,524
-----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $2,076,324
-----------------------------------------------------------------------------------------------------
* Non-income producing security.
## SEC Rule 144A restriction.
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
-------------------------------------------------------------------------------------------------------
JUNE 30, 2000
-------------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (identified cost, $1,141,838) $1,092,800
Cash 1,081
Receivable for investments sold 942,463
Interest receivable 20,233
Receivable from investment adviser 39,952
----------
Total assets $2,096,529
----------
Liabilities:
Payable to affiliates for management fee $ 28
Accrued expenses and other liabilities 20,177
----------
Total liabilities $ 20,205
----------
Net assets $2,076,324
==========
Net assets consist of:
Paid-in capital $2,265,610
Unrealized depreciation on investments and translation of assets and liabilities in
foreign currencies (49,038)
Accumulated undistributed net realized loss on investments and
foreign currency transactions (147,098)
Accumulated undistributed net investment income 6,850
----------
Total $2,076,324
==========
Shares of beneficial interest outstanding 227,469
=======
Net asset value, offering price and redemption price per share
(net assets / shares of beneficial interest outstanding) $9.13
=====
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Statement of Operations
---------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 2000
---------------------------------------------------------------------------------------------
<S> <C>
Net investment income:
Interest income $ 201,863
---------
Expenses -
Management fee $ 10,347
Trustees' compensation 4,190
Shareholder servicing agent fee 155
Administrative fee 323
Custodian fee 5,976
Printing 8,274
Auditing fees 16,000
Legal fees 754
Registration fees 6,660
Miscellaneous 1,336
---------
Total expenses $ 54,015
Fees paid indirectly (612)
Reduction of expenses by investment adviser (39,952)
---------
Net expenses $ 13,451
---------
Net investment income $ 188,412
---------
Realized and unrealized loss on investments:
Realized loss (identified cost basis) on investment transactions $(147,098)
Change in unrealized depreciation on investments (32,005)
---------
Net realized and unrealized loss on investments and foreign currency $(179,103)
---------
Increase in net assets from operations $ 9,309
=========
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
<CAPTION>
Statement of Changes in Net Assets
---------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
JUNE 30, 2000 JUNE 30, 1999*
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 188,412 $ 83,736
Net realized gain (loss) on investments and foreign currency transactions (147,098) 17
Net unrealized loss on investments and foreign currency translation (32,005) (17,033)
---------- ----------
Increase in net assets from operations $ 9,309 $ 66,720
---------- ----------
Distributions declared to shareholders from net investment income $ (182,748) $ (82,567)
---------- ----------
Net increase in net assets from fund share transactions $ 182,943 $2,082,667
---------- ----------
Total increase in net assets $ 9,504 $2,066,820
Net assets:
At beginning of period 2,066,820 --
---------- ----------
At end of period (including accumulated undistributed net investment
income of $6,850 and $1,186, respectively) $2,076,324 $2,066,820
========== ==========
* For the period from the commencement of the fund's investment operations, December 31, 1998, through
June 30, 1999.
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
<CAPTION>
Financial Highlights
-------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
JUNE 30, 2000 JUNE 30, 1999*
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 9.93 $10.00
------ ------
Income from investment operations# -
Net investment income(S) $ 0.87 $ 0.50
Net realized and unrealized loss on investments
and foreign currency (0.83) (0.16)
------ ------
Total from investment operations $ 0.04 $ 0.34
------ ------
Less distributions declared to shareholders from net investment
income $(0.84) $(0.41)
------ ------
Net asset value - end of period $ 9.13 $ 9.93
====== ======
Total return 0.55% 3.41%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.68% 0.68%+
Net investment income 9.08% 8.43%+
Portfolio turnover 56% 24%
Net assets at end of period (000 omitted) $2,076 $2,067
(S) The investment adviser voluntarily agreed under a temporary expense agreement to pay all of the
fund's operating expenses, exclusive of management fees in excess of 0.15% of average daily net
assets. To the extent that actual expenses were over this limitation, the net investment income per
share and the ratios would have been:
Net investment income $ 0.68 $ 0.25
Ratios (to average net assets):
Expenses## 2.60% 4.86%+
Net investment income 7.16% 4.25%+
* For the period from the commencement of the fund's investment operations, December 31, 1998,
through June 30, 1999.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
See notes to financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Institutional High Yield 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 - Debt securities (other than short-term obligations
which mature in 60 days or less), including listed issues, are valued on the
basis of valuations furnished by dealers or by a pricing service with
consideration to factors such as institutional-size trading in similar groups
of securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data, without exclusive reliance upon
exchange or over-the-counter prices. 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 at
fair value as determined in good faith by or at the direction of the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that result from fluctuations in foreign currency
exchange rates is not separately disclosed.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and original issue discount is amortized or accreted for financial statement
and tax reporting purposes as required by federal income tax regulations.
Interest payments received in additional securities are recorded on the ex-
interest date in an amount equal to the value of the security on such date.
The fund uses the effective interest method for reporting interest income on
payment-in-kind (PIK) bonds.
Legal fees and other related expenses incurred to preserve and protect the
value of a security owned are added to the cost of the security; other legal
fees are expensed. Capital infusions made directly to the security issuer,
which are generally non-recurring, incurred to protect or enhance the value of
high-yield debt securities, are reported as additions to the cost basis of the
security. Costs that are incurred to negotiate the terms or conditions of
capital infusions or that are expected to result in a plan of reorganization
are reported as realized losses. Ongoing costs incurred to protect or enhance
an investment, or costs incurred to pursue other claims or legal actions, are
expensed.
Fees Paid Indirectly - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the fund. This amount is shown as a reduction of total expenses on the
Statement of Operations.
Tax Matters and Distributions - The fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The fund
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
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. As of
the year ended June 30, 2000, no reclassification adjustments were made.
At June 30, 2000, the fund, for federal income tax purposes, had a capital
loss carryforward of $4,982 which may be applied against any net taxable
realized gains of each succeeding year until the earlier of its utilization or
expiration on June 30, 2008.
(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 0.50%
of the average daily net assets. The investment adviser has voluntarily agreed
to pay the fund's operating expenses exclusive of management fee such that the
fund's aggregate expenses do not exceed 0.15% 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 incurs an administrative fee at
the following annual percentages of the fund's average daily net assets:
First $2 billion 0.0175%
Next $2.5 billion 0.0130%
Next $2.5 billion 0.0005%
In excess of $7 billion 0.0000%
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the fund's average daily net assets at an annual rate of 0.0075%.
(4) Portfolio Securities
Purchases and sales of investments, other than short-term obligations,
aggregated $1,041,765 and $1,847,570, respectively.
The cost and unrealized appreciation or depreciation in value of the investments
owned by the fund, as computed on a federal income tax basis, are as follows:
Aggregate cost $1,141,838
----------
Gross unrealized depreciation $ (78,707)
Gross unrealized appreciation 29,669
----------
Net unrealized depreciation $ (49,038)
==========
(5) Shares of Beneficial Interest
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 2000 PERIOD ENDED JUNE 30, 1999*
------------------------ ---------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 20 $ 200 200,010 $2,000,100
Shares issued to shareholders in reinvestment
of distributions 19,239 182,743 8,200 82,567
------ -------- ------- ----------
Net increase 19,259 $182,943 208,210 $2,082,667
====== ======== ======= ==========
* For the period from the commencement of the fund's investment operations, December 31, 1998, through
June 30, 1999.
</TABLE>
(6) Line of Credit
The fund and other affiliated funds participate in a $1.1 billion unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made for temporary financing needs. Interest is
charged to each fund, based on its borrowings, at a rate equal to the bank's
base rate. In addition, a commitment fee, based on the average daily unused
portion of the line of credit, is allocated among the participating funds at
the end of each quarter. For the year ended June 30, 2000, there was no
commitment fee allocated to the fund. The fund had no borrowings during the
period.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Institutional Trust and Shareholders of MFS
Institutional High Yield Fund:
We have audited the accompanying statements of assets and liabilities of MFS
Institutional High Yield Fund (one of the series comprising MFS Institutional
Trust) including the portfolio of investments, as of June 30, 2000, and the
related statement of operations for the year then ended, the statements of
changes in net assets and the financial highlights for the year ending June 30,
2000 and the period from the commencement of operations, December 31, 1998,
through June 30, 1999. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
June 30, 2000 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Institutional High Yield Fund as of June 30, 2000, the results of its operations
for the year then ended, the changes in its net assets and its financial
highlights for the year then ended, and the period from the commencement of
operations, December 31, 1998, through June 30, 1999 in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
August 10, 2000
<PAGE>
FEDERAL TAX INFORMATION
In January 2001, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2000.
<PAGE>
(C)2000 MFS Investment Management(R).
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
IHY-2 8/00 400
