<PAGE>
[LOGO] M F S(SM) ANNUAL REPORT FOR
THE FIRST NAME IN MUTUAL FUNDS YEAR ENDED
JUNE 30, 1995
MFS(R) EMERGING EQUITIES FUND
[Graphic omitted: art work:
Silhouette of two men talking in front of a large window.]
<PAGE>
MFS(R) EMERGING EQUITIES FUND
TRUSTEES INVESTMENT ADVISER
A. Keith Brodkin* Massachusetts Financial Services Company
Chairman and President 500 Boylston Street
Boston, Massachusetts 02116-3741
Nelson J. Darling, Jr.
Trustee, Eastern Enterprises DISTRIBUTOR
(Diversified Holding Company) MFS Fund Distributors, Inc.
500 Boylston Street
William R. Gutow Boston, Massachusetts 02116-3741
Executive Vice President,
Capital Entertainment Management PORTFOLIO MANAGER
Company Christian Felipe*
TREASURER
W. Thomas London*
ASSISTANT TREASURER
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
SHAREHOLDER SERVICE CENTER
MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
For general information, call toll free:
1-800-637-2262
CUSTODIAN
State Street Bank and Trust Company
AUDITORS
Deloitte & Touche LLP
*Affiliated with the Investment Adviser
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
The past 12 months combined two very positive factors for the U.S. equity
market: strong corporate earnings gains of over 20%, and declining interest
rates. These two factors have accounted for an earnings-driven market. Companies
meeting or exceeding earnings estimates have been well rewarded in the
marketplace as price/earnings multiples have expanded, especially for the
fastest growing companies. The strongest sector for earnings gains and price
performance was technology. Steady growers, such as health care, or groups with
disappointing earnings such as retail, have been punished by investors.
Small-capitalization stocks posted positive returns for the year with the
Russell 2000 Total Return Index (an unmanaged index comprised of 2,000 of the
smallest U.S.-domiciled company common stocks traded on the New York Stock
Exchange, the American Stock Exchange and NASDAQ) gaining 20.07%.
The Fund posted a strong positive total return for the year ending June 30th
of +43.21% (including the reinvestment of distributions), outperforming the
Russell 2000 Index. A discussion of these results may be found in the Portfolio
Performance and Strategy section of this letter.
Economic Environment
In response to increasing evidence of economic weakness during the second
quarter, the Federal Reserve Board has reversed policy by lowering the federal
funds rate 0.25%. This marks the first time in three years that this rate has
been lowered, and brings to at least a temporary conclusion the Federal
Reserve's 18-month monetary-tightening initiative. Although inflation at the
consumer level has been trending higher this year at a 3 1/2% annualized rate,
recent evidence suggests that these pressures are beginning to moderate,
allowing the Federal Reserve to shift its policy focus toward sustaining
economic growth. Despite the economy's apparent lackluster performance in the
second quarter, we do not anticipate that the economy will lapse into recession.
Rather, we believe it will continue to expand at a more moderate, sustainable
pace, supported by lower prevailing interest rates and a healthy export sector.
Stock Market
The stock market has maintained its upward momentum as stock prices have
responded to the cessation of the Federal Reserve's monetary-tightening
initiative and the belief that gains in corporate earnings may remain
substantial. Although we expect growth to remain moderate, our outlook for
corporate earnings growth remains favorable. We have been de-emphasizing many
cyclical areas such as autos and basic materials because of their less
attractive earnings outlook and have been emphasizing growth areas such as
technology, health care, consumer and household products, and financial
services.
Portfolio Performance and Strategy
The Fund's favorable performance during the past year resulted primarily from
overweightings in two industry sectors which included some of our largest
holdings: technology, and leisure and entertainment. As we have mentioned in
previous reports, the technology sector continues to be very important to the
world's economies. Industrialized countries are using technology to improve
their competitive positions, enhance their products and services, and reduce
their costs. In addition, newly industrialized countries are using technology to
accelerate their entrance into the world economies. In this sector, we believe
the best opportunities are in software and networking companies. Thus, the Fund
continues to own Informix, Autodesk and Cadence Design. We also added to our
positions in Sybase and Compuware when their stock prices fell due to
disappointing earnings.
Many leisure and entertainment companies have continued to enjoy favorable
performance. Our holdings in the lodging, gaming and restaurant industries have
done particularly well. Lodging fundamentals continue to remain strong because
very few hotels were built in the second half of the 1980s, supply has remained
limited, and room rates and occupancies have trended higher. Gaming stocks have
rebounded because most of the capacity which has been added recently has been
quickly absorbed by burgeoning demand. The restaurant industry has rebounded
from what we believe were very depressed valuations. Hospitality Franchise
Systems in the lodging industry, Promus in the gaming and lodging industry, and
Applebee's in the restaurant industry have all performed well.
A factor which detracted from the Fund's performance during the past six
months has been its overweighting in the health care industry. Our holdings in
the nursing home industry and in health maintenance organizations (HMOs) have
been hurt by the Republican initiatives in Washington to cut Medicare. We
believe the worst-case scenario has been built into stock valuations already,
and we have added aggressively to HMOs such as Pacificare and to nursing homes
such as Integrated Health.
The environment for stocks this year has been very positive. Strong
corporate earnings, coupled with flat-to-declining interest rates, have driven
valuations higher. Even so, because of the strong earnings growth of many
smaller companies, valuations are still depressed based on historical
parameters. While we cannot predict when these companies will once again receive
favorable valuations, we believe that companies with rapid earnings growth will
eventually be recognized by the marketplace.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
/s/ A. Keith Brodkin /s/ Christian Felipe
A. Keith Brodkin Christian Felipe
Chairman and President Portfolio Manager
July 18, 1995
PORTFOLIO MANAGER PROFILE
Christian Felipe joined the MFS Research Department in 1986. A graduate of
U.C.L.A. and the University of Pennsylvania's Wharton School of Finance and
Commerce, he was named Investment Officer in 1987, Assistant Vice President -
Investments in 1988 and Vice President - Investments in 1989. Mr. Felipe has
served as Portfolio Manager of MFS Emerging Equities Fund since 1993.
TAX FORM SUMMARY
In January 1996, shareholders will be mailed a Tax Form Summary reporting the
federal tax status of all distributions paid during the calendar year 1995. The
Fund designates $112,290 as capital gain distributions.
PERFORMANCE SUMMARY
The information in this section illustrates the historical performance of MFS
Emerging Equities Fund in comparison to various market indicators. Benchmark
comparisons are unmanaged and do not reflect any fees or expenses. You cannot
invest in an index. All results reflect the reinvestment of all dividends and
capital gains.
GROWTH OF A HYPOTHETICAL $5,000,000 INVESTMENT
(For the Period from July 1, 1993 to June 30, 1995)
Line graph representing the growth of a $5,000,000 investment for the period
from July 1, 1993 to June 30, 1995. The graph is scaled from $4,000,000 to
$9,000,000 in $1,000,000 segments. The years are marked from 1993 to 1995. There
are four lines drawn to scale. One is a solid line representing MFS Emerging
Equities Fund, a second line of short dashes represents the S&P 500, a third
line of medium dashes represents the Russell 2000 Index, and a fourth line of
long dashes represents the Consumer Price Index.
MFS Emerging Equities Fund $8,413,439
S&P 500 $6,389,500
Russell 2000 Index $6,268,000
Consumer Price Index $5,280,050
AVERAGE ANNUAL TOTAL RETURNS
6/16/93* -
1 Year 6/30/95
- ------------------------------------------------------------------------------
MFS Emerging Equities Fund +43.21% +30.16%
- ------------------------------------------------------------------------------
Russell 2000 Index +20.07% +11.96%
- ------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index +26.03% +13.05%
- ------------------------------------------------------------------------------
Consumer Price Index<+> + 3.04% + 2.77%
- ------------------------------------------------------------------------------
All results are historical and, therefore, are not an indication of future
results. The principal value and income return of an investment in a mutual fund
will vary with changes in market conditions, and shares, when redeemed, may be
worth more or less than their original cost. Fund results reflect the applicable
expense subsidy which is explained in the Notes to Financial Statements. Had the
subsidy not been in effect, the results would have been less favorable. The
subsidy may be rescinded by MFS at any time.
* Commencement of offering of shares. Benchmark comparisons are from July 1,
1993.
+ The Consumer Price Index is a popular measure of change in prices.
<PAGE>
PORTFOLIO OF INVESTMENTS - June 30, 1995
Common Stocks - 96.0%
- -----------------------------------------------------------------------------
Issuer Shares Value
- -----------------------------------------------------------------------------
Apparel and Textiles - 0.4%
Nine West Group, Inc.* 12,000 $ 438,000
- -----------------------------------------------------------------------------
Business Machines - 1.2%
Affiliated Computer Co.* 34,100 $ 1,040,050
National Instruments Corp.* 14,500 257,375
------------
$ 1,297,425
- -----------------------------------------------------------------------------
Business Services - 10.0%
BISYS Group, Inc.* 37,200 $ 827,700
CUC International, Inc.* 36,000 1,512,000
Ceridian Corp.* 44,400 1,637,250
Computer Sciences, Inc.* 30,000 1,706,250
FIserv, Inc.* 32,000 900,000
Franklin Quest Co.* 14,700 352,800
Global Directmail Corp.* 4,100 80,975
Interim Services, Inc.* 60,200 1,505,000
National Data Corp. 4,100 94,812
SPS Transaction Services Corp.* 54,000 1,869,750
Transaction Systems Architects, Inc., "A"* 8,700 224,025
------------
$ 10,710,562
- -----------------------------------------------------------------------------
Cellular Phones - 1.3%
Cellular Communications of Puerto Rico* 44,000 $ 1,347,500
- -----------------------------------------------------------------------------
Computer Software - 0.5%
CATS Software, Inc.* 1,100 $ 12,100
Discreet Logic, Inc.* 1,000 33,000
Network Peripherals, Inc.* 21,300 464,606
Seer Technologies, Inc.* 900 18,675
------------
$ 528,381
- -----------------------------------------------------------------------------
Computer Software - Personal Computers - 3.9%
Autodesk, Inc. 80,000 $ 3,440,000
Eagle Point Software Corp.* 600 10,200
Learning Co.* 9,200 330,625
Maxis, Inc.* 1,200 31,950
Softkey International, Inc.* 12,200 388,875
------------
$ 4,201,650
- -----------------------------------------------------------------------------
Computer Software - Systems - 13.8%
BDM International, Inc.* 2,000 $ 40,750
BMC Software, Inc.* 21,100 1,629,975
Cadence Design Systems, Inc.* 130,000 4,208,750
Compuware Corp.* 60,000 1,845,000
Datalogix International, Inc.* 1,100 26,812
HNC Software, Inc.* 700 14,875
Inference Corp., "A"* 600 8,475
Informix Corp.* 106,000 2,689,750
Keane, Inc.* 22,000 547,250
Structural Dynamics Research Corp.* 81,100 1,049,231
Sybase, Inc.* 53,800 1,580,375
System Software Associates, Inc. 52,000 1,040,000
UUNET Technologies, Inc.* 1,700 46,750
------------
$ 14,727,993
- -----------------------------------------------------------------------------
Consumer Goods and Services - 0.3%
Blyth Industries, Inc.* 5,800 $ 247,225
Toy Biz, Inc.* 1,000 18,125
------------
$ 265,350
- -----------------------------------------------------------------------------
Electronics - 8.3%
C.P. Clare Corp.* 1,300 $ 26,000
LSI Logic Corp.* 130,000 5,086,250
LTX Corp.* 54,000 479,250
Linear Technology Corp. 13,000 858,000
Oak Technology, Inc.* 10,300 378,525
Paradigm Technology, Inc.* 900 20,194
Tower Semiconductor Ltd.* 10,000 290,000
Ultratech Stepper, Inc.* 1,700 59,925
Xilinx, Inc.* 18,300 1,720,200
------------
$ 8,918,344
- -----------------------------------------------------------------------------
Entertainment - 4.9%
American Radio Systems Corp.* 5,100 $ 116,025
Casino America, Inc.* 23,100 349,387
Clear Channel Communications* 3,600 231,750
Grand Casinos, Inc.* 16,300 576,612
Heritage Media Corp., "A"* 20,300 586,162
Infinity Broadcasting Corp., "A"* 23,700 790,988
International Family Entertainment, Inc., "B"* 10,300 162,225
Mirage Resorts, Inc.* 36,000 1,102,500
National Gaming Corp.* 11,700 100,913
Promus Cos., Inc.* 24,100 939,900
Rio Hotel & Casino, Inc.* 14,800 203,500
Sinclair Broadcast Group, "A"* 2,000 56,000
Station Casinos, Inc.* 4,700 81,075
------------
$ 5,297,037
- -----------------------------------------------------------------------------
Financial Institutions - 4.1%
Advanta Corp., "B" 9,900 $ 373,725
Franklin Resources, Inc. 62,100 2,763,450
Student Loan Corp. 45,000 1,209,375
------------
$ 4,346,550
- -----------------------------------------------------------------------------
Insurance - 1.6%
Equitable of Iowa Cos. 52,900 $ 1,739,088
- -----------------------------------------------------------------------------
Machinery - 0.3%
Watts Industries, Inc., "A" 14,200 $ 355,888
- -----------------------------------------------------------------------------
Medical and Health Products - 0.2%
Amerisource Health Corp., "A"* 1,800 $ 41,063
Medisense, Inc.* 9,900 191,813
------------
$ 232,876
- -----------------------------------------------------------------------------
Medical and Health Technology and Services - 14.5%
American Oncology Resources, Inc.* 1,800 $ 49,950
Community Health Systems, Inc.* 64,700 2,191,713
Genesis Health Ventures, Inc.* 4,700 139,238
Health Management Assoc., Inc., "A"* 74,100 2,167,425
Healthsource, Inc.* 5,700 199,500
Integrated Health Services, Inc. 80,000 2,400,000
Lincare Holdings, Inc.* 13,900 369,219
Living Centers of America, Inc.* 38,000 1,030,750
Manor Care, Inc. 13,800 401,925
Mariner Health Group, Inc.* 25,400 285,750
Mid-Atlantic Medical Services, Inc.* 115,800 2,142,300
Pacificare Health Systems, Inc., "B"* 46,200 2,356,200
Surgical Care Affiliates, Inc. 92,900 1,776,713
------------
$ 15,510,683
- -----------------------------------------------------------------------------
Pollution Control - 0.4%
Western Waste Industries* 18,500 $ 372,313
- -----------------------------------------------------------------------------
Printing and Publishing - 2.3%
Belo (A.H.) Corp., "A" 32,200 $ 986,125
Nelson Thomas, Inc. 42,000 808,500
Pulitzer Publishing Co. 16,300 694,788
------------
$ 2,489,413
- -----------------------------------------------------------------------------
Restaurants and Lodging - 9.3%
Apple South, Inc. 1,700 $ 33,150
Applebee's International, Inc. 47,400 1,220,550
Brinker International, Inc.* 16,800 289,800
Buffets, Inc.* 61,900 851,125
DF&R Restaurants, Inc.* 8,400 185,850
Doubletree Corp.* 6,300 135,844
Hometown Buffet, Inc.* 11,750 133,656
Hospitality Franchise System, Inc.* 143,000 4,951,375
Promus Hotel Corp.*(S)(S) 11,500 253,000
ShoLodge, Inc.* 52,666 783,407
Sonic Corp.* 31,900 877,250
Taco Cabana, Inc., "A"* 35,900 197,450
------------
$ 9,912,457
- -----------------------------------------------------------------------------
Stores - 9.1%
Boise Cascade Office Products Corp.* 2,500 $ 55,625
Consolidated Stores Corp.* 103,900 2,168,912
Discount Auto Parts, Inc.* 18,300 464,362
Dollar Tree Stores, Inc.* 3,800 100,700
General Nutrition Cos., Inc.* 19,000 667,375
Gymboree Corp.* 18,000 523,125
Micro Warehouse, Inc.* 62,000 2,852,000
Mothers Work, Inc.* 17,200 249,400
Movie Gallery, Inc.* 5,800 203,362
Office Depot, Inc.* 77,350 2,175,469
Officemax, Inc.* 9,100 253,662
------------
$ 9,713,992
- -----------------------------------------------------------------------------
Telecommunications - 9.6%
ALC Communications Corp.* 80,000 $ 3,610,000
Bay Networks, Inc.* 31,900 1,319,862
Cabletron Systems, Inc.* 50,000 2,662,500
Equalnet Holding Corp.* 16,300 244,500
Glenayre Technologies, Inc.* 7,500 382,500
Highwaymaster Communications* 400 6,100
LCI International, Inc.* 15,000 459,375
Netmanage, Inc.* 16,000 272,000
Newbridge Networks Corp.* 10,100 356,025
Paging Network, Inc.* 11,950 409,287
Videoserver, Inc.* 1,000 39,000
Worldcom, Inc.* 19,674 531,198
------------
$ 10,292,347
- -----------------------------------------------------------------------------
Total Common Stocks (Identified Cost, $86,862,412) $102,697,849
- -----------------------------------------------------------------------------
Short-Term Obligations - 6.3%
- -----------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------
Federal Home Loan Bank, due 7/10/95 $1,880 $ 1,877,227
Federal Home Loan Bank, due 7/17/95 480 478,737
Federal Home Loan Bank, due 7/31/95 485 482,607
Ford Motor Credit Corp., due 7/03/95 3,900 3,898,657
- -----------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 6,737,228
- -----------------------------------------------------------------------------
Total Investments (Identified Cost, $93,599,640) $109,435,077
Other Assets, Less Liabilities - 2.3% (2,415,794)
- -----------------------------------------------------------------------------
Net Assets - 100.0% $107,019,283
- -----------------------------------------------------------------------------
* Non-income producing security.
(S)(S)When-issued security. At June 30, 1995, the Fund had sufficient cash
and/or securities at least equal to the value of the when-issued
security.
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
June 30, 1995
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $93,599,640) $109,435,077
Cash 66,869
Receivable for investments sold 1,197,944
Receivable for Fund shares sold 2,131,592
Dividends receivable 6,220
Receivable from investment adviser 168,512
Deferred organization expenses 3,964
Other assets 1,009
------------
Total assets $113,011,187
------------
Liabilities:
Payable for Fund shares reacquired $ 4,780,836
Payable for investments purchased 880,630
Payable for when-issued investments purchased 250,118
Payable to affiliates -
Management fee 2,240
Shareholder servicing agent fee 3,459
Accrued expenses and other liabilities 74,621
------------
Total liabilities $ 5,991,904
------------
Net assets $107,019,283
============
Net assets consist of:
Paid-in capital $ 84,799,305
Unrealized appreciation on investments 15,835,437
Accumulated undistributed net realized gain on investments 6,384,541
------------
Total $107,019,283
============
Shares of beneficial interest outstanding 6,516,769
============
Net asset value, redemption price and offering price per share
(net assets of $107,019,283 / 6,516,769 shares of beneficial
interest outstanding) $16.42
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ------------------------------------------------------------------------------
Year Ended June 30, 1995
- ------------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 288,770
Dividends 114,573
-----------
Total investment income $ 403,343
-----------
Expenses -
Management fee $ 540,536
Trustees' compensation 5,918
Shareholder servicing agent fee 3,612
Auditing fees 46,275
Custodian fee 27,539
Printing 22,669
Legal fees 5,565
Amortization of organization expenses 1,441
Miscellaneous 55,607
-----------
Total expenses $ 709,162
Reduction of expenses by investment adviser (168,512)
-----------
Net expenses $ 540,650
-----------
Net investment loss $ (137,307)
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (identified cost basis) on investment
transactions $ 7,226,805
Change in unrealized appreciation 17,594,663
-----------
Net realized and unrealized gain on investments $24,821,468
-----------
Increase in net assets from operations $24,684,161
===========
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------
Year Ended June 30, 1995 1994
- ------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment loss $ (137,307) $ (44,665)
Net realized gain on investments 7,226,805 1,333,284
Net unrealized gain (loss) on investments 17,594,663 (1,808,622)
------------ ------------
Increase (decrease) in net assets from
operations $ 24,684,161 $ (520,003)
------------ ------------
Distributions declared to shareholders -
From net investment income $ -- $ (2,129)
From net realized gain on investments (1,742,406) (251,261)
------------ ------------
Total distributions declared to
shareholders $ (1,742,406) $ (253,390)
------------ ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 60,983,226 $ 25,044,402
Net asset value of shares issued to
shareholders in reinvestment of
distributions 1,687,224 236,286
Cost of shares reacquired (6,152,083) --
------------ ------------
Increase in net assets from Fund share
transactions $ 56,518,367 $ 25,280,688
------------ ------------
Total increase in net assets $ 79,460,122 $ 24,507,295
Net assets:
At beginning of period 27,559,161 3,051,866
------------ ------------
At end of period $107,019,283 $ 27,559,161
============ ============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- -------------------------------------------------------------------------------
Year Ended June 30, 1995 1994 1993<F1>
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $11.75 $10.17 $10.00
------ ------ ------
Income from investment operations<F5> -
Net investment income (loss)<F7> $(0.03) $(0.03) $ 0.01
Net realized and unrealized gain on
investments 5.04 1.82<F6> 0.16
------ ------ ------
Total from investment operations $ 5.01 $ 1.79 $ 0.17
------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- $ --<F2> $ --
From net realized gain on
investments (0.34) (0.21) --
------ ------ ------
Total distributions declared to
shareholders $(0.34) $(0.21) $ --
------ ------ ------
Net asset value - end of period $16.42 $11.75 $10.17
====== ====== ======
Total return 43.21% 17.50% 1.70%<F4>
Ratios (to average net assets)/Supplemental data<F7>:
Expenses 0.75% 0.78% 0.90%<F3>
Net investment income (loss) (0.19)% (0.27)% 2.24%<F3>
Portfolio turnover 86% 94% 0%
Net assets at end of period
(000 omitted) $107,019 $27,559 $3,052
<FN>
<F1> For the period from the commencement of investment operations, June 16,
1993 to June 30, 1993.
<F2> The per share distribution from net investment income was $0.00175.
<F3> Annualized.
<F4> Not annualized.
<F5> Per share data for the periods subsequent to June 30, 1993 is based on
average shares outstanding.
<F6> The per share data is not in accord with the net realized and unrealized
gain (loss) for the period because of the timing of sales of Fund shares
and the amount of per share realized and unrealized gains and losses at
such time.
<F7> The investment adviser did not impose a portion of its management fee for
the periods indicated. If this fee had been incurred by the Fund, the net
investment income per share and the ratios would have been:
Net investment loss $(0.07) $(0.11) --
Ratios (to average net assets):
Expenses 0.98% 1.54% 2.50%<F3>
Net investment income (loss) (0.42)% (1.02)% 0.64%<F3>
See notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Emerging Equities 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
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices are
not available are valued at last quoted bid prices. Short-term obligations,
which mature in 60 days or less, are valued at amortized cost, which
approximates market value.
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
operations of the Fund.
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 are amortized or accreted for financial statement
and tax reporting purposes as required by federal income tax regulations.
Dividend income is recorded on the ex-dividend date for dividends received in
cash. Dividend payments received in additional securities are recorded on the
ex-dividend date in an amount equal to the value of the security on such date.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code which may differ from generally accepted accounting principles, the basis
on which these financial statements are prepared. Accordingly, the amount of
net investment income and net realized gain reported on these financial
statements may differ from that reported on the Fund's tax return and,
consequently, the character of distributions to shareholders reported in the
financial highlights may differ from that reported to shareholders on Form
1099-DIV. Foreign taxes have been provided for on interest and dividend income
earned on foreign investments in accordance with the applicable country's tax
rates and to the extent unrecoverable are recorded as a reduction of
investment income. Distributions to shareholders are recorded on the ex-
dividend date.
The Fund distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a return of
capital. Differences in the recognition or classification of income between
the financial statements and tax earnings and profits which result in
temporary over-distributions for financial statement purposes, are classified
as distributions in excess of net investment income or accumulated net
realized gains. During the year ended June 30, 1995, $137,307 was reclassified
from accumulated net investment loss to accumulated net realized gain on
investments due to differences between book and tax accounting for net
investment losses and short-term capital gains. This change had no effect on
the net assets or net asset value per share.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75%
of average daily net assets. The investment adviser did not impose a portion
of its fee, which 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 of the officers
and Trustees of the Fund are officers or directors of MFS and MFS Service
Center, Inc. (MFSC).
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is based on the
number of shareholder accounts of the Fund.
(4) Portfolio Securities
Purchases and sales of investments, other than short-term obligations,
aggregated $108,693,874 and $57,662,441, 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 $93,770,886
===========
Gross unrealized appreciation $19,646,163
Gross unrealized depreciation (3,981,972)
-----------
Net unrealized appreciation $15,664,191
===========
(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 (without par
value). Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------------------
1995 1994
--------------------------- ---------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 4,431,790 $60,983,226 2,026,731 $25,044,402
Shares issued to shareholders in
reinvestment of distributions 123,788 1,687,224 19,242 236,286
Shares reacquired (384,807) (6,152,083) -- --
--------- ----------- --------- -----------
Net increase 4,170,771 $56,518,367 2,045,973 $25,280,688
========= =========== ========= ===========
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Institutional Trust and Shareholders of MFS Emerging
Equities Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Emerging Equities Fund (one of
the series comprising MFS Institutional Trust) as of June 30, 1995, the
related statement of operations for the year then ended, the statement of
changes in net assets for the years ended June 30, 1995 and 1994, and the
financial highlights for each of the years in the three-year period ended June
30, 1995. These financial statements and financial highlights are the
responsibility of the Fund'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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of the
securities owned at June 30, 1995 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Emerging
Equities Fund at June 30, 1995, the results of its operations, the changes in
its net assets, and its financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
August 4, 1995
---------------------------------------------
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.
