<PAGE>
As filed with the Securities and Exchange Commission on October 28, 1996
1933 Act File No. 33-37615
1940 Act File No. 811-6174
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 13
AND
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 17
MFS INSTITUTIONAL TRUST
(Exact Name of Registrant as Specified in Charter)
500 Boylston, Street, Boston, Massachusetts 02116
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (617) 954-5000
Stephen E. Cavan, Massachusetts Financial Services Company
500 Boylston Street, Boston, Massachusetts 02116
(Name and Address of Agent for Service)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
It is proposed that this filing will become effective (check appropriate box)
|_| immediately upon filing pursuant to paragraph (b)
|X| on October 28, 1996 pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(i)
|_| on [date] pursuant to paragraph (a)(i)
|_| 75 days after filing pursuant to paragraph (a)(ii)
|_| on [date] pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for
a previously filed post-effective amendment
STATEMENT PURSUANT TO RULE 24f-2
Pursuant to Rule 24f-2, the Registrant has registered an indefinite number of
securities under the Securities Act of 1933 and filed a Rule 24f-2 Notice with
respect to its fiscal year ended June 30, 1996 on August 28, 1996.
================================================================================
<PAGE>
MFS INSTITUTIONAL TRUST
MFS INSTITUTIONAL EMERGING EQUITIES FUND
MFS INSTITUTIONAL WORLDWIDE FIXED INCOME FUND
MFS INSTITUTIONAL EMERGING MARKETS INCOME FUND
MFS INSTITUTIONAL INTERNATIONAL EQUITY FUND
MFS INSTITUTIONAL MID-CAP GROWTH EQUITY FUND
MFS INSTITUTIONAL RESEARCH FUND
MFS INSTITUTIONAL CORE PLUS FIXED INCOME FUND
CROSS REFERENCE SHEET
(Pursuant to Rule 404 showing location in Prospectus and/or Statement of
Additional Information of the responses to the Items in Parts A and B of Form
N-1A)
<TABLE>
<CAPTION>
ITEM NUMBER STATEMENT OF ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -----------------------
<S> <C> <C>
1 (a),(b) Front Cover Page *
2 (a) Expense Summary *
(b),(c) * *
3 (a) Condensed Financial Information *
(b) * *
(c) Information Concerning Shares *
of the Funds - Performance
Information
(d) Condensed Financial Information *
4 (a) Front Cover Page; The Funds; *
Investment Objectives and Policies;
Investment Techniques; Additional Risk Factors;
Information Concerning Shares of the
Funds - Description of Shares, Voting
Rights and Liabilities
(b) Investment Objectives and Policies; *
Investment Techniques; Additional Risk Factors
<PAGE>
ITEM NUMBER STATEMENT OF ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -----------------------
(c) Investment Objectives and *
Policies; Investment Techniques;
Additional Risk Factors
5 (a) The Funds; Management of the *
Funds - Investment Adviser
(b) Front Cover Page; Management *
of the Funds - Investment
Adviser; Back Cover Page
(c) Management of the Funds - *
Investment Adviser
(d) * *
(e) Management of the Funds - *
Shareholder Servicing Agent;
Back Cover Page
(f) Expense Summary; Information *
Concerning Shares of the Funds
- Investment Adviser
(g) Information Concerning Shares *
of the Funds - Purchases;
Investment Techniques - Portfolio
Trading
5A (a),(b),(c) ** **
6 (a) Information Concerning Shares *
of the Funds - Description of
Shares, Voting Rights and
Liabilities; Information
Concerning Shares of the
Funds - Redemptions
(b) Information Concerning Shares *
of the Funds - Description of
Shares, Voting Rights and
Liabilities
(c) * *
<PAGE>
ITEM NUMBER STATEMENT OF ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -----------------------
(d) * *
(e) Shareholder Services *
(f) Information Concerning Shares *
of the Funds -Distributions;
Shareholder Services -
Distribution Options
(g) Information Concerning Shares *
of the Funds - Tax Status
(h) * *
7 (a) Front Cover Page; Management *
of the Funds - Distributor; Back
Cover Page
(b) Information Concerning Shares *
of the Funds - Purchases; Net
Asset Value
(c) Information Concerning Shares *
of the Funds - Purchases;
Exchanges; Shareholder Services
(d) Front Cover Page; Information *
Concerning Shares of the Funds -
Purchases
(e) * *
(f) * *
8 (a) Information Concerning Shares *
of the Funds - Redemptions;
Information Concerning Shares
of the Funds - Purchases
(b),(c),(d) Information Concerning Shares *
of the Funds - Redemptions
9 * *
<PAGE>
ITEM NUMBER STATEMENT OF ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -----------------------
10 (a),(b) * Front Cover Page
11 * Front Cover Page
12 * *
13 (a),(b),(c) * Investment Policies and
Restrictions
(d) Investment Techniques - *
Portfolio Trading
14 (a),(b) * Management of the Funds -
Trustees and Officers
(c) * Management of the Funds -
Trustees and Officers;
Appendix A
15 (a) * Description of Shares, Voting
Rights and Liabilities
(b),(c) * Management of the Funds -
Trustees and Officers
16 (a) Management of the Funds - Management of the Funds -
Investment Adviser Investment Adviser; Trustees
and Officers
(b) Management of the Funds - Management of the Funds -
Investment Adviser Investment Adviser
(c) * *
(d) * *
(e) * Portfolio Transactions and
Brokerage Commissions
(f) * *
(g) * *
<PAGE>
ITEM NUMBER STATEMENT OF ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -----------------------
(h) * Management of the Funds -
Custodian; Independent
Auditors and Financial
Statements; Back Cover Page
(i) * Management of the Funds -
Shareholder Servicing Agent
17 (a),(b),(c), * Portfolio Transactions and
(d),(e) Brokerage Commissions
18 (a) Information Concerning Shares Description of Shares,
of the Funds - Description Voting Rights and Liabilities
of Shares, Voting Rights and
Liabilities
(b) * *
19 (a) Information Concerning Shares Shareholder Services
of the Funds - Purchases
(b) Information Concerning Shares Determination of Net Asset
of the Funds - Net Asset Value; Value and Performance;
Purchases Management of the Funds -
Distributor
(c) * *
20 * Tax Status
21 (a) * Management of the Funds-
Distributor
(b),(c) * *
22 (a) * *
(b) * Determination of Net Asset
Value and Performance
<PAGE>
ITEM NUMBER STATEMENT OF ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -----------------------
23 * Independent Auditors and Financial
_____________________________ Statements
* Not Applicable
** Contained in Annual Reports
</TABLE>
<PAGE>
PROSPECTUS
November 1, 1996
Shares of Beneficial Interest
MFS INSTITUTIONAL WORLDWIDE FIXED INCOME FUND (the "Worldwide Fund") -- The
investment objective of the Worldwide Fund is to seek not only preservation, but
also growth of capital, together with moderate current income. The Fund invests,
under normal market conditions, at least 80% of its assets in fixed income
securities and, to a lesser extent, equity securities.
MFS INSTITUTIONAL EMERGING EQUITIES FUND (the "Emerging Equities Fund") -- The
investment objective of the Emerging Equities Fund is to seek long-term growth
of capital. The Fund invests, under normal market conditions, at least 80% of
its assets in equity securities of small and medium-sized companies that are
early in their life cycle but which may have the potential to become major
enterprises (emerging growth companies).
MFS INSTITUTIONAL EMERGING MARKETS INCOME FUND (the "Emerging Markets Fund") --
The investment objective of the Emerging Markets Fund is to seek total return
(high current income and long-term growth of capital). The Fund invests, under
normal market conditions, at least 65% of its total assets in fixed income
securities of government, government-related, supranational and corporate
issuers located or primarily conducting their business in emerging market
countries.
MFS INSTITUTIONAL CORE PLUS FIXED INCOME FUND (the "Core Plus Fund") -- The
primary investment objective of the Core Plus Fund is to provide as high a level
of current income as is believed to be consistent with prudent investment risk.
The Fund's secondary objective is to protect shareholders' capital. The Fund
invests, under normal market conditions, at least 65% of its total assets in
convertible and non-convertible fixed income securities, preferred stock, U.S.
Government securities, commercial paper, repurchase agreements, and cash
equivalents.
MFS INSTITUTIONAL RESEARCH FUND (the "Research Fund") -- The investment
objective of the Research Fund is to provide long-term growth of capital and
future income. The Fund invests, under normal market conditions, at least 65% of
its total assets in equity securities of companies believed to possess better
than average prospects for long-term growth.
MFS INSTITUTIONAL MID-CAP GROWTH EQUITY FUND (the "Mid-Cap Fund") -- The
investment objective of the Mid-Cap Fund is to provide long-term growth of
capital. The Fund invests, under normal market conditions, at least 65% of its
total assets in the equity securities of companies with market capitalizations
within the range of approximately $500 million to $4 billion.
MFS INSTITUTIONAL INTERNATIONAL EQUITY FUND (the "International Equity Fund") --
The investment objective of the International Equity Fund is to provide
long-term growth of capital. The Fund invests, under normal market conditions,
at least 65% of its total assets in equity securities of companies whose
principal activities are located outside the United States ("U.S.").
THE EMERGING MARKETS FUND MAY INVEST UP TO 100% OF ITS ASSETS IN BONDS ISSUED BY
FOREIGN ISSUERS RATED BELOW INVESTMENT GRADE, WHICH ENTAIL GREATER RISKS OF
UNTIMELY INTEREST AND PRINCIPAL PAYMENTS, DEFAULT AND PRICE VOLATILITY THAN
HIGHER RATED SECURITIES, AND MAY PRESENT PROBLEMS OF LIQUIDITY AND VALUATION.
INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS BEFORE INVESTING (SEE
"ADDITIONAL RISK FACTORS -- EMERGING MARKETS").
No assurance can be given that the investment objective(s) of the Worldwide
Fund, the Emerging Equities Fund, the Emerging Markets Fund, the Core Plus Fund,
the Research Fund, the Mid-Cap Fund or the International Equity Fund
(individually referred to as a "Fund" and collectively referred to as the
"Funds") will be achieved. Each Fund is a diversified series of MFS
Institutional Trust (the "Trust"), an open-end management investment company,
except for the Worldwide Fund and the Emerging Markets Fund, which are
non-diversified series of the Trust.
The Funds' investment adviser and distributor are Massachusetts Financial
Services Company ("MFS" or the "Adviser") and MFS Fund Distributors, Inc.
("MFD"), respectively, both of which are located at 500 Boylston Street, Boston,
Massachusetts 02116.
The Funds are designed for sale to institutional investor clients of MFS and MFS
Institutional Advisors, Inc., a wholly owned subsidiary of MFS, and other
similar investors. The minimum initial investment is generally $3 million per
investor (see "Purchases").
This Prospectus sets forth concisely the information concerning the Trust and
each Fund that a prospective investor ought to know before investing. The Trust,
on behalf of the Funds, has filed with the Securities and Exchange Commission
(the "SEC") a Statement of Additional Information, dated November 1, 1996, as
amended or supplemented from time to time (the "SAI"), which contains more
detailed information about the Trust and the Funds and is incorporated into this
Prospectus by reference. See page 32 for a further description of the
information set forth in the SAI. A copy of the SAI may be obtained without
charge by contacting the Shareholder Servicing Agent (see back cover for address
and phone number). The SEC maintains an Internet World Wide Web site that
contains the SAI, materials that are incorporated by reference into the
Prospectus and the SAI, and other information regarding the Funds.
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
[Graphic Omitted: MFS Logo]
INVESTMENT MANAGEMENT
MFS(R) Institutional
Advisors, Inc.
MFS(R) Institutional Worldwide
Fixed Income Fund
MFS(R) Institutional Emerging
Equities Fund
MFS(R) Institutional Emerging
Markets Income Fund
MFS(R) Institutional Core
Plus Fixed Income Fund
MFS(R) Institutional
Research Fund
MFS(R) Institutional Mid-Cap
Growth Equity Fund
MFS(R) Institutional
International Equity Fund
(Each a series of MFS Institutional Trust)
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. Expense Summary .................................................... 3
2. The Funds .......................................................... 4
3. Condensed Financial Information .................................... 5
4. Investment Objectives and Policies ................................. 10
Worldwide Fund ................................................. 10
Emerging Equities Fund ......................................... 11
Emerging Markets Fund .......................................... 12
Core Plus Fund ................................................. 13
Research Fund .................................................. 14
Mid-Cap Fund ................................................... 14
International Equity Fund ...................................... 15
5. Investment Techniques .............................................. 15
6. Additional Risk Factors ............................................ 23
7. Management of the Funds ............................................ 25
8. Information Concerning Shares of the Funds ......................... 27
Purchases ...................................................... 27
Exchanges ...................................................... 28
Redemptions .................................................... 28
Distributions .................................................. 29
Tax Status ..................................................... 30
Net Asset Value ................................................ 30
Description of Shares, Voting Rights and Liabilities ........... 31
Performance Information ........................................ 31
Expenses ....................................................... 31
9. Shareholder Services ............................................... 32
Appendix A ......................................................... A-1
Appendix B ......................................................... B-1
<TABLE>
<CAPTION>
EMERGING EMERGING
WORLDWIDE EQUITIES MARKETS CORE PLUS RESEARCH MID-CAP INTERNATIONAL
1. EXPENSE SUMMARY FUND FUND FUND FUND FUND FUND EQUITY FUND
--------- --------- -------- --------- -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases of Shares ................. None None None None None None None
Maximum Sales Load Imposed on Rein-
vested Dividends and Distributions .. None None None None None None None
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS):
Management Fees (after any applicable
fee reduction) ...................... 0.35%(1) 0.63%(1) 0.85% 0.45% 0.60% 0.60% 0.75%
Other Expenses (after any applicable
fee reduction) ...................... 0.30% 0.12% 0.40%(3) 0.05%(2)(3) 0.05%(3) 0.05%(3) 0.10%(3)
----- ----- ----- ----- ----- ----- -----
Total Operating Expenses (after fee
reduction) .......................... 0.65%(4) 0.75%(4) 1.25%(3) 0.50%(3) 0.65%(3) 0.65%(3) 0.85%(3)
<FN>
- ----------
(1) MFS has voluntarily agreed to waive its management fee and/or pay expenses of the Worldwide Fund and the Emerging Equities
Fund in order to maintain total expenses of the respective Fund at no more than 0.65% and 0.75%, respectively, of the Fund's
average daily net assets until June 30, 1997. Absent this expense arrangement, Management Fees for each respective Fund
would have been 0.65% and 0.75% of the Fund's average daily net assets. Each arrangement may be terminated or revised by MFS
at any time.
(2) "Other Expenses" are based on estimates for the Fund's fiscal year ending June 30, 1997.
(3) MFS has agreed to bear for each referenced Fund, until December 31, 2005 for the Emerging Markets Fund and for an indefinite
period of time for each other Fund, expenses of each Fund such that each Fund's aggregate expenses do not exceed the
following percentage, on an annualized basis, of its average daily net assets: 1.25% of the Emerging Markets Fund, 0.50% of
the Core Plus Fund, 0.65% of the Research Fund, 0.65% of the Mid-Cap Fund and 0.85% of the International Equity Fund. With
respect to the Emerging Markets Fund, such payments by MFS are subject to reimbursement by such Fund. Each arrangement may
be terminated or revised by MFS at any time. See "Information Concerning Shares of the Funds -- Expenses" below. Absent
these expense arrangements, estimated "Other Expenses" and "Total Operating Expenses" for each respective Fund would have
been, on an annualized basis, 3.36% and 4.21% of the Emerging Markets Fund, respectively, 3.63% and 4.08% of the Core Plus
Fund, respectively, 1.43% and 2.03% of the Research Fund, respectively, 1.99% and 2.59% of the Mid- Cap Fund, respectively,
and 4.16% and 4.91% of the International Equity Fund, respectively.
(4) Absent the expense arrangements, "Total Operating Expenses" for the Worldwide Fund and the Emerging Equities Fund would have
been 0.95% and 0.87% of each respective Fund's average daily net assets.
</FN>
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE OF EXPENSES
An investor would pay the following dollar amounts of expenses on a $1,000 investment in each Fund, assuming (a) 5% annual
return and (b) redemption at the end of each of the time periods indicated:
EMERGING EMERGING
WORLDWIDE EQUITIES MARKETS CORE PLUS RESEARCH MID-CAP INTERNATIONAL
1. EXPENSE SUMMARY FUND FUND FUND FUND FUND FUND EQUITY FUND
--------- --------- -------- --------- -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year ................................... $ 7 $ 8 $ 13 $ 5 $ 7 $ 7 $ 9
3 years .................................. $21 $24 $ 40 $16 $21 $21 $27
5 years .................................. $36 $42 $ 69 N/A N/A N/A N/A
10 years ................................. $81 $93 $151 N/A N/A N/A N/A
</TABLE>
The purpose of the expense table above is to assist investors in understanding
the various costs and expenses that a shareholder of each Fund will bear
directly or indirectly. More complete descriptions of the expenses of each
Fund are set forth under the caption "Management of the Funds -- Investment
Adviser" and "Information Concerning Shares of the Funds -- Expenses" below.
THE "EXAMPLE" SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OF ANY FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN.
2. THE FUNDS
Each Fund is a series of the Trust, an open-end management investment company
which was organized as a business trust under the laws of The Commonwealth of
Massachusetts in 1990. Each Fund is a diversified Fund except for the
Worldwide Fund and the Emerging Markets Fund, which are non-diversified. The
Trust presently consists of seven separate series, each of which represents a
portfolio with separate investment policies. As of the date of this
Prospectus, the Core Plus Fund had not yet commenced investment operations.
Shares of each Fund are continuously offered and sold to investors and each
Fund uses the proceeds to buy securities for its portfolio. The Trust's Board
of Trustees provides broad supervision over the affairs of the Trust and each
Fund. The Adviser is responsible for the management of each Fund's assets and
the officers of the Trust are responsible for its operations. The Adviser
manages the portfolio from day to day in accordance with each Fund's
investment objective(s) and policies. Each Fund also offers to buy back
(redeem) its shares from its shareholders at any time at the next determined
net asset value.
<PAGE>
3. CONDENSED FINANCIAL INFORMATION
The following information has been audited since the inception of each Fund
and should be read in conjunction with the financial statements included in
such Fund's Annual Report to shareholders, which are incorporated by reference
into the SAI in reliance upon the report of each Fund's independent auditors,
given upon their authority as experts in accounting and auditing. Each Fund's
current independent auditors are Deloitte & Touche LLP.
Further information about the performance of each Fund (other than the Core
Plus Fund) is contained in each Fund's Annual Report to shareholders, which
can be obtained from the Shareholder Servicing Agent (see back cover for
address and phone number) without charge.
As of the date of this Prospectus, the Core Plus Fund had not yet commenced
investment operations.
<PAGE>
<TABLE>
<CAPTION>
WORLDWIDE FUND FINANCIAL HIGHLIGHTS
YEAR ENDED JUNE 30,
-------------------------------------------------------------
1996 1995 1994 1993*
------ ------ ------ ------
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
<S> <C> <C> <C> <C>
Net asset value -- beginning of period .................... $ 10.13 $ 9.64 $ 10.50 $ 10.00
------ ------ ------ ------
Income from investment operations# --
Net investment income## ............................... $ 0.64 $ 0.65 $ 0.63 $ 0.17
Net realized and unrealized gain (loss) on investments (0.48) 0.70 (0.63) 0.33
------ ------ ------ ------
Total from investment operations .................. $ 0.16 $ 1.35 -- $ 0.50
------ ------ ------ ------
Less distributions declared to shareholders --
From net investment income ........................... $ (0.48) $ (0.23) $ (0.31) $ --
In excess of net investment income .................... -- -- (0.55) --
From net realized gain on investments ................. (0.31) (0.63) -- --
In excess of net realized gains on investments ........ (0.22) -- -- --
------ ------ ------ ------
Total distributions declared to shareholders ...... $(1.01) $ (0.86) $ (0.86) $ --
------ ------ ------ ------
Net asset value -- end of period .......................... $ 9.28 $ 10.13 $ 9.64 $ 10.50
------ ------ ------ ------
TOTAL RETURN .............................................. 1.51% 15.10% (0.57)% 5.00%++
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA##:
Expenses .............................................. 0.65% 0.72% 0.75% 0.80%+
Net investment income ................................. 6.52% 6.66% 6.09% 5.53%+
PORTFOLIO TURNOVER ........................................ 425% 279% 212% 73%
NET ASSETS AT END OF PERIOD (000 OMITTED) ................. $62,807 $76,078 $42,364 $23,966
*For the period from the commencement of investment operations, September 30, 1992 to June 30, 1993.
+Annualized.
++Not annualized.
#Per share data for the periods subsequent to June 30, 1993 is based on average shares outstanding.
##The investment adviser voluntarily waived a portion of its management fee for the period indicated. If
this fee had been incurred by the Fund, the net investment income per share and the ratios would have been:
Net investment income .......................... $ 0.61 $ 0.61 $ 0.58 $ 0.15
RATIOS (TO AVERAGE NET ASSETS):
Expenses ................................... 0.95% 1.14% 1.23% 1.48%+
Net investment income ...................... 6.22% 6.23% 5.61% 4.85%+
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EMERGING EQUITIES FUND FINANCIAL HIGHLIGHTS
YEAR ENDED JUNE 30,
-------------------------------------------------------------
1996 1995 1994 1993*
------ ------ ------ ------
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
<S> <C> <C> <C> <C>
Net asset value -- beginning of period .................... $ 16.42 $ 11.75 $ 10.17 $ 10.00
------ ------ ------ ------
Income from investment operations# --
Net investment income (loss)### ....................... $ (0.04) $(0.03) $(0.03) $ 0.01
Net realized and unrealized gain on investments ....... 6.55 5.04 1.82*** 0.16
------ ------ ------- ------
Total from investment operations .................. $ 6.51 $ 5.01 $ 1.79 $ 0.17
------ ------ ------ ------
Less distributions declared to shareholders --
From net investment income ............................ $ -- $ -- $ -- $ --
From net realized gain on investments ................. (1.76) (0.34) (0.21) --
------ ------ ------ ------
Total distributions declared to shareholders ...... $ (1.76) $ (0.34) $ (0.21) $ 0.00
------- ------- ------- -------
Net asset value -- end of period .......................... $ 21.17 $ 16.42 $ 11.75 $ 10.17
------ ------ ------ ------
TOTAL RETURN .............................................. 41.37% 43.21% 17.50% 1.70%++
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA###:
Expenses## ........................................... 0.75% 0.75% 0.78% 0.90%+
Net investment income (loss) .......................... (0.22)% (0.19)% (0.27)% 2.24%+
PORTFOLIO TURNOVER ........................................ 97% 86% 94% 0%
NET ASSETS AT END OF PERIOD (000 OMITTED) ................. $259,362 $107,019 $27,559 $ 3,052
*For the period from the commencement of investment operations, June 16, 1993 to June 30, 1993.
**The per share distribution from net investment income was $0.00175.
***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.
+Annualized.
++Not annualized.
#Per share data is based on average shares outstanding.
##For fiscal years ending after July 1, 1995, the Fund's expenses are calculated without reduction for fees paid indirectly.
###The investment adviser voluntarily waived a portion of their management fee for the periods indicated. If the fees had been
incurred by the Fund, the net investment income per share and the ratios would have been:
Net investment loss ............................ $ (0.06) $ (0.07) $ (0.11) $ 0.00
RATIOS (TO AVERAGE NET ASSETS):
Expenses ................................... 0.87% 0.98% 1.54% 2.50%+
Net investment income (loss) ............... (0.34)% (0.42)% (1.02)% 0.64%+
</TABLE>
<PAGE>
EMERGING MARKETS FUND FINANCIAL HIGHLIGHTS
YEAR ENDED
JUNE 30, 1996*
--------------
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value -- beginning of period ......................... $ 10.00
-------
Income from investment operations# --
Net investment income## .................................... $ 0.70
Net realized and unrealized gain on investments ............ 0.56
-------
Total from investment operations ....................... $ 1.26
-------
Less distributions declared to shareholders
from net investment income ................................... $ (0.38)
Net asset value -- end of period ............................... $ 10.88
-------
TOTAL RETURN ................................................... 12.93%++
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA##:
Expenses ................................................... 1.25%+
Net investment income ...................................... 7.59%+
PORTFOLIO TURNOVER ............................................. 285%
NET ASSETS AT END OF PERIOD (000 OMITTED) ...................... $ 4,160
*For the period from the commencement of investment operations, August 7, 1995
to June 30, 1996.
+Annualized.
++Not annualized.
#Per share data is based on average shares outstanding.
##The Adviser voluntarily agreed to maintain the expenses of the Fund at not
more than 1.25% of average daily net assets. To the extent that actual
expenses were over these limitations, the net investment income per share and
the ratios would have been:
Net investment income .................................. $ 0.43
RATIOS (TO AVERAGE NET ASSETS):
Expenses ........................................... 4.21%+
Net investment income .............................. 4.63%+
<PAGE>
RESEARCH FUND FINANCIAL HIGHLIGHTS
PERIOD ENDED
JUNE 30, 1996*
--------------
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value -- beginning of period ......................... $ 10.00
-------
Income from investment operations# --
Net investment income** ................................... $ 0.02
Net realized and unrealized loss on investments ............ (0.24)
------
Total from investment operations ....................... $ (0.22)
------
Net asset value -- end of period ............................... $ 9.78
------
TOTAL RETURN ................................................... (2.20)%++
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA**:
Expenses## ................................................ 0.65%+
Net investment income ...................................... 1.52%+
PORTFOLIO TURNOVER ............................................. 6%
AVERAGE COMMISSION RATE### .................................... $0.0260
NET ASSETS AT END OF PERIOD (000 OMITTED) ...................... $22,779
*For the period from the commencement of investment operations, May 21, 1996
to June 30, 1996.
+Annualized.
++Not annualized.
#Per share data is based on average shares outstanding.
##The Fund's expenses are calculated without reduction for fees paid
indirectly.
###Average commission rate is calculated for funds with fiscal years beginning
on or after September 1, 1995.
**The Adviser voluntarily agreed to maintain the expenses of the Fund at not
more than 0.65% of average daily net assets. To the extent actual expenses
were over/under these limitations, the net investment income per share and
the ratios would have been:
Net investment income .................................. $ --
RATIOS (TO AVERAGE NET ASSETS):
Expenses## ......................................... 2.03%+
Net investment income .............................. 0.14%+
<PAGE>
MID-CAP FUND FINANCIAL HIGHLIGHTS
PERIOD ENDED
JUNE 30, 1996*
--------------
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value -- beginning of period ......................... $ 10.00
-------
Income from investment operations# --
Net investment income** ................................... $ 0.01
Net realized and unrealized loss on investments ............ 1.14
------
Total from investment operations ....................... $ 1.13
------
Net asset value -- end of period ............................... $ 11.13
------
TOTAL RETURN ................................................... 11.30%++
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA**:
Expenses## ................................................ 0.70%+
Net investment income ...................................... (0.25)%+
PORTFOLIO TURNOVER ............................................. 33%
AVERAGE COMMISSION RATE### .................................... $0.0505
NET ASSETS AT END OF PERIOD (000 OMITTED) ...................... $ 8,149
*For the period from the commencement of investment operations, December 28,
to June 30, 1996.
+Annualized.
++Not annualized.
#Per share data for the period is based on average shares outstanding.
##The Fund's expenses are calculated without reduction for fees paid
indirectly.
###Average commission rate is calculated for funds with fiscal years beginning
on or after September 1, 1995.
**The Adviser voluntarily agreed to maintain the expenses of the Fund at not
more than 0.65% of average daily net assets effective May 3, 1996. During the
period December 28, 1995 to May 2, 1996, the Adviser agreed to maintain the
expenses at not more than 0.75%. To the extent actual expenses were over
these limitations, the net investment loss per share and ratios would have
been:
Net investment income .................................. $ (0.09)
RATIOS (TO AVERAGE NET ASSETS):
Expenses## ......................................... 2.59%+
Net investment income .............................. (2.14)%+
<PAGE>
INTERNATIONAL EQUITY FUND FINANCIAL HIGHLIGHTS
PERIOD ENDED
JUNE 30, 1996*
--------------
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value -- beginning of period ......................... $ 10.00
-------
Income from investment operations# --
Net investment income** ................................... $ 0.13
Net realized and unrealized loss on investments ............ 0.83
------
Total from investment operations ....................... $ 0.96
------
Net asset value -- end of period ............................... $ 10.96
------
TOTAL RETURN ................................................... 9.60%++
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA**:
Expenses## ................................................ 0.94%+
Net investment income ...................................... 2.46%+
PORTFOLIO TURNOVER ............................................. 19%
AVERAGE COMMISSION RATE### .................................... $0.0182
NET ASSETS AT END OF PERIOD (000 OMITTED) ...................... $ 2,498
*For the period from the commencement of investment operations, January 31, 1996
to June 30, 1996.
+Annualized.
++Not annualized.
#Per share data is based on average shares outstanding.
##The Fund's expenses are calculated without reduction for fees paid
indirectly.
###Average commission rate is calculated for funds with fiscal years beginning
on or after September 1, 1995.
**The investment adviser voluntarily agreed to maintain the expenses of the
Fund at no more than 0.85% of average daily net assets effective May 3, 1996.
During the period January 31, 1996 to May 2, 1996, the adviser agreed to
maintain the expenses at not more than 0.95%. To the extent actual expenses
were over these limitations, the net investment loss per share and ratios
would have been:
Net investment loss .................................... $ (0.08)
RATIOS (TO AVERAGE NET ASSETS):
Expenses## ......................................... 4.91%+
Net investment loss ................................ (1.51)%+
4. INVESTMENT OBJECTIVES AND POLICIES
Each Fund has different investment objectives which it pursues through
separate investment policies, as described below. Any investment involves risk
and there can be no assurance that the investment objective(s) of any Fund
will be achieved. The differences in objectives and policies among the Funds
can be expected to affect the market and financial risk to which each Fund is
subject and the performance of each Fund. The investment objective(s) and
policies of each Fund may, unless otherwise specifically stated, be changed by
the Trustees of the Trust without a vote of the shareholders. A change in a
Fund's objective(s) may result in the Fund having investment objective(s)
different from the objective(s) which the shareholder considered appropriate
at the time of investment in that Fund.
WORLDWIDE FUND -- The Worldwide Fund's investment objective is to seek not
only preservation, but also growth of capital, together with moderate current
income.
The Fund seeks to achieve its objective by investing, under normal market
conditions, at least 80% of its assets in an internationally diversified
portfolio of fixed income securities (see "Investment Techniques -- Fixed Income
Securities" and "-- U.S. Government Securities" below). The Fund may invest up
to 100% (and generally expects to invest between 50% and 80%) of its net assets
in foreign securities (not including American Depositary Receipts) (see
"Additional Risk Factors -- Foreign Securities" below). Up to 20% of the Fund's
assets may also be invested in equity securities (see "Investment Techniques --
Equity Securities" below). The Fund attempts to provide investors with an
opportunity to enhance the value and increase the protection of their investment
against inflation and otherwise by taking advantage of investment opportunities
in the U.S. as well as in other countries where opportunities may be more
rewarding. It is believed that diversification of assets on an international
basis decreases the degree to which events in any one country, including the
U.S., can affect the entire portfolio. Although the percentage of the Fund's
assets invested in securities issued abroad and denominated in foreign
currencies ("non-dollar securities") will vary depending on the state of the
economies of the principal countries of the world, their financial markets and
the relationship of their currencies to the U.S. dollar, under normal conditions
the Fund's portfolio is internationally diversified. However, for defensive
reasons or during times of international political or economic uncertainty or
turmoil, most or all of the Fund's investments may be in the U.S.
The Adviser will determine the amount of the Fund's assets to be invested in
the U.S. and the amount to be invested abroad. The U.S. assets will be
invested in high quality fixed income securities and the remainder of the
assets will be diversified among countries where opportunities for total
return are expected to be most attractive. It is currently expected that
investments within foreign countries will be primarily in government
securities to minimize credit risks. As a non-diversified series of the Trust,
the Fund is limited as to the percentage of its assets which may be invested
in the securities of any one issuer only by its own investment restrictions
and the diversification requirements imposed by the Internal Revenue Code of
1986, as amended (the "Code"). The Fund will not invest 25% or more of its net
assets in the securities of any one foreign government and may invest up to 5%
of its net assets in emerging market securities (see "Investment Techniques --
Emerging Market Securities" and "Additional Risk Factors -- Emerging Markets"
below). The Fund's portfolio will be managed actively and the asset
allocations modified as the Adviser deems necessary.
The Fund may engage in certain investment techniques as described below under
the caption "Investment Techniques" and as described in the SAI under the
caption "Investment Policies and Restrictions." The Fund's investments are
subject to certain risks, as described in the above-referenced sections of
this Prospectus and the SAI and as described below under the caption
"Additional Risk Factors."
EMERGING EQUITIES FUND -- The Emerging Equities Fund's investment objective is
to seek long-term growth of capital.
The Fund seeks to achieve its objective by investing, under normal market
conditions, at least 80% of its assets in equity securities (see "Investment
Techniques -- Equity Securities" below) of small and medium-sized companies
that are early in their life cycle but which may have the potential to become
major enterprises ("Emerging Growth Companies"). Emerging Growth Companies
generally have annual gross revenues ranging from $10 million to $1 billion,
would be expected to show earnings growth over time that is well above the
growth rate of the overall economy and the rate of inflation, and would have
the products, management and market opportunities which are usually necessary
to become more widely recognized as growth companies. However, the Fund may
also invest in more established companies whose rates of earnings growth are
expected to accelerate because of special factors, such as rejuvenated
management, new products, changes in consumer demand or basic changes in the
economic environment. The Fund may invest up to 20% (and generally expects to
invest betweeen 5% and 10%) of its net assets in foreign securities (excluding
American Depositary Receipts) (see "Additional Risk Factors -- Foreign
Securities" below).
The Fund has adopted the following policy which is fundamental and which may
not be changed without shareholder approval: while the Fund will invest
primarily in common stocks, the Fund may, to a limited extent, seek
appreciation in other types of securities such as foreign or convertible
securities and warrants when relative values make such purchases appear
attractive either as individual issues or as types of securities in certain
economic environments.
The Fund may engage in certain investment techniques as described below under
the caption "Investment Techniques" and as described in the SAI under the
caption "Investment Policies and Restrictions." The Fund's investments are
subject to certain risks, as described in the above-referenced sections of
this Prospectus and the SAI and as described below under the caption
"Additional Risk Factors."
EMERGING MARKETS FUND -- The Emerging Markets Fund's investment objective is
to seek total return (high current income and long-term growth of capital).
The Fund seeks to achieve its objective by investing, under normal market
conditions, at least 65% of its total assets in fixed income securities of
government, government-related, supranational and corporate issuers located,
or primarily conducting their business, in emerging markets (see "Investment
Techniques -- Fixed Income Securities" and "-- Emerging Market Securities"
below).
Until such time as the net assets of the Fund reach $10 million, the Fund has
adopted the investment policy to invest, under normal market conditions, at
least 65% of its total assets in the fixed income securities listed above, and
in forward foreign currency exchange contracts ("forward contracts") (see
"Investment Techniques -- Forward Contracts" below). The Fund intends to enter
into forward contracts as an alternate method of gaining exposure to certain
emerging markets, and expects to achieve a similar benefit from entering into
a forward contract denominated in a country's currency as from the purchase of
an emerging market debt security.
The Fund may invest in government, government-related and restructured debt
securities which will consist of: (i) debt securities or obligations issued or
guaranteed by governments, governmental agencies or instrumentalities and
political subdivisions located in emerging countries (including loans between
governments and financial institutions); (ii) debt securities or obligations
issued by government owned, controlled or sponsored entities located in
emerging countries; (iii) interests in issuers organized and operated for the
purpose of restructuring the investment characteristics of instruments issued
by any of the entities described above; and (iv) debt obligations issued by
supranational organizations such as the Asian Development Bank and the Inter-
American Development Bank, among others. The restructuring described above
involves the deposit with or purchase by an entity of specific instruments and
the issuance by that entity of one or more classes of securities backed by, or
representing interests in, the underlying instruments. Certain issuers of such
structured securities may be deemed to be "investment companies" as defined in
the Investment Company Act of 1940, as amended (the "1940 Act"). As a result,
the Fund's investment in such securities may be limited by certain investment
restrictions contained in the 1940 Act. See "Investment Techniques --
Structured Securities" and "-- Investment in Other Investment Companies"
below.
The Fund takes a global approach to portfolio management and currently expects
to pursue investment opportunities in Latin America, Asia, Africa, the Middle
East and the developing countries of Europe, primarily in Eastern Europe.
While the Fund is not "diversified" for purposes of the 1940 Act, it intends
to maintain investments, under normal market conditions, in at least five
countries (outside of the U.S.).
Emerging market fixed income securities held by the Fund may include Brady
bonds, Yankee bonds and Eurobonds, loans, loan assignments and interests
issued by entities organized and operated for the purpose of restructuring the
investment characteristics of instruments issued by emerging market issuers.
The Fund is not restricted by limits on weighted average maturity or duration
of an individual issue. Fixed income securities in which the Fund may invest
may have stated maturities ranging from overnight to 30 years.
While the Fund will not invest in equity securities, the Adviser considers a
variety of factors in selecting emerging market fixed income securities to
achieve capital appreciation, including the creditworthiness of issuers,
interest rates, and currency exchange rates.
The Fund may invest up to 100% of its net assets in foreign securities. The
Fund is not restricted in the portion of its assets which may be invested in
securities denominated in a particular currency and up to 100% of the Fund's
assets may be invested in securities denominated in foreign currencies and
international currency units. The portion of the Fund's assets invested in
securities denominated in currencies other than the U.S. dollar will vary
depending on market conditions. Therefore, the value of the Fund's investments
may be significantly affected by changes in currency exchange rates. (See
"Additional Risk Factors -- Foreign Securities" below.)
The Fund may invest up to 100% of its net assets in fixed income securities
rated in the lower rating categories of recognized rating agencies (that is,
ratings of Ba or lower by Moody's Investors Service, Inc. ("Moody's"), or BB
or lower by Standard & Poor's Ratings Services ("S&P"), Fitch Investors
Service, Inc. ("Fitch") or Duff & Phelps Credit Rating Co. ("Duff & Phelps")),
and comparable unrated securities. Emerging market fixed income securities
generally are rated in the lower rating categories of recognized rating
agencies. These securities are considered speculative and, while generally
providing greater income than investments in higher rated securities, will
involve greater risk of principal and income (including the possibility of
default or bankruptcy of the issuers of such securities) and may involve
greater volatility of price than securities in the higher rating categories
(see "Additional Risk Factors -- Lower Rated Fixed Income Securities" below).
For a description of these ratings, see Appendix A to this Prospectus. See
Appendix B to this Prospectus for a chart indicating the composition of the
bond portion of the portfolio of the Fund for the fiscal year ended June 30,
1996, with the debt securities separated into rating categories.
The Fund may engage in certain investment techniques as described below under
the caption "Investment Techniques" and as described in the SAI under the
caption "Investment Policies and Restrictions." The Fund's investments are
subject to certain risks, as described in the above-referenced sections of
this Prospectus and the SAI and as described below under the caption
"Additional Risk Factors."
CORE PLUS FUND -- The Core Plus Fund's primary investment objective is to
provide as high a level of current income as is believed to be consistent with
prudent investment risk. The Fund's secondary objective is to protect
shareholders' capital.
The Fund seeks to achieve its objectives by investing, under normal market
conditions, at least 65% of its total assets in:
(1) convertible and non-convertible corporate debt securities (including
adjustable, variable or floating rate securities) and preferred stock;
(2) U.S. Government Securities (see "Investment Techniques -- U.S.
Government Securities" below);
(3) interests in trusts or other entities representing interests in
obligations that are backed by the full faith and credit of the U.S.
Government or are issued or guaranteed by the U.S. Government, its
agencies, authorities or instrumentalities;
(4) commercial paper, repurchase agreements and cash equivalents (such as
certificates of deposit and bankers' acceptances).
The Fund is designed for investors seeking exposure to a "core" portfolio
comprised of fixed income securities of the type described above along with a
variety of other fixed income securities offering increased income potential.
Accordingly, consistent with its investment objectives and policies, the Fund
may invest in foreign securities, including emerging market securities and
Brady Bonds, lower rated fixed income securities, fixed income securities
issued by or on behalf of states, territories and possessions of the U.S. and
the District of Columbia and their political subdivisions, and asset-backed
securities. Not more than 5% of the Fund's net assets will be invested in
emerging market securities, and not more than 20% of the Fund's net assets
will be invested in securities rated below the four highest grades by S&P,
Fitch or Duff & Phelps (AAA, AA, A or BBB) or by Moody's (Aaa, Aa, A or Baa)
and in comparable unrated securities. For a discussion of the risks of
investing in these securities, see "Additional Risk Factors -- Emerging
Markets Securities" and "-- Lower Rated Fixed Income Securities" below. For a
description of these ratings, see Appendix A to this Prospectus.
Although the Core Plus Fund may purchase Canadian and other foreign
securities, under normal market conditions it may not invest more than 20% of
its net assets in non-dollar denominated non-Canadian foreign securities.
The Core Plus Fund may not directly purchase common stocks. However, the Fund
may retain up to 10% of its total assets in common stocks which were acquired
either by conversion of fixed income securities or by the exercise of warrants
attached thereto.
The Fund may engage in certain investment techniques as described below under
the caption "Investment Techniques" and as described in the SAI under the
caption "Investment Policies and Restrictions." The Fund's investments are
subject to certain risks, as described in the above-referenced sections of
this Prospectus and the SAI and as described below under the caption
"Additional Risk Factors."
RESEARCH FUND -- The Research Fund's investment objective is to provide long-
term growth of capital and future income.
The portfolio securities of the Fund are selected by a committee of investment
research analysts. This committee includes investment analysts employed not
only by the Adviser but also by MFS International (U.K.) Limited, a wholly
owned subsidiary of MFS. The Fund's assets are allocated among industries by
the analysts acting together as a group. Individual analysts are then
responsible for selecting what they view as the securities best suited to meet
the Fund's investment objective within their assigned industry responsibility.
The Research Fund seeks to achieve its objective by investing, under normal
market conditions, at least 65% of its total assets in equity securities of
companies believed to possess better than average prospects for long-term
growth (see "Investment Techniques -- Equity Securities" below). A smaller
proportion of the assets may be invested in bonds, short-term obligations,
preferred stocks or common stocks whose principal characteristic is income
production rather than growth. Such securities may also offer opportunities
for growth of capital as well as income. In the case of both growth stocks and
income issues, emphasis is placed on the selection of progressive, well-
managed companies. The Funds' non-convertible debt investments, if any, may
consist of "investment grade" securities (rated Baa or better by Moody's or
BBB or better by S&P, by Fitch or by Duff & Phelps), and, with respect to no
more than 10% of the Fund's net assets, securities in the lower rated
categories (rated Ba or lower by Moody's or BB or lower by S&P, by Fitch or by
Duff & Phelps) or securities which the Adviser believes to be of comparable
quality to these lower rated securities (commonly known as "junk bonds"). For
a description of these bond ratings, see Appendix A to this Prospectus.
Consistent with its investment objective and policies described above, the
Research Fund may invest up to 20% (and expects generally to invest between 5%
and 15%) of its net assets in foreign securities (not including American
Depositary Receipts), including foreign growth securities, which are not
traded on a U.S. exchange. In addition, the Fund may also hold foreign
currency received in connection with investments in foreign securities or in
anticipation of purchasing foreign securities. (See "Additional Risk Factors
- -- Foreign Securities" below.)
The Fund may engage in certain investment techniques as described below under
the caption "Investment Techniques" and as described in the SAI under the
caption "Investment Policies and Restrictions." The Fund's investments are
subject to certain risks, as described in the above-referenced sections of
this Prospectus and the SAI and as described below under the caption
"Additional Risk Factors."
MID-CAP FUND -- The Mid-Cap Fund's investment objective is to provide long-
term growth of capital.
The Fund seeks to achieve its objective by investing, under normal market
conditions, at least 65% of its total assets in equity securities of companies
with medium market capitalizations ("Mid-Cap Companies") (see "Investment
Techniques -- Equity Securities" below). Mid-Cap Companies are those companies
with a market capitalization within the range of approximately $500 million to
$4 billion. Such companies generally would be expected to show earnings growth
over time that is well above the growth rate of the overall economy and the
rate of inflation, and would have the products, management and market
opportunities which are usually necessary to continue sustained growth.
Consistent with its investment objective and policies described above, the
Fund may invest up to 25% (and generally expects to invest between 0% and 10%)
of its net assets in foreign securities (not including American Depositary
Receipts), including foreign growth securities, which are not traded on a U.S.
exchange. In addition, the Fund may hold foreign currency received in
connection with investments in foreign securities or in anticipation of
purchasing foreign securities. (See "Additional Risk Factors -- Foreign
Securities" below.) In addition, the Fund may also hold foreign currency
received in connection with investments in foreign securities or in
anticipation of purchasing foreign securities.
The Fund may engage in certain investment techniques as described below under
the caption "Investment Techniques" and as described in the SAI under the
caption "Investment Policies and Restrictions." The Fund's investments are
subject to certain risks, as described in the above-referenced sections of
this Prospectus and the SAI and as described below under the caption
"Additional Risk Factors."
INTERNATIONAL EQUITY FUND -- The International Equity Fund's investment
objective is to provide long-term growth of capital.
The Fund seeks to achieve its objective by investing, under normal market
conditions, at least 65% of its total assets in equity securities of companies
whose principal activities are located outside the U.S. The equity securities
in which the Fund may invest include securities of more established companies
which represent opportunities for long-term growth (see "Investment Techniques
- -- Foreign Growth Securities" below). The Fund may also invest up to 25% of
its net assets in securities of companies located, or primarily conducting
their business in, emerging market countries. The selection of securities is
made solely on the basis of potential for capital appreciation. The Fund does
not intend to emphasize any particular country and, under normal market
conditions, will be invested in at least five countries. In addition, the Fund
may hold foreign currency received in connection with investments in foreign
securities or in anticipation of purchasing foreign securities (see
"Additional Risk Factors -- Foreign Securities" below).
In determining where a company's principal activities are located, the Adviser
considers such factors as its country of organization, the principal trading
market for its securities and the source of its revenues and assets. The
company's principal activities are deemed to be located in a particular
country if: (a) the company is organized under the laws of, and maintains a
principal office in that country; (b) the company has its principal securities
trading market in that country, (c) the company derives 50% or more of its
total revenues from goods sold or services performed in that country; or (d)
the company has 50% or more of its assets in that country.
The Fund may engage in certain investment techniques as described below under
the caption "Investment Techniques" and as described in the SAI under the
caption "Investment Policies and Restrictions." The Fund's investments are
subject to certain risks, as described in the above-referenced sections of
this Prospectus and the SAI and as described below under the caption
"Additional Risk Factors."
5. INVESTMENT TECHNIQUES
Consistent with each Fund's investment objective(s) and policies, each Fund
may engage in the following investment techniques, many of which are described
more fully in the SAI. See "Investment Policies and Restrictions" in the SAI.
EQUITY SECURITIES: Each Fund except the Emerging Markets Fund and the Core
Plus Fund may invest in all types of equity securities, including the
following: common stocks, preferred stocks and preference stocks; securities
such as bonds, warrants or rights that are convertible into stocks; and
depository receipts for those securities. These securities may be listed on
securities exchanges, traded in various over-the-counter markets or have no
organized market.
FIXED INCOME SECURITIES: Fixed income securities in which each Fund except the
Research Fund, the Mid-Cap Fund and the International Equity Fund may invest
include bonds (including zero coupon bonds, deferred interest bonds and
payable in-kind bonds), debentures, mortgage securities, notes, bills,
commercial paper, obligations issued or guaranteed by a government or any of
its political subdivisions, agencies or instrumentalities, and certificates of
deposit, as well as debt obligations which may have a call on common stock by
means of a conversion privilege or attached warrants.
U.S. GOVERNMENT SECURITIES: The Worldwide Fund and the Core Plus Fund, and,
for temporary defensive reasons, each other Fund, may invest in U.S.
government securities, including: (1) U.S. Treasury obligations, which differ
only in their interest rates, maturities and times of issuance: U.S. Treasury
bills (maturities of one year or less); U.S. Treasury notes (maturities of one
to ten years); and U.S. Treasury bonds (generally maturities of greater than
ten years), all of which are backed by the full faith and credit of the U.S.
Government; and (2) obligations issued or guaranteed by U.S. Government
agencies, authorities or instrumentalities, some of which are backed by the
full faith and credit of the U.S. Treasury, e.g., direct pass-through
certificates of the Government National Mortgage Association ("GNMA"); some of
which are supported by the right of the issuer to borrow from the U.S.
Government, e.g., obligations of Federal Home Loan Banks; and some of which
are backed only by the credit of the issuer itself, e.g., obligations of the
Student Loan Marketing Association (collectively, "U.S. Government
Securities").
REPURCHASE AGREEMENTS: Each Fund may enter into repurchase agreements in order
to earn income on available cash or as a temporary defensive measure. Under a
repurchase agreement, a Fund acquires securities subject to the seller's
agreement to repurchase at a specified time and price. If the seller becomes
subject to a proceeding under the bankruptcy laws or its assets are otherwise
subject to a stay order, a Fund's right to liquidate the securities may be
restricted (during which time the value of the securities could decline). As
discussed in the SAI, the Fund has adopted certain procedures intended to
minimize the risks of investing in repurchase agreements.
LENDING OF PORTFOLIO SECURITIES: Each Fund may seek to increase its income by
lending portfolio securities to entities deemed creditworthy by the Adviser.
Such loans will usually be made to member firms (and subsidiaries thereof) of
the New York Stock Exchange and to member banks of the Federal Reserve System,
and would be required to be secured continuously by collateral in cash,
letters of credit or U.S. Government Securities maintained on a current basis
at an amount at least equal to the market value of the securities loaned. If
the Adviser determines to make securities loans, it is intended that the value
of the securities loaned would not exceed 30% of the value of the total assets
of the relevant Fund.
RESTRICTED SECURITIES: Each Fund may also purchase securities that are not
registered under the Securities Act of 1933 (the "1933 Act") ("restricted
securities"), including those that can be offered and sold to "qualified
institutional buyers" under Rule 144A under the 1933 Act ("Rule 144A
securities"). The Trust's Board of Trustees determines, based upon a
continuing review of the trading markets for a specific Rule 144A security,
whether such security is liquid and thus not subject to a Fund's limitation on
investing not more than 15% of its net assets in illiquid investments. The
Board of Trustees has adopted guidelines and delegated to MFS the daily
function of determining and monitoring the liquidity of Rule 144A securities.
The Board, however, will retain sufficient oversight and be ultimately
responsible for the determinations. The Board will carefully monitor each
Fund's investment in Rule 144A securities, focusing on such important factors,
among others, as valuation, liquidity and availability of information. This
investment practice could have the effect of decreasing the level of liquidity
in a Fund to the extent that qualified institutional buyers become for a time
uninterested in purchasing Rule 144A securities held in a Fund's portfolio.
Subject to each Fund's 15% limitation on investments in illiquid investments,
each Fund may also invest in restricted securities that may not be sold under
Rule 144A, which presents certain risks. As a result, each Fund might not be
able to sell these securities when the Adviser wishes to do so, or might have
to sell them at less than fair value. In addition, market quotations are less
readily available. Therefore, the judgment of the Adviser may at times play a
greater role in valuing these securities than in the case of unrestricted
securities.
WHEN-ISSUED OR FORWARD DELIVERY SECURITIES: Each Fund except the Emerging
Equities Fund may purchase securities on a "when-issued" or on a "forward
delivery" basis, which means that the obligations will be delivered to the
Fund at a future date beyond customary settlement time. The commitment to
purchase a security for which payment will be made on a future date may be
deemed a separate security. Although each Fund is not limited in the amount of
securities for which it may have commitments to purchase on such basis, it is
expected that, under normal circumstances, each Fund will not commit more than
30% of its assets to such purchases. The Fund does not pay for the securities
until received or start earning interest on them until the contractual
settlement date. In order to invest its assets immediately, while awaiting
delivery of securities purchased on such basis, a Fund will hold cash, short-
term money market instruments or U.S. Government Securities in a segregated
account to pay for the commitment. Although each Fund does not intend to make
such purchases for speculative purposes, purchases of securities on such basis
may involve more risk than other types of purchases.
AMERICAN DEPOSITARY RECEIPTS: Each Fund except the Emerging Markets Fund and
the Core Plus Fund may invest in American Depositary Receipts ("ADRs"), which
are certificates issued by a U.S. depository (usually a bank) and represent a
specified quantity of shares of an underlying non-U.S. stock on deposit with a
custodian bank as collateral. Because ADRs trade on U.S. securities exchanges,
the Adviser does not treat them as foreign securities. However, they are
subject to many of the risks of foreign securities such as exchange rates and
more limited information about foreign issuers. See "Additional Risk Factors
- -- Foreign Securities" below.
FOREIGN GROWTH SECURITIES: Each Fund except the Emerging Markets Fund and the
Core Plus Fund may invest in securities of foreign growth companies, including
established foreign companies, whose rates of earnings growth are expected to
accelerate because of special factors, such as rejuvenated management, new
products, changes in consumer demand, or basic changes in the economic
environment or which otherwise represent opportunities for long-term growth.
See "Additional Risk Factors -- Foreign Securities" below. It is anticipated
that these companies will primarily be in nations with more developed
securities markets, such as Japan, Australia, Canada, New Zealand and most
Western European countries, including Great Britain.
EMERGING MARKET SECURITIES: Consistent with each Fund's investment objective(s)
and policies, each Fund may invest in securities of issuers whose
principal activities are located in emerging market countries. Emerging market
countries include any country determined by the Adviser to have an emerging
market economy, taking into account a number of factors, including whether the
country has a low- to middle-income economy according to the International
Bank for Reconstruction and Development, the country's foreign currency debt
rating, its political and economic stability and the development of its
financial and capital markets. The Adviser determines whether an issuer's
principal activities are located in an emerging market country by considering
such factors as its country of organization, the principal trading market for
its securities and the source of its revenues and assets. The issuer's
principal activities generally are deemed to be located in a particular
country if: (a) the security is issued or guaranteed by the government of that
country or any of its agencies, authorities or instrumentalities; (b) the
issuer is organized under the laws of, and maintains a principal office in,
that country; (c) the issuer has its principal securities trading market in
that country; (d) the issuer derives 50% or more of its total revenues from
goods sold or services performed in that country; or (e) the issuer has 50% or
more of its assets in that country. See "Additional Risk Factors -- Emerging
Markets" below. See "Investment Objectives and Policies -- International
Equity Fund" for a description of the factors considered by the Adviser in
determining where a company or other issuer is located.
BRADY BONDS: The Worldwide Fund, the Emerging Markets Fund and the Core Plus
Fund may invest in Brady Bonds, which are securities created through the
exchange of existing commercial bank loans to public and private entities in
certain emerging markets for new bonds in connection with debt restructurings
under a debt restructuring plan introduced by former U.S. Secretary of the
Treasury Nicholas F. Brady (the "Brady Plan"). Brady Plan debt restructurings
have been implemented to date in Argentina, Brazil, Bulgaria, Costa Rica, the
Dominican Republic, Ecuador, Jordan, Mexico, Nigeria, Panama, the Philippines,
Poland, Uruguay and Venezuela. Brady Bonds have been issued only recently, and
for that reason do not have a long payment history. Brady Bonds may be
collateralized or uncollateralized, are issued in various currencies (but
primarily the U.S. dollar) and are actively traded in over-the-counter
secondary markets. U.S. dollar-denominated, collateralized Brady Bonds, which
may be fixed-rate bonds or floating-rate bonds, are generally collateralized
in full as to principal by U.S. Treasury zero coupon bonds having the same
maturity as the bonds. Brady Bonds are often viewed as having three or four
valuation components: (i) the collateralized repayment of principal at final
maturity; (ii) the collateralized interest payments; (iii) the
uncollateralized interest payments; and (iv) any uncollateralized repayment of
principal at maturity (these uncollateralized amounts constituting the
"residual risk"). In light of the residual risk of Brady Bonds and the history
of defaults of countries issuing Brady Bonds with respect to commercial bank
loans by public and private entities, investments in Brady bonds may be viewed
as speculative.
INVESTMENT IN OTHER INVESTMENT COMPANIES: Each Fund except the Emerging
Equities Fund and the Research Fund may invest in other investment companies
to the extent permitted by the 1940 Act (i) as a means by which a Fund may
invest in securities of certain countries which do not otherwise permit
investment, (ii) as a means to purchase securities of emerging market
companies having limited free float, or (iii) when the Adviser believes such
investments may be more advantageous to a Fund than a direct market purchase
of securities. If a Fund invests in such investment companies, the Fund's
shareholders will bear not only their proportionate share of the expenses of
that particular Fund (including operating expenses and the fees of the
Adviser), but also will indirectly bear similar expenses of the underlying
investment companies.
STRUCTURED SECURITIES: The Emerging Markets Fund may invest a portion of its
assets in entities organized and operated solely for the purpose of
restructuring the investment characteristics of sovereign debt obligations.
This type of restructuring involves the deposit with, or purchase by, an
entity, such as a corporation or trust, of specified instruments (such as
commercial bank loans or Brady Bonds) and the issuance by that entity of one
or more classes of securities ("Structured Securities") backed by, or
representing interests in, the underlying instruments. The cash flow on the
underlying instruments may be apportioned among the newly issued Structured
Securities to create securities with different investment characteristics,
such as varying maturities, payment priorities and interest rate provisions,
and the extent of the payments made with respect to Structured Securities is
dependent on the extent of the cash flow on the underlying instruments.
Because Structured Securities of the type in which the Fund anticipates it
will invest typically involve no credit enhancement, their credit risk
generally will be equivalent to that of the underlying instruments. The Fund
is permitted to invest in a class of Structured Securities that is either
subordinated or unsubordinated to the right of payment of another class.
Subordinated Structured Securities typically have higher yields and present
greater risks than unsubordinated Structured Securities. Structured Securities
are typically sold in private placement transactions, and there currently is
no active trading market for Structured Securities.
LOANS AND OTHER DIRECT INDEBTEDNESS: The Emerging Markets Fund, the Mid-Cap
Fund and the International Equity Fund may each invest a portion of its assets
in loans and other direct indebtedness. By purchasing a loan, a Fund acquires
some or all of the interest of a bank or other lending institution in a loan
to a corporate, government or other borrower. Many such loans are secured, and
most impose restrictive covenants which must be met by the borrower. These
loans are made generally to finance internal growth, mergers, acquisitions,
stock repurchases, leveraged buy-outs and other corporate activities. Such
loans may be in default at the time of purchase. Each Fund may also purchase
trade or other claims against companies, which generally represent money owed
by the company to a supplier of goods and services. These claims may also be
purchased at a time when the company is in default. Certain of the loans
acquired by the Fund may involve revolving credit facilities or other standby
financing commitments which obligate the Fund to pay additional cash on a
certain date or on demand.
The highly leveraged nature of many such loans may make such loans especially
vulnerable to adverse changes in economic or market conditions. Loans and
other direct investments may not be in the form of securities or may be
subject to restrictions on transfer, and only limited opportunities may exist
to resell such instruments. As a result, a Fund may be unable to sell such
investments at an opportune time or may have to resell them at less than fair
market value.
ZERO COUPON BONDS, DEFERRED INTEREST BONDS AND PIK BONDS: Fixed income
securities in which the Worldwide Fund, the Emerging Markets Fund, the Core
Plus Fund and the Research Fund may invest include zero coupon bonds, deferred
interest bonds and bonds on which the interest is payable in kind ("PIK
bonds"). Zero coupon and deferred interest bonds are debt obligations which
are issued or purchased at a significant discount from face value. The
discount approximates the total amount of interest the bonds will accrue and
compound over the period until maturity or the first interest payment date at
a rate of interest reflecting the market rate of the security at the time of
issuance. While zero coupon bonds do not require the periodic payment of
interest, deferred interest bonds provide for a period of delay before the
regular payment of interest begins. PIK bonds are debt obligations which
provide that the issuer thereof may, at its option, pay interest on such bonds
in cash or in the form of additional debt obligations. Such investments
benefit the issuer by mitigating its need for cash to meet debt service, but
also require a higher rate of return to attract investors who are willing to
defer receipt of such cash. Such investments may experience greater volatility
in market value due to changes in interest rates and other factors than debt
obligations which make regular payments of interest. A Fund will accrue income
on such investments for tax and accounting purposes, as required, which is
distributable to shareholders and which, because no cash is received at the
time of accrual, may require the liquidation of other portfolio securities
under disadvantageous circumstances to satisfy a Fund's distribution
obligations.
CORPORATE ASSET-BACKED SECURITIES: Each Fund except the Emerging Equities
Fund, the Emerging Markets Fund and the Research Fund may invest in corporate
asset-backed securities. These securities, issued by trusts and special
purpose corporations, are backed by a pool of assets, such as credit card or
automobile loan receivables, representing the obligations of a number of
different parties.
Corporate asset-backed securities present certain risks. For instance, in the
case of credit card receivables, these securities may not have the benefit of
any security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing
the balance due. Most issuers of automobile receivables permit the services to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in
a typical issuance and technical requirements under state laws, the trustee
for the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there
is the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities. The underlying
assets (e.g., loans) are also subject to prepayments which shorten the
securities' weighted average life and may lower their return.
Corporate asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection; and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of
payments on the underlying pool occurs in a timely fashion. Protection against
losses resulting from ultimate default ensures payment through insurance
policies or letters of credit obtained by the issuer or sponsor from third
parties. A Fund will not pay any additional or separate fees for credit
support. The degree of credit support provided for each issue is generally
based on historical information respecting the level of credit risk associated
with the underlying assets. Delinquency or loss in excess of that anticipated
or failure of the credit support could adversely affect the return on an
investment in such a security.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS: The Core Plus Fund may enter into
mortgage "dollar roll" transactions with selected banks and broker-dealers
pursuant to which a Fund sells mortgage-backed securities for delivery in the
future (generally within 30 days) and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a
specified future date. Each Fund will only enter into covered rolls. A
"covered roll" is a specific type of dollar roll for which there is an
offsetting cash position or a cash equivalent security position which matures
on or before the forward settlement date of the dollar roll transaction. In
the event that the party with whom the Fund contracts to replace substantially
similar securities on a future date fails to deliver such securities, the Fund
may not be able to obtain such securities at the price specified in such
contract and thus may not benefit from the price differential between the
current sales price and the repurchase price.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES:
The Core Plus Fund may invest a portion of its assets in collateralized
mortgage obligations, or "CMOs," which are debt obligations collateralized by
mortgage loans or mortgage pass-through securities. Typically, CMOs are
collateralized by certificates issued by the GNMA, the Federal National
Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation
("FHLMC"), but also may be collateralized by whole loans or private mortgage
pass-through securities (such collateral collectively referred to as "Mortgage
Assets"). The Core Plus Fund may also invest a portion of its assets in
multiclass pass-through securities which are interests in a trust composed of
Mortgage Assets. CMOs (which include multiclass pass-through securities) may
be issued by agencies, authorities or instrumentalities of the U.S. Government
or by private originators of, or investors in, mortgage loans, including
savings and loan associations, mortgage banks, commercial banks, investment
banks and special purpose subsidiaries of the foregoing. Payments of principal
of and interest on the Mortgage Assets, and any reinvestment income thereon,
provide the funds to pay debt service on the CMOs or make scheduled
distributions on the multiclass pass-through securities. In a CMO, a series of
bonds or certificates is usually issued in multiple classes with different
maturities.
Each class of CMOs, often referred to as a "tranche," is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final
distribution dates, resulting in a loss of all or part of the premium if any
has been paid. Certain classes of CMOs have priority over others with respect
to the receipt of prepayments on the mortgages. Therefore, depending on the
type of CMOs in which the Core Plus Fund invests, the investment may be
subject to a greater or lesser risk of prepayment than other types of
mortgage-related securities.
The Core Plus Fund may also invest in parallel pay CMOs and Planned
Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured to
provide payments of principal on each payment date to more than one class. PAC
Bonds generally require payments of a specified amount of principal on each
payment date. PAC Bonds are always parallel pay CMOs with the required
principal payment on such securities having the highest priority after
interest has been paid to all classes.
STRIPPED MORTGAGE-BACKED SECURITIES: The Core Plus Fund may invest a portion
of its assets in stripped mortgage-backed securities, which are derivative
multiclass mortgage securities usually structured with two classes that
receive different proportions of the interest and principal distributions from
an underlying pool of mortgage assets.
MORTGAGE PASS-THROUGH SECURITIES: The Core Plus Fund may invest in mortgage
pass-through securities. Mortgage pass-through securities are securities
representing interests in "pools" of mortgage loans. Monthly payments of
interest and principal by the individual borrowers on mortgages are passed
through to the holders of the securities (net of fees paid to the issuer or
guarantor of the securities) as the mortgages in the underlying mortgage pools
are paid off. The average lives of mortgage pass-throughs are variable when
issued because their average lives depend on prepayment rates. The average
life of these securities is likely to be substantially shorter than their
stated final maturity as a result of unscheduled principal prepayment.
Prepayments on underlying mortgages result in a loss of anticipated interest,
and all or part of a premium if any has been paid, and the actual yield (or
total return) to the Fund may be different than the quoted yield on the
securities. Mortgage prepayments generally increase with falling interest
rates and decrease with rising interest rates. Like other fixed income
securities, when interest rates rise the value of a mortgage pass-through
security generally will decline; however, when interest rates are declining,
the value of mortgage pass-through securities with prepayment features may not
increase as much as that of other fixed-income securities.
Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by
the full faith and credit of the U.S. Government (in the case of securities
guaranteed by GNMA); or guaranteed by agencies or instrumentalities of the
U.S. Government (such as FNMA or FHLMC, which are supported only by the
discretionary authority of the U.S. Government to purchase the agency's
obligations). Mortgage pass-through securities may also be issued by non-
governmental issuers (such as commercial banks, savings and loan institutions,
private mortgage insurance companies, mortgage bankers and other secondary
market issuers). Some of these mortgage pass-through securities may be
supported by various forms of insurance or guarantees.
OPTIONS ON SECURITIES: Each Fund may write (sell) covered put and call options
on securities ("Options") and purchase put and call Options that are traded on
foreign or U.S. securities exchanges and over the counter. A Fund will write
such Options for the purpose of increasing its return and/or protecting the
value of its portfolio. In particular, where a Fund writes an Option which
expires unexercised or is closed out by the Fund at a profit, it will retain
the premium paid for the Option, which will increase its gross income and will
offset in part the reduced value of a portfolio security in connection with
which the Option may have been written or the increased cost of portfolio
securities to be acquired. In contrast, however, if the price of the security
underlying the Option moves adversely to the relevant Fund's position, the
Option may be exercised and the Fund will be required to purchase or sell the
security at a disadvantageous price, resulting in losses which may only be
partially offset by the amount of the premium. Each Fund may also write
combinations of put and call Options on the same security, known as
"straddles." Such transactions can generate additional premium income but also
present increased risk.
Each Fund may purchase put or call Options in anticipation of declines in the
value of portfolio securities or increases in the value of securities to be
acquired. In the event that the expected changes occur, a Fund may be able to
offset the resulting adverse effect on its portfolio, in whole or in part,
through the Options purchased. The risk assumed by a Fund in connection with
such transactions is limited to the amount of the premium and related
transaction costs associated with the Option, although a Fund may be required
to forfeit such amounts in the event that the prices of securities underlying
the Options do not move in the direction or to the extent anticipated.
The Worldwide Fund, the Emerging Markets Fund and the Core Plus Fund may also
enter into options on the yield "spread," or yield differential between two
securities, a transaction referred to as a "yield curve" option, for hedging
and non-hedging purposes. In contrast to other types of options, a yield curve
option is based on the difference between the yields of designated securities
rather than the actual prices of the individual securities. Yield curve
options written by the Funds will be "covered" but could involve additional
risks.
FUTURES CONTRACTS: Each Fund may enter into contracts for the purchase or sale
for future delivery of fixed income securities or foreign currencies or
contracts based on indexes of securities as such instruments become available
for trading ("Futures Contracts"). Such transactions will be entered into for
hedging purposes, in order to protect a Fund's current or intended investments
from the effects of changes in interest or exchange rates, or for non-hedging
purposes, to the extent permitted by applicable law. For example, in the event
that an anticipated decrease in the value of portfolio securities occurs as a
result of a general increase in interest rates or a decline in the dollar
value of foreign currencies in which portfolio securities are denominated, the
adverse effects of such changes may be offset, in whole or part, by gains on
Futures Contracts sold by a Fund. Conversely, the adverse effects of an
increase in the cost of portfolio securities to be acquired, occurring as a
result of a decline in interest rates or a rise in the dollar value of
securities denominated in foreign currencies, may be offset, in whole or in
part, by gains on Futures Contracts purchased by a Fund. Each Fund will incur
brokerage fees when it purchases and sells Futures Contracts, and will be
required to maintain margin deposits. In addition, Futures Contracts entail
risks. Although each Fund believes that use of such contracts will benefit the
Fund, if the Adviser's investment judgment about the general direction of
interest or exchange rates is incorrect, the Fund's overall performance may be
poorer than if it had not entered into any such contract and the Fund may
realize a loss. Transactions entered into for non-hedging purposes involve
greater risk, including the risk of losses which are not offset by gains on
other portfolio assets. The Fund will not enter into any Futures Contract if
immediately thereafter the value of securities and other obligations
underlying all such Futures Contracts would exceed 50% of the value of its
total assets.
OPTIONS ON FUTURES CONTRACTS: Each Fund may purchase and write options on
Futures Contracts ("Options on Futures Contracts") for the purpose of
protecting against declines in the value of portfolio securities or against
increases in the cost of securities to be acquired, or for non-hedging
purposes, to the extent permitted by applicable law. Purchases of Options on
Futures Contracts may present less risk in hedging the portfolio of the Fund
than the purchase or sale of the underlying Futures Contracts, since the
potential loss is limited to the amount of the premium paid for the option,
plus related transaction costs. The writing of such options, however, does not
present less risk than the trading of Futures Contracts, and will constitute
only a partial hedge, up to the amount of the premium received, less related
transaction costs. In addition, if an option is exercised, the Fund may suffer
a loss on the transaction. Transactions entered into for non-hedging purposes
involve greater risk, including the risk of losses which are not offset by
gains on other portfolio assets.
FORWARD CONTRACTS: Each Fund may enter into forward foreign currency exchange
contracts for the purchase and sale of a fixed quantity of a foreign currency
at a future date ("Forward Contracts"). A Fund may enter into Forward
Contracts for hedging purposes as well as for non-hedging purposes. By
entering into transactions in Forward Contracts, however, a Fund may be
required to forego the benefits of advantageous changes in exchange rates and,
in the case of Forward Contracts entered into for non-hedging purposes, the
Fund may sustain losses which will reduce its gross income. Forward Contracts
are traded over-the-counter and not on organized commodities or securities
exchanges. As a result, such contracts operate in a manner distinct from
exchange-traded instruments and their use involves certain risks beyond those
associated with transactions in Futures Contracts or options traded on
exchanges. Each Fund may also enter into a Forward Contract on one currency in
order to hedge against risk of loss arising from fluctuations in the value of
a second currency (referred to as a "cross hedge") if, in the judgment of the
Adviser, a reasonable degree of correlation can be expected between movements
in the values of the two currencies. Each Fund has established procedures
consistent with statements of the SEC and its staff regarding the use of
Forward Contracts by registered investment companies, which requires use of
segregated assets or "cover" in connection with the purchase and sale of such
contracts.
OPTIONS ON FOREIGN CURRENCIES: Each Fund except the Emerging Equities Fund may
purchase and write options on foreign currencies ("Options on Foreign
Currencies") for the purpose of protecting against declines in the dollar
value of portfolio securities and against increases in the dollar cost of
securities to be acquired. As in the case of other types of options, however,
the writing of an Option on Foreign Currency will constitute only a partial
hedge, up to the amount of the premium received, and a Fund may be required to
purchase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an Option on Foreign Currency may constitute
an effective hedge against fluctuations in exchange rates although, in the
event of rate movements adverse to a Fund's position, it may forfeit the
entire amount of the premium paid for the Option plus related transaction
costs. Options on foreign currencies to be written or purchased by a Fund will
be traded on foreign and U.S. exchanges or over-the-counter.
OPTIONS ON STOCK INDICES: Each Fund except the Worldwide Fund, the Emerging
Markets Fund and the Core Plus Fund may write (sell) covered call and put
options and purchase call and put options on domestic or foreign stock indices
("Options on Stock Indices"). Each Fund may write such options for the purpose
of increasing its current income and/or to protect its portfolio against
declines in the value of securities it owns or increases in the value of
securities to be acquired. When a Fund writes an option on a stock index, and
the value of the index moves adversely to the holder's position, the option
will not be exercised, and the Fund will either close out the option at a
profit or allow it to expire unexercised. The Fund will thereby retain the
amount of the premium, less related transaction costs, which will increase its
gross income and offset part of the reduced value of portfolio securities or
the increased cost of securities to be acquired. Such transactions, however,
will constitute only partial hedges against adverse price fluctuations, since
any such fluctuations will be offset only to the extent of the premium
received by a Fund for the writing of the option, less related transaction
costs. In addition, if the value of an underlying index moves adversely to a
Fund's option position, the option may be exercised, and the Fund will
experience a loss which may only be partially offset by the amount of the
premium received.
Each Fund except the Worldwide Fund, the Emerging Markets Fund and the Core
Plus Fund may also purchase put or call options on stock indices in order,
respectively, to hedge its investments against a decline in value or to
attempt to reduce the risk of missing a market or industry segment advance. A
Fund's possible loss in either case will be limited to the premium paid for
the option, plus related transaction costs.
SWAPS AND RELATED TRANSACTIONS: As one way of managing its exposure to
different types of investments, the Worldwide Fund, the Emerging Markets Fund
and the Core Plus Fund may enter into interest rate swaps, currency swaps and
other types of available swap agreements, such as caps, collars and floors.
Swaps involve the exchange by the Fund with another party of cash payments
based upon different interest rate indices, currencies, and other prices or
rates, such as the value of mortgage prepayment rates. For example, in the
typical interest rate swap, a Fund might exchange a sequence of cash payments
based on a floating rate index for cash payments based on a fixed rate.
Payments made by both parties to a swap transaction are based on a principal
amount determined by the parties.
The Worldwide Fund, the Emerging Markets Fund and the Core Plus Fund may also
purchase and sell caps, floors and collars. In a typical cap or floor
agreement, one party agrees to make payments only under specified
circumstances, usually in return for payment of a fee by the counterparty. For
example, the purchase of an interest rate cap entitles the buyer, to the
extent that a specified index exceeds a predetermined interest rate, to
receive payments of interest on a contractually-based principal amount from
the counterparty selling such interest rate cap. The sale of an interest rate
floor obligates the seller to make payments to the extent that a specified
interest rate falls below an agreed-upon level. A collar arrangement combines
elements of buying a cap and selling a floor.
Swap agreements will tend to shift each Fund's investment exposure from one
type of investment to another. For example, if the Fund agreed to exchange
payments in dollars for payments in foreign currency, in each case based on a
fixed rate, the swap agreement would tend to decrease the Fund's exposure to
U.S. interest rates and increase its exposure to foreign currency and interest
rates. Caps and floors have an effect similar to buying or writing options.
Depending on how they are used, swap agreements may increase or decrease the
overall volatility of the Fund's investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on the
Fund's performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. A Fund may also suffer losses if
it is unable to terminate outstanding swap agreements or reduce its exposure
through offsetting transactions.
INDEXED SECURITIES: The Emerging Markets Fund and the Core Plus Fund may also
invest in indexed securities whose value is linked to foreign currencies,
interest rates, commodities, indices or other financial indicators. Most
indexed securities are short-to intermediate-term fixed income securities
whose values at maturity (i.e., principal value) or interest rates rise or
fall according to the change in one or more specified underlying instruments.
Indexed securities may be positively or negatively indexed (i.e., their
principal value or interest rates may increase or decrease if the underlying
instrument appreciates), and may have return characteristics similar to direct
investments in the underlying instrument or to one or more options on the
underlying instrument. Indexed securities may be more volatile than the
underlying instrument itself.
DEFENSIVE INVESTMENTS: When the Adviser believes that investing for temporary
defensive reasons is appropriate, such as during times of international,
political or economic uncertainty or turmoil, or in order to meet anticipated
redemption requests, part or all of a Fund's assets may be invested in cash
(including foreign currency) or cash equivalent short-term obligations
including, but not limited to, certificates of deposit, commercial paper,
short-term notes and U.S. Government Securities.
PORTFOLIO TRADING: While it is not generally each Fund's policy to invest or
trade for short-term profits, each Fund may dispose of a portfolio security
whenever the Adviser believes it is appropriate to do so without regard to the
length of time the particular asset may have been held. A high turnover rate
involves greater expenses to a Fund. A Fund engages in portfolio trading if it
believes a transaction net of costs (including custodian charges) will help in
achieving its investment objective.
The primary consideration in placing portfolio security transactions is
execution at the most favorable prices. Consistent with the foregoing primary
consideration, the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and such other policies as the Trustees may
determine, the Adviser may consider sales of shares of each Fund and of the
investment company clients of MFD, a wholly owned subsidiary of MFS and the
principal underwriter of certain funds in the MFS Family of Funds (the "MFS
Funds"), as a factor in the selection of broker-dealers to execute the Fund's
portfolio transactions. From time to time, the Adviser may direct certain
portfolio transactions to broker-dealer firms which, in turn, have agreed to
pay a portion of each Fund's operating expenses (e.g., fee charged by the
custodian of the Fund's assets). For a further discussion of portfolio
trading, see the SAI. Because each Fund may have a portfolio turnover rate of
100% or more, transaction costs incurred by each Fund and the realized capital
gains and losses of the Fund may be greater than that of a fund with a lesser
portfolio turnover rate.
----------------
The policies described above are not fundamental and may be changed without
shareholder approval.
The SAI includes a discussion of investment policies and a listing of specific
investment restrictions which govern each Fund's investment policies. The
specific investment restrictions listed in the SAI may be changed without
shareholder approval unless otherwise indicated. See "Investment Policies and
Restrictions" in the SAI. Each Fund's investment limitations and policies are
adhered to at the time of purchase or utilization of assets; a subsequent
change in circumstances will not be considered to result in a violation of
policy.
6. ADDITIONAL RISK FACTORS
FOREIGN SECURITIES: Transactions involving foreign equity and debt securities
or foreign currencies, and transactions entered into in foreign countries,
involve considerations and risks not typically associated with investing in
U.S. markets. These include changes in currency rates, exchange control
regulations, governmental administration or economic or monetary policy (in
the U.S. or abroad) or circumstances in dealings between nations. Costs may be
incurred in connection with conversions between various currencies. Special
considerations may also include more limited information about foreign
issuers, higher brokerage costs, different or less stringent accounting
standards and thinner trading markets. Foreign securities markets may also be
less liquid, more volatile and less subject to government supervision than in
the U.S. Investments in foreign countries could be affected by other factors
including expropriation, confiscatory taxation and potential difficulties in
enforcing contractual obligations and could be subject to extended settlement
periods.
EMERGING MARKETS: The risks of investing in foreign securities may be
intensified in the case of investments in emerging markets. Securities of many
issuers in emerging markets may be less liquid and more volatile than
securities of comparable domestic issuers. Emerging markets also have
different clearance and settlement procedures, and in certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when a portion of the
assets of a Fund is uninvested and no return is earned thereon. The inability
of a Fund to make intended security purchases due to settlement problems could
cause the Fund to miss attractive investment opportunities. Inability to
dispose of portfolio securities due to settlement problems could result either
in losses to a Fund due to subsequent declines in value of the portfolio
security or, if a Fund has entered into a contract to sell the security, in
possible liability to the purchaser. Certain markets may require payment for
securities before delivery, and in such markets a Fund bears the risk that the
securities will not be delivered and that the Fund's payment will not be
returned. Securities prices in emerging markets can be significantly more
volatile than in the more developed nations of the world, reflecting the
greater uncertainties of investing in less established markets and economies.
In particular, countries with emerging markets may have relatively unstable
governments, present the risk of nationalization of businesses, restrictions
on foreign ownership, or prohibitions of repatriation of assets, and may have
less protection of property rights than more developed countries. The
economies of countries with emerging markets may be predominantly based on
only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens or
inflation rates. Local securities markets may trade a small number of
securities and may be unable to respond effectively to increases in trading
volume, potentially making prompt liquidation of substantial holdings
difficult or impossible at times. Securities of issuers located in countries
with emerging markets may have limited marketability and may be subject to
more abrupt or erratic price movements.
Certain emerging markets may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. A Fund could be
adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the
application to the Fund of any restrictions on investments.
Investment in certain foreign emerging market debt obligations may be
restricted or controlled to varying degrees. These restrictions or controls
may at times preclude investment in certain foreign emerging market debt
obligations and increase the expenses of a Fund.
FIXED INCOME SECURITIES: To the extent a Fund invests in fixed income
securities, the net asset value of the Fund may change as the general levels
of interest rates fluctuate. When interest rates decline, the value of fixed
income securities can be expected to rise. Conversely, when interest rates
rise, the value of fixed income securities can be expected to decline. Each
Fund has no restrictions with respect to the maturities or duration of the
fixed income securities it holds. A Fund's investments in fixed income
securities with longer terms to maturity or greater duration are subject to
greater volatility than the Fund's shorter-term obligations.
LOWER RATED FIXED INCOME SECURITIES: Fixed income securities in which the
Emerging Markets Fund, the Core Plus Fund and the Research Fund may invest may
be rated Baa by Moody's or BBB by S&P, Fitch or Duff & Phelps (and comparable
unrated securities). For a description of these bond ratings, see Appendix A
to this Prospectus. These securities, while normally exhibiting adequate
protection parameters, have speculative characteristics and changes in
economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than in the case of
higher grade fixed income securities.
The Emerging Markets Fund, Core Plus Fund and the Research Fund may also
invest in fixed income securities rated Ba or lower by Moody's or BB or lower
by S&P, Fitch or Duff & Phelps (and comparable unrated securities). These
securities are the equivalent of high yield, high risk bonds, commonly known
as "junk bonds." These securities are considered speculative and, while
generally providing greater yield than investments in higher rated securities,
will involve greater risk of principal and income (including the possibility
of default or bankruptcy of the issuers of such securities) and may involve
greater volatility of price (especially during periods of economic uncertainty
or change) than securities in the higher rating categories and because yields
vary over time, no specific level of income can ever be assured. These lower
rated high yielding fixed income securities generally tend to be affected by
economic changes (and the outlook for economic growth), short-term corporate
and industry developments and the market's perception of their credit quality
(especially during times of adverse publicity) to a greater extent than higher
rated securities, which react primarily to fluctuations in the general level
of interest rates (although these lower rated securities are also affected by
changes in interest rates as described below). In the past, economic downturns
or an increase in interest rates have, under certain circumstances, caused a
higher incidence of default by the issuers of these securities and may do so
in the future, especially in the case of highly leveraged issuers. During
certain periods, the higher yields on a Fund's lower rated high yielding fixed
income securities are paid primarily because of the increased risk of loss of
principal and income, arising from such factors as the heightened possibility
of default or bankruptcy of the issuers of such securities. Due to the fixed
income payments of these securities, a Fund may continue to earn the same
level of interest income while its net asset value declines due to portfolio
losses, which could result in an increase in the Fund's yield despite the
actual loss of principal. The prices for these securities may be affected by
legislative and regulatory developments. The market for these lower rated
fixed income securities may be less liquid than the market for investment
grade fixed income securities. Furthermore, the liquidity of these lower rated
securities may be affected by the market's perception of their credit quality.
Therefore, the Adviser's judgment may at times play a greater role in valuing
these securities than in the case of investment grade fixed income securities,
and it also may be more difficult during times of certain adverse market
conditions to sell these lower rated securities to meet redemption requests or
to respond to changes in the market.
While the Adviser may refer to ratings issued by established credit rating
agencies, it is not any Fund's policy to rely exclusively on ratings issued by
these rating agencies, but rather to supplement such ratings with the
Adviser's own independent and ongoing review of credit quality. A Fund's
achievement of its investment objective may be more dependent on the Adviser's
own credit analysis than in the case of an investment company primarily
investing in higher quality fixed income securities.
OPTIONS, FUTURES CONTRACTS AND FORWARD CONTRACTS: Although each Fund may enter
into transactions in options, Futures Contracts, Options on Futures Contracts,
Forward Contracts and Options on Foreign Currencies for hedging purposes, such
transactions nevertheless involve certain risks. For example, a lack of
correlation between the instrument underlying an option or Futures Contract
and the assets being hedged, or unexpected adverse price movements, could
render a Fund's hedging strategy unsuccessful and could result in losses. The
Funds also may enter into transactions in options, Futures Contracts, Options
on Futures Contracts and Forward Contracts for other than hedging purposes,
which involves greater risk. In particular, such transactions may result in
losses for a Fund which are not offset by gains on other portfolio positions,
thereby reducing gross income. In addition, foreign currency markets may be
extremely volatile from time to time. There also can be no assurance that a
liquid secondary market will exist for any contract purchased or sold, and a
Fund may be required to maintain a position until exercise or expiration,
which could result in losses. The SAI contains a description of the nature and
trading mechanics of options, Futures Contracts, Options on Futures Contracts,
Forward Contracts and Options on Foreign Currencies, and includes a discussion
of the risks related to transactions therein.
Transactions in Forward Contracts may be entered into only in the over-the-
counter market. Futures Contracts and Options on Futures Contracts may be
entered into on U.S. exchanges regulated by the Commodity Futures Trading
Commission and on foreign exchanges. In addition, the securities and indexes
underlying options, Futures Contracts and Options on Futures Contracts traded
by the Fund will include both domestic and foreign securities.
7. MANAGEMENT OF THE FUNDS
INVESTMENT ADVISER -- The Adviser manages the Worldwide Fund, the Emerging
Equities Fund and the Emerging Markets Fund pursuant to separate Investment
Advisory Agreements dated August 7, 1992, August 7, 1992, and August 1, 1995,
respectively. The Core Plus Fund, the Research Fund, the Mid-Cap Fund and the
International Equity Fund are managed pursuant to separate Investment Advisory
Agreements, each dated November 30, 1995. (These Agreements are collectively
referred to as the "Advisory Agreements"). The Adviser provides each Fund with
overall investment advisory and administrative services, as well as general
office facilities. Subject to such policies as the Trustees may determine, the
Adviser makes investment decisions for each Fund. For its services and
facilities, the Adviser receives a management fee computed and paid monthly in
an amount equal to the following annual rates of the average daily net assets
of each Fund:
PERCENTAGE OF THE AVERAGE
DAILY NET ASSETS
FUND OF EACH FUND
- ---- -------------------------
Worldwide Fund ........................... 0.65%
Emerging Equities Fund ................... 0.75%
Emerging Markets Fund .................... 0.85%
Core Plus Fund ........................... 0.45%
Research Fund ............................ 0.60%
Mid-Cap Fund ............................. 0.60%
International Equity Fund ................ 0.75%
The management fee of the Emerging Equities Fund, the International Equity
Fund and the Emerging Markets Fund is greater than the fees paid by most
funds, but is comparable to fees paid by funds having similar investment
objectives and policies. MFS also serves as investment adviser to each of the
MFS Funds and to MFS Municipal Income Trust, MFS Multimarket Income Trust, MFS
Government Markets Income Trust, MFS Intermediate Income Trust, MFS Charter
Income Trust, MFS Special Value Trust, MFS Union Standard Trust, MFS Variable
Insurance Trust, MFS/Sun Life Series Trust, Sun Growth Variable Annuity Fund,
Inc. and seven variable accounts, each of which is a registered investment
company established by Sun Life Assurance Company of Canada (U.S.) ("Sun Life
of Canada (U.S.)") in connection with the sale of various fixed/variable
annuity contracts. MFS and MFS Institutional Advisors, Inc. also provide
investment advice to substantial private clients.
MFS is America's oldest mutual fund organization. MFS and its predecessor
organizations have a history of money management dating from 1924 and the
founding of the first mutual fund in the U.S., Massachusetts Investors Trust.
Net assets under the management of the MFS organization were approximately
$49.5 billion on behalf of approximately 2.1 million investor accounts as of
September 30, 1996. As of such date, the MFS organization managed
approximately $25.6 billion of assets invested in equity securities,
approximately $19.6 billion of assets invested in fixed income securities, and
$4.1 billion of assets invested in securities of foreign issuers and non-U.S.
dollar securities. MFS is a subsidiary of Sun Life of Canada (U.S.), which in
turn is a wholly owned subsidiary of Sun Life Assurance Company of Canada
("Sun Life"). The Directors of MFS are A. Keith Brodkin, Jeffrey L. Shames,
Arnold D. Scott and John D. McNeil. Mr. Brodkin is the Chairman of MFS, Mr.
Shames is the President of MFS, Mr. Scott is the Secretary and a Senior
Executive Vice President of MFS, and Mr. McNeil is the Chairman of Sun Life.
Sun Life, a mutual life insurance company, is one of the largest international
life insurance companies and has been operating in the U.S. since 1895,
establishing a headquarters office in the U.S. in 1973. The executive officers
of MFS report to the Chairman of Sun Life.
A. Keith Brodkin, the Chairman and a Director of MFS, is also the Chairman,
President and a Trustee of the Trust. W. Thomas London, James O. Yost, Stephen
E. Cavan and James R. Bordewick, Jr., all of whom are officers of MFS, are
officers of the Trust.
MFS has established a strategic alliance with Foreign & Colonial Management
Ltd. ("Foreign & Colonial"). Foreign & Colonial is a subsidiary of two of the
world's oldest financial services institutions, the London-based Foreign &
Colonial Investment Trust PLC, which pioneered the idea of investment
management in 1868, and HYPO-BANK (Bayerische Hypotheken-und Weschsel-Bank
AG), the oldest publicly listed bank in Germany, founded in 1835. As part of
this alliance, the portfolio managers and investment analysts of MFS and
Foreign & Colonial share their views on a variety of investment-related
issues, such as the economy, securities markets, portfolio securities and
their issuers, investment recommendations, strategies and techniques, risk
analysis, trading strategies and other portfolio management matters. MFS has
access to the extensive international equity investment expertise of Foreign &
Colonial, and Foreign & Colonial has access to the extensive U.S. equity
investment expertise of MFS. MFS and Foreign & Colonial each have investment
personnel working in each other's offices in Boston and London, respectively.
In certain instances there may be securities which are suitable for a Fund's
portfolio as well as for portfolios of other clients of MFS or clients of
Foreign & Colonial. Some simultaneous transactions are inevitable when several
clients receive investment advice from MFS and Foreign & Colonial,
particularly when the same security is suitable for more than one client.
While in some cases this arrangement could have a detrimental effect on the
price or availability of the security as far as a Fund is concerned, in other
cases, however, it may produce increased investment opportunities for a Fund.
The identity and background of the portfolio manager(s) for each Fund is set
forth below.
<TABLE>
<CAPTION>
FUND PORTFOLIO MANAGER(S)
<S> <C>
Worldwide Fund -- Richard O. Hawkins, a Senior Vice President of the Adviser, has been employed as
a portfolio manager by the Adviser since 1988.
Emerging Equities Fund -- John W. Ballen, a Senior Vice President of the Adviser, has been employed as a
portfolio manager by the Adviser since 1984. Brian E. Stack, a Vice President of
the Adviser, has been employed as a portfolio manager by the Adviser since 1993.
Prior to 1993, Mr. Stack was employed by Robertson, Stephens & Co. as a
securities analyst.
Emerging Markets Fund -- Jeffrey A. Kaufman, an Investment Officer of the Adviser, has been employed by
the Adviser since 1994. Prior to 1994, he held positions as a Research
Consultant with Apogee Research and Salomon Brothers.
Core Plus Fund -- Geoffrey L. Kurinsky, a Senior Vice President of the Adviser, has been employed
as a portfolio manager by the Adviser since 1987. Peter C. Vaream, a Vice
President of the Adviser, has been employed as a portfolio manager by the
Adviser since 1992. Kevin M. Cronin, a Vice President of the Adviser, has been
employed as a portfolio manager by the Adviser since 1993. Prior to 1993, Mr.
Cronin was employed by Liberty Mutual Insurance Company as a portfolio manager.
Research Fund -- Various equity research analysts employed by the Adviser comprise a committee
that manages the Fund.
Mid-Cap Fund -- John W. Ballen, Chief Equity Officer of the Adviser, has been employed as a
portfolio manager by the Adviser since 1984. Mark Regan, a Vice President of the
Adviser, has been employed as a portfolio manager by the Adviser since 1993.
Prior to 1993, Mr. Regan was employed by Eaton Vance Management as a Securities
Analyst.
International Equity Fund -- David R. Mannheim, a Vice President of the Adviser, has been employed as a
portfolio manager by the Adviser since 1988.
</TABLE>
DISTRIBUTOR -- MFD, a wholly owned subsidiary of MFS, is the distributor of
shares of each Fund and also serves as distributor for each of the other MFS
Funds.
SHAREHOLDER SERVICING AGENT -- MFS Service Center, Inc. (the "Shareholder
Servicing Agent"), a wholly owned subsidiary of MFS, performs transfer agency,
certain dividend disbursing agency and other services for each Fund.
8. INFORMATION CONCERNING SHARES OF THE FUNDS
PURCHASES
Each Fund is designed for sale to institutional investor clients of MFS and
MFS Institutional Advisors, Inc. and other similar investors. Shares of each
Fund may be purchased through MFD in cash or in-kind without a sales charge at
their net asset value next computed after acceptance of the purchase order.
The minimum initial investment is generally $3 million. There is no minimum on
additional investments.
Each Fund intends to be as fully invested at all times as is reasonably
practicable in order to maximize total return. In order to make investments
which will immediately generate income, each Fund must have federal funds
available to it (i.e., monies credited to its custodian bank by a Federal
Reserve bank). An order for the purchase of shares of a Fund will be in "good
order" and will be accepted upon receipt of federal funds available for
investment. Payment by federal funds sent by wire is accepted immediately upon
receipt and payment by check is accepted when federal funds become available
for investment, which generally occurs on the next business day after receipt
of a check. Therefore, a non-federal funds investment will remain idle for one
business day after receipt.
All investments in a Fund are credited to the shareholder's account in the
form of full and fractional shares at the net asset value per share next
determined after acceptance of the purchase order. The Funds do not generally
issue share certificates, but the Shareholder Servicing Agent maintains an
account for each shareholder and mails to each shareholder a confirmation of
each purchase or sale of shares in its account.
Purchases and exchanges should be made for investment purposes only. Each Fund
and MFD reserves the right to reject any specific purchase order deemed by MFS
to be abusive or contrary to the best interests of a Fund's other
shareholders.
OPENING AN ACCOUNT: Payments by check should be made to the order of [insert
name of Fund] and sent to that particular Fund as follows: MFS Service Center,
Inc., P.O. Box 1400, Boston, MA 02107-9906. Payments of federal funds should
be sent by wire to the custodian of the Fund as follows: State Street Bank and
Trust Company, Attn: Mutual Funds Division, For the account of: [Shareholder's
name], Re: [insert name of Fund] (Account No. 99034795) and Wire Number:
[Assigned by telephone].
Information on how to wire federal funds is available at any national bank or
any state bank which is a member of the Federal Reserve System. Shareholders
should also mail the Account Application to the Shareholder Servicing Agent.
A shareholder must first telephone the Shareholder Servicing Agent (see back
cover for telephone number) to advise of its intended action and, if funds are
to be wired, to obtain a wire order number.
IN-KIND PURCHASES: Subject to applicable state securities laws, shares of each
Fund may be purchased with securities acceptable to that particular Fund. A
Fund need not accept any security offered for an in-kind purchase unless it is
consistent with that Fund's investment objective, policies and restrictions
and is otherwise acceptable to the Fund. Securities accepted in-kind for
shares will be valued in accordance with the Fund's usual valuation procedures
(see "Net Asset Value" below). Investors interested in making an in-kind
purchase of Fund shares must first telephone the Shareholder Servicing Agent
(see back cover for telephone number) to advise of its intended action and
obtain instructions for an in-kind purchase.
EXCHANGES
Subject to the requirements set forth below, some or all of the shares in an
account with a Fund for which payment has been received by that Fund (i.e., an
established account) may be exchanged for shares of any of the other series of
the Trust (if available for sale) at net asset value. Exchanges will be made
only after instructions in writing or by telephone (an "Exchange Request") are
received for an established account by the Shareholder Servicing Agent in
proper form (see "Redemptions" below). If an Exchange Request is being used to
open a new account with any other series of the Trust, the exchange must
involve shares having an aggregate value of at least $3 million. If the
Exchange Request is received by the Shareholder Servicing Agent on any
business day prior to the close of regular trading on the Exchange, the
exchange will occur on that day if all the requirements set forth above have
been complied with at that time and subject to a Fund's right to reject
purchase orders. For federal and (generally) state income tax purposes, an
exchange is treated as a sale of the shares exchanged and, therefore, an
exchange could result in a gain or loss to non-tax-exempt shareholders making
the exchange. The exchange privilege (or any aspect of it) may be changed or
discontinued upon sixty days prior written notice to shareholders.
REDEMPTIONS
Shares of a Fund may be redeemed on any business day in cash or in-kind. If
the Adviser determines, in its sole discretion, that it would be detrimental
to the best interests of the remaining shareholders of a Fund, a Fund may make
payment of the redemption price, either totally or partially, by a
distribution in-kind of securities (instead of cash) from that Fund's
portfolio. The securities distributed in such a distribution would be valued
at the same amount as that assigned to them in calculating the net asset value
for the shares being sold (see "Net Asset Value" below). Securities
distributed by a Fund will be selected by the Adviser in light of the Fund's
objective and will not generally represent a pro rata distribution of each
security held in the Fund's portfolio. If a shareholder received a
distribution in-kind, the shareholder would incur brokerage charges when
converting the securities to cash. A distribution in-kind of portfolio
securities may include foreign securities, including securities of issuers in
emerging markets. A shareholder receiving such a redemption in-kind may
encounter difficulties and expenses selling such securities not typically
associated with disposal of U.S. securities. See "Additional Risk Factors --
Foreign Securities" and "-- Emerging Markets" above.
Within seven days after receipt of a redemption request in "good order" by the
Shareholder Servicing Agent, a Fund will make payment in cash in the amount of
(or, as described above, in-kind with a value equal to) the net asset value of
the shares next determined after such redemption request was received, except
during any period in which the right of redemption is suspended or date of
payment is postponed because the New York Stock Exchange is closed or trading
on the New York Stock Exchange is restricted or to the extent otherwise
permitted by the 1940 Act, if an emergency exists. "Good order" generally
means that the stock power, written request for redemption, letter of
instruction or share certificate must be endorsed by the record owner(s)
exactly as the shares are registered and the signature(s) must be guaranteed
in the manner set forth below under the caption "Signature Guarantee." In
addition, in some cases "good order" will require the furnishing of additional
documents. The Shareholder Servicing Agent may make certain de minimus
exceptions to the above requirements for redemptions. Redemptions in cash will
be made by transfer of federal funds for payment into the investor's account.
Redemptions in-kind will be made by the transfer and delivery of securities as
directed by the investor.
When opening an account with a Fund, shareholders will be required to
designate the account(s) to which funds or securities may be transferred upon
redemption. Designation of additional accounts and any change in the accounts
originally designated must be made in writing.
The value of shares redeemed may be more or less than the shareholder's cost,
depending on portfolio performance and distributions made during the period
the shareholder owned his shares. Redemptions of shares are taxable events on
which a shareholder that is not an exempt shareholder may realize a gain or
loss (see "Tax Status" below).
The Trust reserves the right to redeem shares in any account for their then-
current value (which will be promptly paid to the shareholder) if at any time
the total investment in such account drops below $500,000 because of
redemptions. Shareholders will be notified that the value of their account is
less than the minimum investment requirement and allowed 60 days to make an
additional investment before the redemption is processed.
SIGNATURE GUARANTEE: In order to protect shareholders against fraud, each Fund
requires in certain instances as indicated above that the shareholder's
signature be guaranteed. In these cases the shareholder's signature must be
guaranteed by an eligible bank, broker, dealer, credit union, national
securities exchange, registered securities association, clearing agency or
savings association. Signature guarantees shall be accepted in accordance with
policies established by the Shareholder Servicing Agent. With respect to
written requests for redemptions, no signature guarantee or evidence that the
individual executing the stock power, written request for redemption, letter
of instruction or certificate will be required if the amount of the redemption
proceeds does not exceed specified minimums established from time to time by
MFD and the proceeds are wired or mailed to a predesignated account or
address.
DISTRIBUTIONS
Each Fund intends to pay substantially all of its net investment income to its
shareholders as dividends on an annual basis. In determining the net
investment income available for distributions, a Fund may rely on projections
of its anticipated net investment income over a longer term, rather than its
actual net investment income for the period. If the Fund earns less than
projected, or otherwise distributes more than its earnings for the year, a
portion of the distributions may constitute a return of capital. A Fund may
make one or more distributions during the calendar year to its shareholders
from any long-term capital gains, and may also make one or more distributions
during the calendar year to its shareholders from short-term capital gains.
Each Fund intends to distribute premiums from options, if any, annually.
Shareholders may elect to receive dividends and capital gain distributions in
either cash or additional shares. See "Information Concerning Shares of the
Funds -- Tax Status" and "Shareholder Services -- Distribution Options" below.
TAX STATUS
In order to minimize the taxes each Fund would otherwise be required to pay,
each Fund intends to qualify each year as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). Because each Fund intends to distribute all of its net investment
income and net realized capital gains to its shareholders in accordance with
the timing requirements imposed by the Code, it is not expected that any Fund
will be required to pay entity level federal income or excise taxes, although
foreign-source income received by any Fund may be subject to foreign
withholding taxes.
Shareholders of a Fund normally will have to pay federal income taxes, and any
state or local taxes, on the dividends and capital gain distributions they
receive from a Fund whether the distribution is in cash or additional shares.
A portion of the dividends received from each Fund, other than the Core Plus
Fund, may qualify for the dividends received deduction for corporations.
Because the Core Plus Fund expects to earn primarily interest income, it is
expected that none of that Fund's dividends will qualify for the dividends
received deduction for corporations. Shareholders may not have to pay state or
local taxes on certain dividends derived from interest on U.S. government
obligations. Investors should consult with their tax advisors in this regard.
Shortly after the end of each calendar year, each individual shareholder will
be sent a statement setting forth the federal income tax status of all
dividends and distributions for that year, including the portion taxable as
ordinary income, the portion taxable as long-term capital gain, the portion,
if any, representing a return of capital (which is free of current taxes but
results in a basis reduction), the portion, if any, representing interest on
U.S. government obligations, and the amount, if any, of federal income tax
withheld. In certain circumstances, a Fund may elect to "pass through" to
shareholders foreign income taxes paid by that Fund. Under those
circumstances, the Fund will notify shareholders of their pro rata portion of
the foreign income taxes paid by the Fund; shareholders may be eligible for
foreign tax credits or deductions with respect to those taxes, but will be
required to treat the amount of the taxes as an amount distributed to them and
thus includible in their gross income for federal income tax purposes.
Fund distributions will reduce a Fund's net asset value per share.
Shareholders who buy shares shortly before a Fund makes a distribution may
thus pay the full price for the shares and then effectively receive a portion
of the purchase price back as a taxable distribution.
Each Fund intends to withhold U.S. federal income tax at a rate of 30% on
dividends and certain other payments that are subject to such withholding, and
that are made to non-exempt persons who are neither citizens nor residents of
the U.S., regardless of whether a lower rate may be permitted under an
applicable treaty. Each Fund is also required in certain circumstances to
apply backup withholding of 31% on reportable dividends and redemption
proceeds paid to any shareholder (including a shareholder who is neither a
citizen nor a resident of the U.S.) who does not furnish to the Fund certain
information and certifications or who is otherwise subject to backup
withholding. However, backup withholding will not be applied to payments that
have been subject to 30% withholding. Prospective shareholders should read the
Account Application for additional information regarding backup withholding of
federal income tax and should consult their own tax advisers as to the tax
consequences to them of an investment in the Fund.
NET ASSET VALUE
The net asset value of shares of each Fund is determined each day during which
the New York Stock Exchange is open for trading. This determination is made
once each day as of the close of regular trading on the New York Stock
Exchange by deducting the amount of a Fund's liabilities from the value of its
assets and dividing the difference by the number of its shares outstanding.
Assets in a Fund's portfolio are valued on the basis of their market values or
otherwise at their fair values, as described in the SAI. All investments and
assets are expressed in U.S. dollars based upon current currency exchange
rates. A share's net asset value is effective for orders received in "good
order" by a Fund prior to its calculation and received by a Fund prior to the
close of that business day.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust has only one class of shares, entitled Shares of Beneficial Interest
(without par value). The Trust presently has seven series and has reserved the
right to create and issue additional series. Each share of a series represents
an equal proportionate interest in that series with each other share of that
series. The shares of each series participate equally in the earnings,
dividends and assets of the particular series. Shares when issued are fully
paid and non-assessable. Shareholders are entitled to one vote for each share
held. Shares of each series generally vote separately, for example to approve
investment advisory agreements, but shares of all series vote together,
including shares of other series of the Trust, to the extent required under
the 1940 Act, in the election or selection of Trustees and accountants.
Shareholders of each series would be entitled to share pro rata in the net
assets of that series available for distribution to shareholders upon
liquidation of the Trust or that series. The Trust is not required to and has
no current intention to hold annual shareholder meetings, although special
meetings may be called for purposes of electing or removing Trustees, changing
fundamental investment restrictions or approving an investment advisory
agreement.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed (e.g., fidelity bonding and errors and omissions
insurance) and the Trust itself was unable to meet its obligations.
The MFS Pension Plans, 500 Boylston Street, Boston, MA, owns 54.2% of the
Emerging Market Fund's shares, 30.5% of the Mid-Cap Fund's shares and 100% of
the International Equity Fund's shares, and, therefore, controls such Funds.
MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA, owns 42.4% of
the Emerging Markets Fund's shares, and, therefore, controls the Fund.
Boston Safe Deposit Co., Trustee, TWA Pilots DPA 401(K) Plan, 1 Cabot Road,
Medford, MA, owns 100% of the Research Fund's shares, and, therefore, controls
the Fund.
Depauw University, 313 S. Locust Street, Greencastle, IN, owns 69.5% of the
Mid-Cap Fund's shares, and, therefore, controls the Fund.
PERFORMANCE INFORMATION
From time to time, a Fund may provide total rate of return and yield
quotations and may also quote fund rankings from various sources, such as the
Lipper Analytical Services, Inc. and Wiesenberger Investment Companies
Service. Total rate of return quotations will reflect the average annual
percentage change over stated periods in the value of an investment in a Fund
made at the net asset value with all distributions reinvested. Yield
quotations are based on the annualized net investment income per share of a
Fund over a 30-day period stated as a percent of the net asset value on the
last day of that period. Each Fund's total rate of return and yield quotations
are based on historical performance and are not intended to indicate future
performance. Total rate of return reflects all components of investment return
over a stated period of time, while yield reflects only net portfolio income
as of a stated time. A Fund's quotations may from time to time be used in
advertisements, shareholder reports or other communications to shareholders.
For a discussion of the manner in which each Fund will calculate its total
rate of return and yield, see the SAI.
EXPENSES
The Trust pays the compensation of its Trustees who are not officers of MFS
and all expenses of each Fund (other than those assumed by MFS) including but
not limited to: governmental fees; interest charges; taxes; membership dues in
the Investment Company Institute allocable to each Fund, fees and expenses of
independent auditors, of legal counsel, and of any transfer agent, registrar
or dividend disbursing agent of each Fund; expenses of repurchasing and
redeeming shares and servicing shareholder accounts; expenses of preparing,
printing and mailing prospectuses, periodic reports, notices and proxy
statements to shareholders and to governmental officers and commissions;
brokerage and other expenses connected with the execution, recording and
settlement of portfolio security transactions; insurance premiums; fees and
expenses of State Street Bank and Trust Company, the Trust's Custodian, for
all services to a Fund, including safekeeping of funds and securities and
maintaining required books and accounts; expenses of calculating the net asset
value of shares of each Fund; and expenses of shareholder meetings. Expenses
relating to the issuance, registration and qualification of shares of each
Fund and the preparation, printing and mailing of prospectuses are borne by
each Fund except that the Distribution Agreement with MFD requires MFD to pay
for prospectuses that are to be used for sales purposes. Expenses of the Trust
which are not attributable to a specific series of the Trust are allocated
among the series in a manner believed by management of the Trust to be fair
and equitable.
MFS has also agreed to pay the expenses of each of the Worldwide Fund and the
Emerging Equities (until June 30, 1997), of the Emerging Markets Fund (until
December 31, 2005) and of the Core Plus Fund, the Research Fund, the Mid-Cap
Fund and the International Equity Fund (for an indefinite period of time),
such that the aggregate operating expenses of each Fund do not exceed the
following percentage, on an annualized basis, of its average daily net assets:
0.65% of the Worldwide Fund; 0.75% of the Emerging Equities Fund; 1.25% of the
Emerging Markets Fund; 0.50% of the Core Plus Fund; 0.65% of the Research
Fund; 0.65% of the Mid-Cap Fund; and 0.85% of the International Equity Fund.
Each obligation to pay expenses may be terminated or revised at any time by
MFS without the consent of the Trust or the Fund by notice in writing from MFS
to the Trust on behalf of the Fund. With respect to the Emerging Markets Fund,
such payments by MFS are subject to reimbursement by the Fund which will be
accomplished by the payment by the Fund of an expense reimbursement fee to MFS
computed and paid monthly at a percentage of its average daily net assets for
its then current fiscal year, with a limitation that immediately after such
payment the aggregate operating expenses of each Fund would not exceed, on an
annualized basis, 1.25% of its average daily net assets. The expense
reimbursement agreement terminates for the Emerging Markets Fund on the
earlier of the date on which payments made thereunder by the Fund equal the
prior payment of such reimbursable expenses by MFS or December 31, 2005.
9. SHAREHOLDER SERVICES
Shareholders with questions concerning the shareholder services described
below or concerning other aspects of a Fund, should contact the Shareholder
Servicing Agent.
ACCOUNT AND CONFIRMATION STATEMENTS -- Each shareholder will receive
confirmation statements showing the transaction activity in its account. At
the end of each calendar year, each shareholder will receive income tax
information regarding any reportable dividends, capital gain distributions or
other distributions for that year.
DISTRIBUTION OPTIONS -- The following options are available to all accounts
and may be changed as often as desired by notifying the Shareholder Servicing
Agent:
-- Dividends and capital gain distributions reinvested in additional
shares. This option will be assigned if no other option is specified.
-- Dividends in cash; capital gain distributions reinvested in additional
shares.
-- Dividends and capital gain distributions in cash.
Dividends and capital gains distributions will be reinvested (net of any tax
withholding) in additional full and fractional shares at the net asset value
in effect at the close of business on the record date.
Dividends and capital gain distributions in amounts less than $10 will
automatically be reinvested in additional shares of a Fund. Any request to
change a distribution option must be received by the Shareholder Servicing
Agent by the record date for a dividend or distribution in order to be
effective for that dividend or distribution. No interest will accrue on
amounts represented by uncashed distributions or redemption checks.
----------------
The Funds' SAI, dated November 1, 1996, contains more detailed information
about the Trust and the Funds, including, but not limited to, information
related to: (i) each Fund's investment policies and restrictions, including
the purchase and sale of options, Futures Contracts, Options on Futures
Contracts, Forward Contracts and Options on Foreign Currencies; (ii) the
Trustees, officers and Adviser; (iii) portfolio trading; (iv) each Fund's
shares, including rights and liabilities of shareholders; (v) tax status of
dividends and distributions; and (vi) various services and privileges provided
by each Fund for the benefit of its shareholders.
<PAGE>
APPENDIX A
DESCRIPTION OF BOND RATINGS
The ratings of Moody's, S&P, Fitch and Duff & Phelps represent their opinions as
to the quality of various debt instruments. It should be emphasized, however,
that ratings are not absolute standards of quality. Consequently, debt
instruments with the same maturity, coupon and rating may have different yields
while debt instruments of the same maturity and coupon with different ratings
may have the same yield.
MOODY'S INVESTORS SERVICE, INC.
AAA: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuations of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA: Bonds which are rated Baa are considered as medium grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
CA: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted;
2. the issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy;
3. there is a lack of essential data pertaining to the issue or issuer;
and
4. the issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
STANDARD & POOR'S RATINGS SERVICES
AAA: Debt rated AAA has the highest rating assigned by S&P's. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
A-1 AND P-1 COMMERCIAL PAPER RATINGS
Description of S&P, Fitch and Moody's highest commercial paper ratings:
The rating "A" is the highest commercial paper rating assigned by S&P and Fitch,
and issues so rated are regarded as having the greatest capacity for timely
payment. Issues in the "A" category are delineated with the numbers 1, 2 and 3
to indicate the relative degree of safety. The A-1 designation indicates that
the degree of safety regarding timely payment is either overwhelming or very
strong. Those A-1 issues determined to possess overwhelming safety
characteristics will be denoted with a plus (+) sign designation.
The rating P-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated P-1 have a superior ability for repayment. P-1 repayment capacity
will normally be evidenced by the following characteristics: (1) leading market
positions in well established industries; (2) high rates of return on funds
employed; (3) conservative capitalization structure with moderate reliance on
debt and ample asset protection; (4) broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and (5) well established
access to a range of financial markets and assured sources of alternate
liquidity.
FITCH INVESTORS SERVICE, INC.
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably forseeble events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rated category. Plus and
minus signs, however, are not used in the "AAA" category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of
a project or the occurrence of a specific event.
SUSPENDED: A rating is suspended when Fitch deems the amount of information
available from the issuer to be inadequate for rating purposes.
WITHDRAWN: A rating will be withdrawn when an issue matures or is called or
refinanced, and, at Fitch's discretion, when an issuer fails to furnish proper
and timely information.
FITCHALERT: Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and the likely direction
of such change. These are designated a "Positive," indicating a potential
upgrade, "Negative," for potential downgrade, or "Evolving," where ratings may
be lowered, FitchAlert is relatively short-term, and should be resolved within
12 months.
DUFF & PHELPS CREDIT RATING CO.
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "D-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
PLUS (+) OR MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within a rating category. Plus and
minus signs, however, are not used in the "AAA" category.
NR: Indicates that Duff & Phelps does not rate the specific issue.
<PAGE>
APPENDIX B
PORTFOLIO COMPOSITION CHART
The table below shows the percentages of the Emerging Market Fund's assets at
June 30, 1996 invested in bonds assigned to the various rating categories by
S&P, Moody's (provided only for bonds not rated by S&P), Fitch (provided only
for bonds not rated by S&P or Moody's) and Duff & Phelps (provided only for
bonds not rated by S&P, Moody's or Fitch) and in unrated bonds determined by MFS
to be of comparable quality. For split rated bonds, the higher of S&P or Moody's
is used. When neither an S&P or Moody's rating is available, secondary sources
are selected in the following order: Fitch and Duff & Phelps.
MFS EMERGING MARKET INCOME FUND
COMPILED UNRATED BONDS OF
RATING RATINGS COMPARABLE QUALITY TOTAL
AAA/Aaa
AA/Aa
A/A 8.91% 8.91%
BBB/Baa
BB/Ba 22.60% 22.60%
B/B 8.71% 6.83% 15.54%
CCC/Caa
CC/Ca
C/C
Default
------ ----- ------
Total 40.22% 6.83% 47.05%
The chart does not necessarily indicate what the composition of the Emerging
Market Fund's portfolio will be in subsequent years. Rather, the Fund's
investment objective, policies and restrictions indicate the extent to which the
Fund may purchase securities in the various categories.
<PAGE>
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116
(617) 954-5000
(800) 637-2262
Distributor
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116
(617) 954-5000
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Dividend Disbursing Agent
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
Shareholder Servicing Agent
MFS Service Center, Inc.
500 Boylston Street, Boston, MA 02116
Toll-free: (800) 637-2262
Mailing Address
P.O. Box 1400
Boston, MA 02107-9906
Independent Auditors
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
[GRAPHIC OMITTED - MFS LOGO]
MFS(R) INSTITUTIONAL WORLDWIDE FIXED INCOME FUND
MFS(R) INSTITUTIONAL EMERGING EQUITIES FUND
MFS(R) INSTITUTIONAL EMERGING MARKETS INCOME FUND
MFS(R) INSTITUTIONAL CORE PLUS FIXED INCOME FUND
MFS(R) INSTITUTIONAL RESEARCH FUND
MFS(R) INSTITUTIONAL MID-CAP GROWTH EQUITY FUND
MFS(R) INSTITUTIONAL INTERNATIONAL EQUITY FUND
500 Boylston Street
Boston, MA 02116
11/96
<PAGE>
[graphic omitted: MFS logo]
MFS(R) INSTITUTIONAL WORLDWIDE FIXED INCOME FUND
MFS(R) INSTITUTIONAL EMERGING EQUITIES FUND
MFS(R) INSTITUTIONAL EMERGING MARKETS INCOME FUND
MFS(R) INSTITUTIONAL CORE PLUS FIXED INCOME FUND
MFS(R) INSTITUTIONAL RESEARCH FUND
MFS(R) INSTITUTIONAL MID-CAP GROWTH EQUITY FUND
MFS(R) INSTITUTIONAL INTERNATIONAL EQUITY FUND
Each a Series of MFS Institutional Trust
500 Boylston Street, Boston, Massachusetts 02116
(617) 954-5000
STATEMENT OF
ADDITIONAL INFORMATION
November 1, 1996
- -------------------------------------------------------------------------------
Page
1. Definitions .................................................. 2
2. Investment Policies and Restrictions ......................... 2
3. Management of the Funds ...................................... 15
Trustees ................................................. 15
Officers ................................................. 15
Investment Adviser ....................................... 16
Custodian ................................................ 17
Shareholder Servicing Agent .............................. 17
Distributor .............................................. 17
4. Portfolio Transactions and Brokerage Commissions ............. 17
5. Tax Status ................................................... 18
6. Determination of Net Asset Value and Performance ............. 19
7. Description of Shares, Voting Rights and Liabilities ......... 21
8. Independent Auditors and Financial Statements ................ 22
Exhibit A - Trustee Compensation Table ........................... 23
This Statement of Additional Information, as amended or supplemented from time
to time (the "SAI"), sets forth information which may be of interest to
investors but which is not necessarily included in the Funds' Prospectus,
dated November 1, 1996. This SAI should be read in conjunction with the
Prospectus, a copy of which may be obtained without charge by contacting the
Shareholder Servicing Agent (see back cover for address and phone number).
THIS SAI IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
<PAGE>
1. DEFINITIONS
"Worldwide Fund" -- MFS Institutional Worldwide Fixed
Income Fund, a non-diversified series of MFS
Institutional Trust.
"Emerging Equities Fund" -- MFS Institutional Emerging Equities Fund, a
diversified series of MFS Institutional Trust.
"Emerging Markets Fund" -- MFS Institutional Emerging Markets Income
Fund, a non-diversified series of MFS
Institutional Trust.
"Core Plus Fund" -- MFS Institutional Core Plus Fixed Income
Fund, a diversified series of MFS
Institutional Trust.
"Research Fund" -- MFS Institutional Research Fund, a
diversified series of MFS Institutional Trust.
"Mid-Cap Fund" -- MFS Institutional Mid-Cap Growth Equity
Fund, a diversified series of MFS
Institutional Trust.
"International Equity Fund" -- MFS Institutional International Equity Fund,
a diversified series of MFS Institutional
Trust.
"Funds" -- Worldwide Fund, Emerging Equities Fund,
Emerging Markets Fund, Core Plus Fund,
Research Fund, Mid-Cap Fund and International
Equity Fund.
"MFS" or the "Adviser" -- Massachusetts Financial Services Company, a
Delaware corporation.
"MFD" -- MFS Fund Distributors, Inc., a Delaware
Corporation
"Prospectus" -- The Prospectus of the Funds, dated November
1, 1996, as amended or supplemented from time
to time.
"Trust" -- MFS Institutional Trust, a Massachusetts
business trust. On June 1, 1992, the Trust
changed its name from Public Funds Investment
Trust. The Trust is currently comprised of
seven series.
2. INVESTMENT POLICIES AND RESTRICTIONS
INVESTMENT POLICIES. The investment objective(s) and policies of the Funds are
described in the Prospectus. The following discussion of the Fund's investment
policies and restrictions supplements and should be read in conjunction with
the information set forth in the Prospectus.
EMERGING MARKET SECURITIES: The Emerging Markets Fund invests primarily in
fixed income securities of government, government-related, supranational and
corporate issuers located or primarily conducting their business in emerging
markets. Each Fund may also invest in emerging market securities. Such
invesRments entail significant risks as described in the Prospectus under the
caption "Additional Risk Factors -- Emerging Market Securities" and as more
fully described below.
COMPANY DEBT -- Governments of many emerging market countries have exercised
and continue to exercise substantial influence over many aspects of the
private sector through the ownership or control of many companies, including
some of the largest in any given country. As a result, government actions in
the future could have a significant effect on economic conditions in emerging
markets, which in turn, may adversely affect companies in the private sector,
general market conditions and prices and yields of certain of the securities
in a Fund's portfolio. Expropriation, confiscatory taxation, nationalization,
political, economic or social instability or other similar developments have
occurred frequently over the history of certain emerging markets and could
adversely affect a Fund's assets should these conditions recur.
SOVEREIGN DEBT -- Investment in sovereign debt can involve a high degree of
risk. The governmental entity that controls the repayment of sovereign debt
may not be able or willing to repay the principal and/or interest when due in
accordance with the terms of such debt. A governmental entity's willingness or
ability to repay principal and interest due in a timely manner may be affected
by, among other factors, its cash flow situation, the extent of its foreign
reserves, the availability of sufficient foreign exchange on the date a
payment is due, the relative size of the debt service burden to the economy as
a whole, the governmental entity's policy towards the International Monetary
Fund, and the political constraints to which a governmental entity may be
subject. Governmental entities may also be dependent on expected disbursements
from foreign governments, multilateral agencies and others abroad to reduce
principal and interest averages on their debt. The commitment on the part of
these governments, agencies and others to make such disbursements may be
conditioned on a governmental entity's implementation of economic reforms and/
or economic performance and the timely service of such debtor's obligations.
Failure to implement such reforms, achieve such levels of economic performance
or repay principal or interest when due may result in the cancellation of such
third parties' commitments to lend funds to the governmental entity, which may
further impair such debtor's ability or willingness to service its debts in a
timely manner. Consequently, governmental entities may default on their
sovereign debt. Holders of sovereign debt (including a Fund) may be requested
to participate in the rescheduling of such debt and to extend further loans to
governmental entities. There is no bankruptcy proceeding by which sovereign
debt on which governmental entities have defaulted may be collected in whole
or in part.
Emerging market governmental issuers are among the largest debtors to
commercial banks, foreign governments, international financial organizations
and other financial institutions. Certain emerging market governmental issuers
have not been able to make payments of interest on or principal of debt
obligations as those payments have come due. Obligations arising from past
restructuring agreements may affect the economic performance and political and
social stability of those issuers.
The ability of emerging market governmental issuers to make timely payments on
their obligations is likely to be influenced strongly by the issuer's balance
of payments, including export performance, and its access to international
credits and investments. An emerging market whose exports are concentrated in
a few commodities could be vulnerable to a decline in the international prices
of one or more of those commodities. Increased protectionism on the part of an
emerging market's trading partners could also adversely affect the country's
exports and tarnish its trade account surplus, if any. To the extent that
emerging markets receive payment for its exports in currencies other than
dollars or non-emerging market currencies, its ability to make debt payments
denominated in dollars or non-emerging market currencies could be affected.
To the extent that an emerging market country cannot generate a trade surplus,
it must depend on continuing loans from foreign governments, multilateral
organizations or private commercial banks, aid payments from foreign
governments and on inflows of foreign investment. The access of emerging
markets to these forms of external funding may not be certain, and a
withdrawal of external funding could adversely affect the capacity of emerging
market country governmental issuers to make payments on their obligations. In
addition, the cost of servicing emerging market debt obligations can be
affected by a change in international interest rates since the majority of
these obligations carry interest rates that are adjusted periodically based
upon international rates.
Another factor bearing on the ability of emerging market countries to repay
debt obligations is the level of international reserves of the country.
Fluctuations in the level of these reserves affect the amount of foreign
exchange readily available for external debt payments and thus could have a
bearing on the capacity of emerging market countries to make payments on these
debt obligations.
LIQUIDITY; TRADING VOLUME; REGULATORY OVERSIGHT -- The securities markets of
emerging market countries are substantially smaller, less developed, less
liquid and more volatile than the major securities markets in the U.S.
Disclosure and regulatory standards are in many respects less stringent than
U.S. standards. Furthermore, there is a lower level of monitoring and
regulation of the markets and the activities of investors in such markets.
The limited size of many emerging market securities markets and limited
trading volume in the securities of emerging market issuers compared to volume
of trading in the securities of U.S. issuers could cause prices to be erratic
for reasons apart from factors that affect the soundness and competitiveness
of the securities issuers. For example, limited market size may cause prices
to be unduly influenced by traders who control large positions. Adverse
publicity and investors' perceptions, whether or not based on in-depth
fundamental analysis, may decrease the value and liquidity of portfolio
securities.
The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading of securities may cease or may
be substantially curtailed and prices for a Fund's securities in such markets
may not be readily available. The Trust may suspend redemption of its shares
for any period during which an emergency exists, as determined by the
Securities and Exchange Commission (the "SEC"). Accordingly, if a Fund
believes that appropriate circumstances exist, it will promptly apply to the
SEC for a determination that an emergency is present. During the period
commencing from a Fund's identification of such condition until the date of
the SEC action, a Fund's securities in the affected markets will be valued at
fair value determined in good faith by or under the direction of the Board of
Trustees.
DEFAULT; LEGAL RECOURSE -- A Fund may have limited legal recourse in the event
of a default with respect to certain debt obligations it may hold. If the
issuer of a fixed-income security owned by a Fund defaults, that Fund may
incur additional expenses to seek recovery. Debt obligations issued by
emerging market governments differ from debt obligations of private entities;
remedies from defaults on debt obligations issued by emerging market
governments, unlike those on private debt, must be pursued in the courts of
the defaulting party itself. A Fund's ability to enforce its rights against
private issuers may be limited. The ability to attach assets to enforce a
judgment may be limited. Legal recourse is therefore somewhat diminished.
Bankruptcy, moratorium and other similar laws applicable to private issuers of
debt obligations may be substantially different from those of other countries.
The political context, expressed as an emerging market governmental issuer's
willingness to meet the terms of the debt obligation, for example, is of
considerable importance. In addition, no assurance can be given that the
holders of commercial bank debt may not contest payments to the holders of
debt obligations in the event of default under commercial bank loan
agreements.
INFLATION -- Many emerging markets have experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have adverse
effects on the economies and securities markets of certain emerging market
countries. In an attempt to control inflation, wage and price controls have
been imposed in certain countries. Of these countries, some, in recent years,
have begun to control inflation through prudent economic policies.
WITHHOLDING -- Income from securities held by a Fund could be reduced by a
withholding tax on the source or other taxes imposed by the emerging market
countries in which the Fund makes its investments. A Fund's net asset value
may also be affected by changes in the rates or methods of taxation applicable
to the Fund or to entities in which the Fund has invested. The Adviser will
consider the cost of any taxes in determining whether to acquire any
particular investments, but can provide no assurance that the taxes will not
be subject to change.
FOREIGN CURRENCIES -- The Emerging Markets Fund may invest up to 100% of its
assets in securities denominated in foreign currencies and international
currency units and each other Fund may invest a portion of its assets in
foreign currencies. Accordingly, changes in the value of these currencies and
units against the U.S. dollar may result in corresponding changes in the U.S.
dollar value of the Fund's assets denominated in those currencies and units.
Some emerging market countries also may have managed currencies, which are not
free floating against the U.S. dollar. In addition, there is risk that certain
emerging market countries may restrict the free conversion of their currencies
into other currencies. Further, certain emerging market currencies may not be
internationally traded. Certain of these currencies have experienced a steep
devaluation relative to the U.S. dollar. Any devaluations in the currencies in
which a Fund's portfolio securities are denominated may have a detrimental
impact on the Fund's net asset value.
REPURCHASE AGREEMENTS: As described in the Prospectus, each Fund may enter
into repurchase agreements with sellers who are member firms (or a subsidiary
thereof) of the New York Stock Exchange or members of the Federal Reserve
System, recognized domestic or foreign securities dealers or institutions
which the Adviser has determined to be of comparable creditworthiness. The
securities that a Fund purchases and holds have values that are equal to or
greater than the repurchase price agreed to be paid by the seller. The
repurchase price may be higher than the purchase price, the difference being
income to a Fund, or the purchase and repurchase prices may be the same, with
interest at a standard rate due to a Fund together with the repurchase price
on repurchase.
The repurchase agreement provides that in the event the seller fails to pay
the price agreed upon on the agreed upon delivery date or upon demand, as the
case may be, a Fund will have the right to liquidate the securities. If at the
time the Fund is contractually entitled to exercise its right to liquidate the
securities, the seller is subject to a proceeding under the bankruptcy laws or
its assets are otherwise subject to a stay order, the Fund's exercise of its
right to liquidate the securities may be delayed and result in certain losses
and costs to the Fund. Each Fund has adopted and follows procedures which are
intended to minimize the risks of repurchase agreements. For example, each
Fund only enters into repurchase agreements after the Adviser has determined
that the seller is creditworthy, and the Adviser monitors that seller's
creditworthiness on an ongoing basis. Moreover, under such agreements, the
value of the securities (which are marked to market every business day) is
required to be greater than the repurchase price, and each Fund has the right
to make margin calls at any time if the value of the securities falls below
the agreed upon margin.
LENDING OF PORTFOLIO SECURITIES: Each Fund may seek to increase its income by
lending portfolio securities to entities deemed creditworthy by the Adviser.
Such loans would be required to be secured continuously by collateral in cash,
U.S. Government securities or an irrevocable letter of credit maintained on a
current basis at an amount at least equal to the market value of the
securities loaned. A Fund would have the right to call a loan and obtain the
securities loaned at any time on customary industry settlement notice (which
will usually not exceed five days). During the existence of a loan, a Fund
would continue to receive the equivalent of the interest or dividends paid by
the issuer on the securities loaned and would also receive compensation based
on investment of the cash collateral or a fee. The Fund would not, however,
have the right to vote any securities having voting rights during the
existence of the loan, but would call the loan in anticipation of an important
vote to be taken among holders of the securities or of the giving or
withholding of their consent on a material matter affecting the investment. As
with other extensions of credit there are risks of delay in recovery or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, the loans would be made only to firms deemed by the
Adviser to be of good standing, and when, in the judgment of the Adviser, the
consideration which could be earned currently from securities loans of this
type justifies the attendant risk. If the Adviser determines to make
securities loans, it is not intended that the value of the securities loaned
would exceed 30% of the value of each Fund's total assets.
FOREIGN SECURITIES: Each Fund may invest in foreign securities as discussed in
the Prospectus. Investments in foreign issues involve considerations and
possible risks not typically associated with investments in securities issued
by domestic companies or with debt securities issued by foreign governments.
There may be less publicly available information about a foreign company than
about a domestic company, and many foreign companies are not subject to
accounting, auditing and financial reporting standards and requirements
comparable to those to which U.S. companies are subject. Foreign securities
markets, while growing in volume, have substantially less volume than U.S
markets, and securities of many foreign companies are less liquid and their
prices more volatile than securities of comparable domestic companies. Fixed
brokerage commissions and other transaction costs on foreign securities
exchanges are generally higher than in the U.S. There is also less government
supervision and regulation of exchanges, brokers and issuers in foreign
countries than there is in the U.S.
WHEN-ISSUED OR FORWARD DELIVERY SECURITIES: If a Fund commits to purchase a
security on a "when-issued" or "forward delivery" basis, it will set up
procedures consistent with the General Statement of Policy of the SEC
concerning such purchases. Since that policy currently recommends that an
amount of a Fund's assets equal to the amount of the purchase be held aside or
segregated to be used to pay for the commitment, the Fund will always have
cash, short-term money market instruments or high quality debt securities
sufficient to cover any commitments. However, although each Fund does not
intend to make such purchases for speculative purposes and intends to adhere
to the provisions of the SEC policy, purchases of securities on such bases may
involve more risk than other types of purchases. For example, a Fund may have
to sell assets which have been set aside in order to meet redemptions. Also,
if a Fund determines it necessary to sell the "when-issued" or "forward
delivery" securities before delivery, it may incur a loss because of market
fluctuations since the time the commitment to purchase such securities was
made.
AMERICAN DEPOSITARY RECEIPTS: American Depositary Receipts ("ADRs") are
certificates issued by a U.S. depository (usually a bank) and represent a
specified quantity of shares of an underlying non-U.S. stock on deposit with a
custodian bank as collateral. ADRs may be sponsored or unsponsored. A
sponsored ADR is issued by a depository which has an exclusive relationship
with the issuer of the underlying security. An unsponsored ADR may be issued
by any number of U.S. depositories. Under the terms of most sponsored
arrangements, depositories agree to distribute notices of shareholder meetings
and voting instructions, and to provide shareholder communications and other
information to the ADR holders at the request of the issuer of the deposited
securities. The depository of an unsponsored ADR, on the other hand, is under
no obligation to distribute shareholder communications received from the
issuer of the deposited securities or to pass through voting rights to ADR
holders in respect of the deposited securities. Each Fund except the Core Plus
Fund and the Emerging Markets Fund may invest in either type of ADR. Although
the U.S. investor holds a substitute receipt of ownership rather than direct
stock certificates, the use of the depository receipts in the United States
can reduce costs and delays as well as potential currency exchange and other
difficulties. A Fund may purchase securities in local markets and direct
delivery of these ordinary shares to the local depository of an ADR agent bank
in the foreign country. Simultaneously, the ADR agents create a certificate
which settles at the Fund's custodian in five days. A Fund may also execute
trades on the U.S. markets using existing ADRs. A foreign issuer of the
security underlying an ADR is generally not subject to the same reporting
requirements in the United States as a domestic issuer. Accordingly the
information available to a U.S. investor will be limited to the information
the foreign issuer is required to disclose in its own country and the market
value of an ADR may not reflect undisclosed material information concerning
the issuer of the underlying security. ADRs may also be subject to exchange
rate risks if the underlying foreign securities are denominated in foreign
currency.
INVESTMENT IN OTHER INVESTMENT COMPANIES: A Fund's investment in other
investment companies, as described in the Prospectus, is limited in amount by
the Investment Company Act of 1940, as amended (the "1940 Act"), so that a
Fund may purchase shares in another investment company unless (i) such a
purchase would cause a Fund to own in aggregate more than 3% of the total
outstanding voting stock of the company or (ii) such a purchase would cause a
Fund to have more than 5% of its total assets invested in one investment
company or more than 10% of its total assets invested in aggregate in all
other investment companies. Such investment may also involve the payment of
substantial premiums above the value of such investment companies' portfolio
securities, and the total return on such investment will be reduced by the
operating expenses and fees of such other investment companies, including
advisory fees.
LOANS AND OTHER DIRECT INDEBTEDNESS: The Emerging Markets Fund, the Mid-Cap
Fund and the International Equity Fund may purchase loans and other direct
indebtedness. In purchasing a loan, a Fund acquires some or all of the
interest of a bank or other lending institution in a loan to a corporate,
governmental or other borrower. Many such loans are secured, although some may
be unsecured. Such loans may be in default at the time of purchase. Loans that
are fully secured offer a Fund more protection than an unsecured loan in the
event of non-payment of scheduled interest or principal. However, there is no
assurance that the liquidation of collateral from a secured loan would satisfy
the corporate borrower's obligation, or that the collateral can be liquidated.
These loans are made generally to finance internal growth, mergers,
acquisitions, stock repurchases, leveraged buy-outs and other corporate
activities. Such loans are typically made by a syndicate of lending
institutions, represented by an agent lending institution which has negotiated
and structured the loans and is responsible for collecting interest, principal
and other amounts due on its own behalf and on behalf of the others in the
syndicate, and for enforcing its and their other rights against the borrower.
Alternatively, such loans may be structured as a novation, pursuant to which a
Fund would assume all of the rights of the lending institution in a loan, or
as an assignment, pursuant to which a Fund would purchase an assignment of a
portion of a lender's interest in a loan either directly from the lender or
through an intermediary. The Mid-Cap Fund and the International Equity Fund
may also purchase trade or other claims against companies, which generally
represent money owed by the company to a supplier of goods or services. These
claims may also be purchased at a time when the company is in default.
Certain of the loans acquired by a Fund may involve revolving credit
facilities or other standby financing commitments which obligate a Fund to pay
additional cash or a certain date or on demand. These commitments may have the
effect of requiring a Fund to increase its investment in a company at a time
when the Fund might not otherwise decide to do so (including at a time when
the company's financial condition makes it unlikely that such amounts will be
repaid). To the extent that a Fund is committed to advance additional funds,
it will at all times hold and maintain in a segregated account cash or other
high grade debt obligations in an amount sufficient to meet such commitments.
A Fund's ability to receive payments of principal, interest and other amounts
due in connection with these investments will depend primarily on the
financial condition of the borrower. Direct indebtedness of developing
countries involves the risk that the governmental entities responsible for the
repayment of the note may be unable, or unwilling, to pay interest and repay
principal where due. In selecting the loans and other direct investments which
a Fund will purchase, the Adviser will rely upon its (and not that of the
original lending institution's) own credit analysis of the borrower. As a Fund
may be required to rely upon another lending institution to collect and pass
on to the Fund amounts payable with respect to the loan and to enforce a
Fund's rights under the loan, an insolvency, bankruptcy or reorganization of
the lending institution may delay or prevent a Fund from receiving such
amounts. In such cases, a Fund will evaluate the creditworthiness of the
lending institution and will treat both the borrower and the lending
institution as an "issuer" of the loan participation for purposes of certain
investment restrictions pertaining to the diversification of that Fund's
portfolio investments. The highly leveraged nature of many such loans may make
such loans especially vulnerable to adverse changes in economic or market
conditions. Investments in such loans may involve additional risks to a Fund.
For example, if a loan is foreclosed, a Fund could become part owner of any
collateral, and would bear the costs and liabilities associated with owning
and disposing of the collateral. In addition, it is conceivable that under
emerging legal theories of lender liability, a Fund could be held liable as a
co-lender. It is unclear whether loans and other forms of direct indebtedness
offer securities law protections against fraud and misrepresentation. In the
absence of definitive regulatory guidance, a Fund relies on the Adviser's
research in an attempt to avoid situations where fraud or misrepresentation
could adversely affect the Fund. In addition, loans and other direct
investments may not be in the form of securities or may be subject to
restrictions on transfer, and only limited opportunities may exist to resell
such instruments. As a result, a Fund may be unable to sell such investments
at an opportune time or may have to resell them at less than fair market
value. To the extent that the Adviser determines that any such investments are
illiquid, each Fund will include them in the investment limitations described
below.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS: As described in the Prospectus, the Core
Plus Fund may enter into mortgage "dollar roll" transactions
pursuant to which it sells mortgage-backed securities for delivery in the
future and simultaneously contracts to repurchase substantially similar
securities on a specified future date. During the roll period, the Fund fore-
goes principal and interest paid on the mortgage-backed securities. The Fund
is compensated for the lost interest by the difference between the current
sales price and the lower price for the future purchase (often referred to as
the "drop") as well as by the interest earned on the cash proceeds of the
initial sale. The Fund may also be compensated by receipt of a commitment fee.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES:
The Core Plus Fund may invest a portion of its assets in collateralized
mortgage obligations or "CMOs," which are debt obligations collateralized by
mortgage loans or mortgage pass-through securities. Typically, CMOs are
collateralized by certificates issued by the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA"), or
the Federal Home Loan Mortgage Association ("FHLMC"), but also may be
collateralized by whole loans or private mortgage pass-through securities
(such collateral collectively hereinafter referred to as "Mortgage Assets").
The Core Plus Fund may also invest a portion of its assets in multiclass pass-
through securities which are equity interests in a trust composed of Mortgage
Assets. Unless the context indicates otherwise, all references herein to CMOs
include multiclass pass-through securities. Payments of principal of and
interest on the Mortgage Assets, and any reinvestment income thereon, provide
the funds to pay debt service on the CMOs or make scheduuled distributions on
the multiclass pass-through securities. CMOs may be issued by agencies or
instrumentalities of the United States government or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose
subsidiaries of the foregoing. The issuer of a series of CMOs may elect to be
treated as a Real Estate Mortgage Investment Conduit (a "REMIC").
In a CMO, a series of bonds or certificates are usually issued in multiple
classes with different maturities. Each class of CMOs, often referred to as a
"tranche," is issued at a specific fixed or floating coupon rate and has a
stated maturity or final distribution date. Principal prepayments on the
Mortgage Assets may cause the CMOs to be retired substantially earlier than
their stated maturities or final distribution dates, resulting in a loss of
all or a part of the premium if any has been paid. Interest is paid or accrues
on all classes of the CMOs on a monthly, quarterly or semiannual basis. The
principal of and interest on the Mortgage Assets may be allocated among the
several classes of a series of a CMO in innumerable ways. In a common
structure, payments of principal, including any principal prepayments, on the
Mortgage Assets are applied to the classes of the series of a CMO in the order
of their respective stated maturities or final distribution dates, so that no
payment of principal will be made on any class of CMOs until all other classes
having an earlier stated maturity or final distribution date have been paid in
full. Certain CMOs may be stripped (securities which provide only the
principal or interest factor of the underlying security). See "Stripped
Mortgage-Backed Securities" below for a discussion of the risks of investing
in these stripped securities and of investing in classes consisting primarily
of interest payments or principal payments.
The Core Plus Fund may also invest in parallel pay CMOs and Planned
Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured to
provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in calculating the stated
maturity date or final distribution date of each class, which, as with other
CMO structures, must be retired by its stated maturity date or final
distribution date, but may be retired earlier. PAC Bonds generally require
payments of a specified amount of principal on each payment date. PAC Bonds
are always parallel pay CMOs with the required principal payment on such
securities having the highest priority after interest has been paid to all
classes.
STRIPPED MORTGAGE-BACKED SECURITIES: The Core Plus Fund may invest a portion
of its assets in stripped mortgage-backed securities ("SMBS") which are
derivative multiclass mortgage securities issued by agencies of or
instrumentalities of the U.S. Government, or by private originators of, or
investors in mortgage loans, including savings and loan institutions, mortgage
banks, commmercial banks and investment banks.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions from a pool of
mortgage assets. A common type of SMBS will have one class receiving some of
the interest and most of the principal from the Mortgage Assets, while the
other class will receive most of the interest and the remainder of the
principal. In the most extreme case, one class will receive all of the
interest (the interest-only or "IO" class) while the other class will receive
all of the principal (the principal-only or "PO" class). The yield to maturity
on an IO is extremely sensitive to the rate of principal payments, including
prepayments on the related underlying Mortgage Assets, and a rapid rate of
principal payments may have a material adverse effect on such security's yield
to maturity. If the underlying Mortgage Assets experience greater than
anticipated prepayments of principal, the Core Plus Fund may fail to fully
recoup its initial investment in these securities. The market value of the
class consisting primarily or entirely of principal payments generally is
unusually volatile in response to changes in interest rates. Because SMBS were
only recently introduced, established trading markets for these securities
have not yet developed, although the securities are traded among institutional
investors and investment banking firms.
MORTGAGE PASS-THROUGH SECURITIES: The Core Plus Fund may invest in mortgage
pass-through securities as described in the Prospectus. Interests in pools of
mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their mortgage loans, net
of any fees paid to the issuer or guarantor of such securities. Additional
payments are caused by prepayments of principal resulting from the sale,
refinancing or foreclosure of the underlying property, net of fees or costs
which may be incurred. Some mortgage pass-through securities (such as
securities issued by GNMA, are described as "modified pass-through"
securities. These securities entitle the holder to receive all interest and
principal payments owed on the mortgages in the mortgage pool, net of certain
fees, at the scheduled payment dates regardless of whether the mortgagor
actually makes the payment.
The principal governmental guarantor of mortgage pass-through securities is
GNMA. GNMA is a wholly owned U.S. Government corporation within the Department
of Housing and Urban Development. GNMA is authorized to guarantee, with the
full faith and credit of the U.S. Government, the timely payment of principal
and interest on securities issued by institutions approved by GNMA (such as
savings and loan institutions, commercial banks and mortgage bankers) and
backed by pools of FHA-insured or VA-guaranteed mortgages. These guarantees,
however, do not apply to the market value or yield of mortgage pass-though
securities. GNMA securities are often purchased at a premium over the maturity
value of the underlying mortgages. This premium is not guaranteed and will be
lost if prepayment occurs.
Government-related guarantors (i.e., those whose guarantees are not backed by
the full faith and credit of the U.S. Government) include FNMA and FHLMC. FNMA
is a government-sponsored corporation owned entirely by private stockholders.
It is subject to general regulation by the Secretary of Housing and Urban
Development. FNMA purchases conventional residential mortgages (i.e.,
mortgages not insured or guaranteed by any governmental agency) from a list of
approved seller/servicers which include state and federally-chartered savings
and loan associations, mutual savings banks, commercial banks, credit unions
and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as
to timely payment by FNMA of principal and interest.
FHLMC was created by Congress in 1970 as a corporate instrumentality of the
U.S. Government for the purpose of increasing the availability of mortgage
credit for residential housing. FHLMC issues Participation Certificates
("PCs") which represent interests in conventional mortgages (i.e., not
federally insured or guaranteed) from FHLMC's national portfolio. FHLMC
guarantees timely payment of interest and ultimate collection of principal
regardless of the status of the underlying mortgage loans.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of mortgage loans. Such issuers may also be the originators
and/or servicers of the underlying mortgage-related securities. Pools created
by such non-governmental issuers generally offer a higher rate of interest
than government and government-related pools because there are no direct or
indirect government or agency guarantees of payments in the former pools.
However, timely payment of interest and principal of mortgage loans in these
pools may be supported by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance and letters of credit. The
insurance and guarantees are issued by governmental entities, private insurers
and the mortgage poolers. There can be no assurance that the private insurers
or guarantors can meet their obligations under the insurance policies or
guarantee arrangements. The Fund may also buy mortgage-related securities
without insurance or guarantees.
OPTIONS ON SECURITIES: Each Fund may write (sell) covered call and put options
on securities ("Options") and purchase call and put Options. A Fund may write
Options for the purpose of attempting to increase its return and for hedging
purposes. In particular, if a Fund writes an Option which expires unexercised
or is closed out by the Fund at a profit, the Fund retains the premium paid
for the Option less related transaction costs, which increases its gross
income and offsets in part the reduced value of the portfolio security in
connection with which the Option is written, or the increased cost of
portfolio securities to be acquired. In contrast, however, if the price of the
security underlying the Option moves adversely to the Fund's position, the
Option may be exercised and the Fund will then be required to purchase or sell
the security at a disadvantageous price, which might only partially be offset
by the amount of the premium.
A Fund may write Options in connection with buy-and-write transactions; that
is, the Fund may purchase a security and then write a call Option against that
security. The exercise price of the call Option a Fund determines to write
depends upon the expected price movement of the underlying security. The
exercise price of a call Option may be below ("in-the-money"), equal to ("at-
the-money") or above ("out-of-the-money") the current value of the underlying
security at the time the Option is written.
The writing of covered put Options is similar in terms of risk/return
characteristics to buy-and-write transactions. Put Options may be used by a
Fund in the same market environments in which call Options are used in
equivalent buy-and-write transactions.
A Fund may also write combinations of put and call Options on the same
security, a practice known as a "straddle." By writing a straddle, a Fund
undertakes a simultaneous obligation to sell or purchase the same security in
the event that one of the Options is exercised. If the price of the security
subsequently rises sufficiently above the exercise price to cover the amount
of the premium and transaction costs, the call will likely be exercised and a
Fund will be required to sell the underlying security at a below market price.
This loss may be offset, however, in whole or in part, by the premiums
received on the writing of the two Options. Conversely, if the price of the
security declines by a sufficient amount, the put will likely be exercised.
The writing of straddles will likely be effective, therefore, only where the
price of a security remains stable and neither the call nor the put is
exercised. In an instance where one of the Options is exercised, the loss on
the purchase or sale of the underlying security may exceed the amount of the
premiums received.
By writing a call Option on a portfolio security, a Fund limits its
opportunity to profit from any increase in the market value of the underlying
security above the exercise price of the Option. By writing a put Option, a
Fund assumes the risk that it may be required to purchase the underlying
security for an exercise price above its then current market value, resulting
in a loss unless the security subsequently appreciates in value. The writing
of Options will not be undertaken by each Fund solely for hedging purposes,
and may involve certain risks which are not present in the case of hedging
transactions. Moreover, even where Options are written for hedging purposes,
such transactions will constitute only a partial hedge against declines in the
value of portfolio securities or against increases in the value of securities
to be acquired, up to the amount of the premium.
A Fund may also purchase put and call Options. Put Options are purchased to
hedge against a decline in the value of securities held in the Fund's
portfolio. If such a decline occurs, the put Options will permit the Fund to
sell the securities underlying such Options at the exercise price, or to close
out the Options at a profit. A Fund will purchase call Options to hedge
against an increase in the price of securities that the Fund anticipates
purchasing in the future. If such an increase occurs, the call Option will
permit the Fund to purchase the securities underlying such Option at the
exercise price or to close out the Option at a profit. The premium paid for a
call or put Option plus any transaction costs will reduce the benefit, if any,
realized by the Fund upon exercise of the Option, and, unless the price of the
underlying security rises or declines sufficiently, the Option may expire
worthless to the Fund. In addition, in the event that the price of the
security in connection with which an Option was purchased moves in a direction
favorable to a Fund, the benefits realized by a Fund as a result of such
favorable movement will be reduced by the amount of the premium paid for the
Option and related transaction costs.
The staff of the SEC has taken the position that purchased over-the-counter
options and certain assets used to cover written over-the-counter options are
illiquid and, therefore, together with other illiquid securities, cannot
exceed a certain percentage of the Fund's assets (the "SEC illiquidity
ceiling"). Although the Adviser disagrees with this position, the Adviser
intends to limit each Fund's writing of over-the-counter options in accordance
with the following procedure. Except as provided below, each Fund intends to
write over-the-counter options only with primary U.S. Government securities
dealers recognized by the Federal Reserve Bank of New York. Also, the
contracts each Fund has in place with such primary dealers will provide that
the Fund has the absolute right to repurchase an option it writes at any time
at a price which represents the fair market value, as determined in good faith
through negotiation between the parties, but which in no event will exceed a
price determined pursuant to a formula in the contract. Although the specific
formula may vary between contracts with different primary dealers, the formula
will generally be based on a multiple of the premium received by a Fund for
writing the option, plus the amount, if any, of the option's intrinsic value
(i.e., the amount that the option is in-the-money). The formula may also
include a factor to account for the difference between the price of the
security and the strike price of the option if the option is written out-of-
the-money. A Fund will treat all or a portion of the formula as illiquid for
purposes of the SEC illiquidity ceiling imposed by the SEC staff. A Fund may
also write over-the-counter options with non-primary dealers, including
foreign dealers, and will treat the assets used to cover these options as
illiquid for purposes of such SEC illiquidity ceiling.
OPTIONS ON STOCK INDICES: Each fund except the Worldwide Fund, the Emerging
Markets Fund and the Core Plus Fund may write (sell) covered call and put
options and purchase call and put options on stock indices ("Options on Stock
Indices"). Each Fund may cover call Options on Stock Indices by owning
securities whose price changes, in the opinion of the Adviser, are expected to
be similar to those of the underlying index, or by having an absolute and
immediate right to acquire such securities without additional cash
consideration (or for additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange of other securities in
its portfolio. Where a Fund covers a call option on a stock index through
ownership of securities, such securities may not match the composition of the
index and, in that event, the Fund will not be fully covered and could be
subject to risk of loss in the event of adverse changes in the value of the
index. A Fund may also cover call options on stock indices by holding a call
on the same index and in the same principal amount as the call written where
the exercise price of the call held (a) is equal to or less than the exercise
price of the call written or (b) is greater than the exercise price of the
call written if the difference is maintained by the Fund in cash or cash
equivalents in a segregated account with its custodian. A Fund may cover put
options on stock indices by maintaining cash or cash equivalents with a value
equal to the exercise price in a segregated account with its custodian, or
else by holding a put on the same security and in the same principal amount as
the put written where the exercise price of the put held (a) is equal to or
greater than the exercise price of the put written or (b) is less than the
exercise price of the put written if the difference is maintained by the Fund
in cash or cash equivalents in a segregated account with its custodian. Put
and call options on stock indices may also be covered in such other manner as
may be in accordance with the rules of the exchange on which, or the
counterparty with which, the option is traded and applicable laws and
regulations.
A Fund will receive a premium from writing a put or call option on a stock
index, which increases the Fund's gross income in the event the option expires
unexercised or is closed out at a profit. If the value of an index on which a
Fund has written a call option falls or remains the same, the Fund will
realize a profit in the form of the premium received (less transaction costs)
that could offset all or a portion of any decline in the value of the
securities it owns. If the value of the index rises, however, a Fund will
realize a loss in its call option position, which will reduce the benefit of
any unrealized appreciation in the Fund's stock investment. By writing a put
option, a Fund assumes the risk of a decline in the index. To the extent that
the price changes of securities owned by the Fund correlate with changes in
the value of the index, writing covered put options on indexes will increase a
Fund's losses in the event of a market decline, although such losses will be
offset in part by the premium received for writing the option.
Each Fund except the Worldwide Fund, the Emerging Markets Fund and the Core
Plus Fund may also purchase put options on stock indices to hedge their
investments against a decline in value. By purchasing a put option on a stock
index, a Fund will seek to offset a decline in the value of securities it owns
through appreciation of the put option. If the value of a Fund's investments
does not decline as anticipated, or if the value of the option does not
increase, a Fund's loss will be limited to the premium paid for the option
plus related transaction costs. The success of this strategy will largely
depend on the accuracy of the correlation between the changes in value of the
index and the changes in value of a Fund's security holdings.
The purchase of call options on stock indices may be used by a Fund to attempt
to reduce the risk of missing a broad market advance, or an advance in an
industry or market segment, at a time when a Fund holds uninvested cash or
short-term debt securities awaiting investment. When purchasing call options
for this purpose, a Fund will also bear the risk of losing all or a portion
of the premium paid if the value of the index does not rise. The purchase of
call options on stock indices when a Fund is substantially fully invested is a
form of leverage, up to the amount of the premium and related transaction
costs, and involves risks of loss and of increased volatility similar to those
involved in purchasing calls on securities a Fund owns.
YIELD CURVE OPTIONS: The Worldwide Fund, the Emerging Markets Fund and the
Core Plus Fund may enter into options on the yield "spread" or yield
differential between two securities, transactions referred to as a "yield
curve" options. In contrast to other types of options, a yield curve option is
based on the difference between the yields of designated securities, rather
than the prices of the individual securities, and is settled through cash
payments. Accordingly, a yield curve option is profitable to the holder if
this differential widens (in the case of a call) or narrows (in the case of a
put), regardless of whether the yields of the underlying securities increase
or decrease.
Yield curve options may be used for the same purposes as other options on
securities. Specifically, a Fund may purchase or write such options for
hedging purposes. For example, a Fund may purchase a call option on the yield
spread between two securities, if it owns one of the securities and
anticipates purchasing the other security and wants to hedge against an
adverse change in the yield spread between the two securities. The Worldwide
Fund, the Emerging Markets Fund and the Core Plus Fund may also purchase or
write yield curve options for other than hedging purposes (i.e., in an effort
to increase its current income) if, in the judgment of the Adviser, the Fund
will be able to profit from movements in the spread between the yields of the
underlying securities. The trading of yield curve options is subject to all of
the risks associated with the trading of other types of options. In addition,
however, such options present risk of loss even if the yield of one of the
underlying securities remains constant, if the spread moves in a direction or
to an extent which was not anticipated. Yield curve options written by a Fund
will be "covered." A call (or put) option is covered if a Fund holds another
call (or put) option on the spread between the same two securities and
maintains in a segregated account with its custodian cash or cash equivalents
sufficient to cover the Fund's net liability under the two options. Therefore,
a Fund's liability for such a covered option is generally limited to the
difference between the amount of the Fund's liability under the option written
by the Fund less the value of the option held by the Fund. Yield curve options
may also be covered in such other manner as may be in accordance with the
requirements of the counter party with which the option is traded and
applicable laws and regulations. Yield curve options are traded over-the-
counter, and because they have been only recently introduced, established
trading markets for these securities have not yet developed. Because these
securities are traded over-the-counter, the SEC has taken the position that
yield curve options are illiquid and, therefore, cannot exceed the SEC
illiquidity ceiling. See "Options on Securities" above for a discussion of the
policies the Adviser intends to follow to limit a Fund's investment in these
securities.
FUTURES CONTRACTS: Each Fund may enter into contracts for the purchase or sale
for future delivery of securities or foreign currencies or contracts based on
indexes of securities as such instruments become available for trading
("Futures Contracts"). This investment technique is designed to hedge (i.e.,
to protect) against anticipated future changes in interest or exchange rates
which otherwise might adversely affect the value of the Fund's portfolio
securities or adversely affect the prices of long-term bonds or other
securities which each Fund intends to purchase at a later date. Futures
Contracts may also be entered into for non-hedging purposes to the extent
permitted by applicable law. A "sale" of a Futures Contract means a
contractual obligation to deliver the securities or foreign currency called
for by the contract at a fixed price at a specified time in the future. A
"purchase" of a Futures Contract means a contractual obligation to acquire the
securities or foreign currency at a fixed price at a specified time in the
future.
While Futures Contracts provide for the delivery of securities or currencies,
such deliveries are very seldom made. Generally, a Futures Contract is
terminated by entering into an offsetting transaction. A Fund will incur
brokerage fees when it purchases and sells Futures Contracts. At the time such
a purchase or sale is made, a Fund must allocate cash or securities as a
margin deposit ("initial deposit"). It is expected that the initial deposit
will vary but may be as low as 5% or less of the value of the contract. The
Futures Contract is valued daily thereafter and the payment of "variation
margin" may be required to be paid or received, so that each day a Fund may
provide or receive cash that reflects the decline or increase in the value of
the contract.
The purpose of the purchase or sale of a Futures Contract, for hedging
purposes in the case of a portfolio holding long-term debt securities, is to
protect a Fund from fluctuations in interest rates without actually buying or
selling long-term debt securities. For example, if a Fund owned long-term
bonds and interest rates were expected to increase, the Fund might enter into
Futures Contracts for the sale of debt securities. If interest rates did
increase, the value of the debt securities in the portfolio would decline, but
the value of the Fund's Futures Contracts should increase at approximately the
same rate, thereby keeping the net asset value of the Fund from declining as
much as it otherwise would have. A Fund could accomplish similar results by
selling bonds with long maturities and investing in bonds with short
maturities when interest rates are expected to increase or by buying bonds
with long maturities and selling bonds with short maturities when interest
rates are expected to decline. However, since the futures market is more
liquid than the cash market, the use of Futures Contracts as an investment
technique allows a Fund to maintain a defensive position without having to
sell its portfolio securities. Transactions entered into for non-hedging
purposes include greater risk, including the risk of losses which are not
offset by gains on other portfolio assets.
Similarly, when it is expected that interest rates may decline, Futures
Contracts may be purchased to hedge against anticipated purchases of long-term
bonds at higher prices. Since the fluctuations in the value of Futures
Contracts should be similar to that of long-term bonds, a Fund could take
advantage of the anticipated rise in the value of long-term bonds without
actually buying them until the market had stabilized. At that time, the
Futures Contracts could be liquidated and a Fund could buy long-term bonds on
the cash market. Purchases of Futures Contracts would be particularly
appropriate when the cash flow from the sale of new shares of a Fund could
have the effect of diluting dividend earnings. To the extent a Fund enters
into Futures Contracts for this purpose, the assets in the segregated asset
account maintained to cover a Fund's obligations with respect to such Futures
Contracts will consist of cash, cash equivalents or short-term money market
instruments from the portfolio of the Fund in an amount equal to the
difference between the fluctuating market value of such Futures Contracts and
the aggregate value of the initial and variation margin payments made by the
Fund with respect to such Futures Contracts, thereby assuring that the
transactions are unleveraged.
Futures Contracts on foreign currencies may be used in a similar manner, in
order to protect against declines in the dollar value of portfolio securities
denominated in foreign currencies, or increases in the dollar value of
securities to be acquired.
A Futures Contract on an index of securities provides for the making and
acceptance of a cash settlement based on changes in value of the underlying
index. The Emerging Equities Fund, the Mid-Cap Fund, the International Equity
Fund and the Research Fund may enter into stock index futures contracts in
order to protect the Fund's current or intended stock investments from broad
fluctuations in stock prices and for non-hedging purposes to the extent
permitted by applicable law. For example, a Fund may sell stock index futures
contracts in anticipation of or during a market decline to attempt to offset
the decrease in market value of the Fund's securities portfolio that might
otherwise result. If such decline occurs, the loss in value of portfolio
securities may be offset, in whole or in part, by gains on the futures
position. When a Fund is not fully invested in the securities market and
anticipates a significant market advance, it may purchase stock index futures
contracts in order to gain rapid market exposure that may, in part or in
whole, offset increases in the cost of securities that Fund intends to
purchase. As such acquisitions are made, the corresponding positions in stock
index futures contracts will be closed out. In a substantial majority of these
transactions, a Fund will purchase such securities upon the termination of the
futures position, but under unusual market conditions, a long futures position
may be terminated without a related purchase of securities. Futures Contracts
on other securities indices may be used in a similar mannner in order to
protect the portfolio from broad fluctuations in securities prices and for
non-hedging purposes to the extent permitted by applicable law.
OPTIONS ON FUTURES CONTRACTS: Each Fund may write and purchase options to buy
or sell Futures Contracts ("Options on Futures Contracts"). The writing of a
call Option on a Futures Contract constitutes a partial hedge against
declining prices of the security or currency underlying the Futures Contract.
If the futures price at expiration of the option is below the exercise price,
a Fund will retain the full amount of the option premium, less related
transaction costs, which provides a partial hedge against any decline that may
have occurred in the Fund's portfolio holdings. The writing of a put Option on
a Futures Contract constitutes a partial hedge against increasing prices of
the security or currency underlying the Futures Contract. If the futures price
at expiration of the option is higher than the exercise price, a Fund will
retain the full amount of the option premium, less related transaction costs,
which provides a partial hedge against any increase in the price of securities
which the Fund intends to purchase. If a put or call option a Fund has written
is exercised, the Fund will incur a loss which will be reduced by the amount
of the premium it receives. Depending on the degree of correlation between
changes in the value of its portfolio securities and changes in the value of
its futures positions, a Fund's losses from existing Options on Futures
Contracts may to some extent be reduced or increased by changes in the value
of portfolio securities.
A Fund may purchase Options on Futures Contracts for hedging purposes as an
alternative to purchasing or selling the underlying Futures Contracts, or for
non-hedging purposes to the extent permitted by applicable law. For example,
where a decrease in the value of portfolio securities is anticipated as a
result of a projected market-wide decline, a rise in interest rates or a
decline in the dollar value of foreign currencies in which portfolio
securities are denominated, a Fund may, in lieu of selling Futures Contracts,
purchase put options thereon. In the event that such decrease in portfolio
value occurs, it may be offset, in whole or part, by a profit on the option.
Conversely, where it is projected that the value of securities to be acquired
by a Fund will increase prior to acquisition, due to a market advance, or a
decline in interest rates or a rise in the dollar value of foreign currencies
in which securities to be acquired are denominated, a Fund may purchase call
Options on Futures Contracts, rather than purchasing the underlying Futures
Contracts. As in the case of Options, the writing of Options on Futures
Contracts may require a Fund to forego all or a portion of the benefits of
favorable movements in the price of portfolio securities, and the purchase of
Options on Futures Contracts may require a Fund to forego all or a portion of
such benefits up to the amount of the premium paid and related transaction
costs. Transactions entered into for non-hedging purposes include greater
risk, including the risk of losses which are not offset by gains on other
portfolio assets.
FORWARD CONTRACTS: Each Fund may enter into forward foreign currency exchange
contracts for the purchase or sale of a specific currency at a future date at
a price set at the time of the contract (a "Forward Contract"). A Fund may
enter into Forward Contracts for hedging purposes as well as for non-hedging
purposes. A Fund may also enter into Forward Contracts for "cross hedging"
purposes as noted in the Prospectus. Transactions in Forward Contracts entered
into for hedging purposes will include forward purchases or sales of foreign
currencies for the purpose of protecting the dollar value of securities
denominated in a foreign currency or protecting the dollar equivalent of
interest or dividends to be paid on such securities. By entering into such
transactions, however, a Fund may be required to forego the benefits of
advantageous changes in exchange rates. A Fund may also enter into
transactions in Forward Contracts for other than hedging purposes, which
presents greater profit potential but also involves increased risk. For
example, if the Adviser believes that the value of a particular foreign
currency will increase or decrease relative to the value of the U.S. dollar, a
Fund may purchase or sell such currency, respectively, through a Forward
Contract. If the expected changes in the value of the currency occur, a Fund
will realize profits which will increase its gross income. Where exchange
rates do not move in the direction or to the extent anticipated, however, a
Fund may sustain losses which will reduce its gross income. Such transactions,
therefore, could be considered speculative.
Each Fund has established procedures consistent with statements by the SEC and
its staff regarding the use of Forward Contracts by registered investment
companies, which require the use of segregated assets or "cover" in connection
with the purchase and sale of such contracts. In those instances in which a
Fund satisfies this requirement through segregation of assets, it will
maintain, in a segregated account, cash, cash equivalents or high grade debt
securities, which will be marked to market on a daily basis, in an amount
equal to the value of its commitments under Forward Contracts.
OPTIONS ON FOREIGN CURRENCIES: Each Fund except the Emerging Equities Fund may
purchase and write put and call options on foreign currencies ("Options on
Foreign Currencies") for the purpose of protecting against declines in the
dollar value of foreign portfolio securities and against increases in the
dollar cost of foreign securities to be acquired. For example, a decline in
the dollar value of a foreign currency in which portfolio securities are
denominated will reduce the dollar value of such securities, even if their
value in the foreign currency remains constant. In order to protect against
such diminutions in the value of portfolio securities, a Fund may purchase put
options on the foreign currency. If the value of the currency did decline, a
Fund would have the right to sell such currency for a fixed amount in dollars
and would thereby offset, in whole or in part, the adverse effect on its
portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the cost of
such securities, a Fund may purchase call options thereon. The purchase of
such options could offset, at least partially, the effects of the adverse
movements in exchange rates. As in the case of other types of options,
however, the benefit to a Fund deriving from purchases of foreign currency
options would be reduced by the amount of the premium and related transaction
costs. In addition, where currency exchange rates do not move in the direction
or to the extent anticipated, a Fund could sustain losses on transactions in
foreign currency options which would require it to forego a portion or all of
the benefits of advantageous changes in such rates.
A Fund may write Options on Foreign Currencies for the same types of hedging
purposes. For example, where the Fund anticipates a decline in the dollar
value of foreign-denominated securities due to adverse fluctuations in
exchange rates it may, instead of purchasing a put option, write a call option
on the relevant currency. If the expected decline occurred, the option would
most likely not be exercised, and the diminution in value of portfolio
securities would be offset by the amount of the premium received less related
transaction costs. As in the case of other types of options, therefore, the
writing of Options on Foreign Currencies will constitute only a partial hedge.
RISK FACTORS: IMPERFECT CORRELATION OF HEDGING INSTRUMENTS WITH THE FUND'S
PORTFOLIO -- Each Fund's ability effectively to hedge all or a portion of its
portfolio through transactions in options, Futures Contracts, and Forward
Contracts will depend on the degree to which price movements in the underlying
instruments correlate with price movements in the relevant portion of that
Fund's portfolio. If the values of portfolio securities being hedged do not
move in the same amount or direction as the instruments underlying options,
Futures Contracts or Forward Contracts traded, a Fund's hedging strategy may
not be successful and a Fund could sustain losses on its hedging strategy
which would not be offset by gains on its portfolio. It is also possible that
there may be a negative correlation between the instrument underlying an
option, Future Contract or Forward Contract traded and the portfolio
securities being hedged, which could result in losses both on the hedging
transaction and the portfolio securities. In such instances, a Fund's overall
return could be less than if the hedging transaction had not been undertaken.
In the case of futures and options based on an index of securities or
individual fixed income securities, the portfolio will not duplicate the
components of the index, and in the case of futures and options on fixed
income securities, the portfolio securities which are being hedged may not be
the same type of obligation underlying such contract. As a result, the
correlation probably will not be exact. Consequently, a Fund bears the risk
that the price of the portfolio securities being hedged will not move in the
same amount or direction as the underlying index or obligation. In addition,
where a Fund enters into Forward Contracts as a "cross hedge" (i.e., the
purchase or sale of a Forward Contract on one currency to hedge against risk
of loss arising from changes in value of a second currency), a Fund incurs the
risk of imperfect correlation between changes in the values of the two
currencies, which could result in losses.
The correlation between prices of securities and prices of options, Futures
Contracts or Forward Contracts may be distorted due to differences in the
nature of the markets, such as differences in margin requirements, the
liquidity of such markets and the participation of speculators in the option,
Futures Contract and Forward Contract markets. Due to the possibility of
distortion, a correct forecast of general interest rate trends by the Adviser
may still not result in a successful transaction. The trading of Options on
Futures Contracts also entails the risk that changes in the value of the
underlying Futures Contract will not be fully reflected in the value of the
option. The risk of imperfect correlation, however, generally tends to
diminish as the maturity or termination date of the option, Futures Contract
or Forward Contract approaches.
The trading of options, Futures Contracts and Forward Contracts also entails
the risk that, if the Adviser's judgment as to the general direction of
interest or exchange rates is incorrect, a Fund's overall performance may be
poorer than if it had not entered into any such contract. For example, if a
Fund has hedged against the possibility of an increase in interest rates, and
rates instead decline, a Fund will lose part or all of the benefit of the
increased value of the securities being hedged, and may be required to meet
ongoing daily variation margin payments.
It should be noted that a Fund may purchase and write Options not only for
hedging purposes, but also for the purpose of attempting to increase its
return. As a result, a Fund will incur the risk that losses on such
transactions will not be offset by corresponding increases in the value of
portfolio securities or decreases in the cost of securities to be acquired.
POTENTIAL LACK OF A LIQUID SECONDARY MARKET -- Prior to exercise or
expiration, a position in an exchange-traded Option, Futures Contract, Option
on a Futures Contract or Option on a Foreign Currency can only be terminated
by entering into a closing purchase or sale transaction, which requires a
secondary market for such instruments on the exchange on which the initial
transaction was entered into. If no such market exists, it may not be possible
to close out a position, and a Fund could be required to purchase or sell the
underlying instrument or meet ongoing variation margin requirements. The
inability to close out option or futures positions also could have an adverse
effect on a Fund's ability effectively to hedge its portfolio.
The liquidity of a secondary market in an option or Futures Contract may be
adversely affected by "daily price fluctuation limits," established by the
exchanges, which limit the amount of fluctuation in the price of a contract
during a single trading day and prohibit trading beyond such limits once they
have been reached. Such limits could prevent a Fund from liquidating open
positions, which could render its hedging strategy unsuccessful and result in
trading losses. The exchanges on which options and Futures Contracts are
traded have also established a number of limitations governing the maximum
number of positions which may be traded by a trader, whether acting alone or
in concert with others. Further, the purchase and sale of exchange-traded
options and Futures Contracts is subject to the risk of trading halts,
suspensions, exchange or clearing corporation equipment failures, government
intervention, insolvency of a brokerage firm, intervening broker or clearing
corporation or other disruptions of normal trading activity, which could make
it difficult or impossible to liquidate existing positions or to recover
excess variation margin payments.
OPTIONS ON FUTURES CONTRACTS -- In order to profit from the purchase of an
Option on a Futures Contract, it may be necessary to exercise the option and
liquidate the underlying Futures Contract, subject to all of the risks of
futures trading. The writer of an Option on a Futures Contract is subject to
the risks of futures trading, including the requirement of initial and
variation margin deposits.
ADDITIONAL RISKS OF TRANSACTIONS RELATED TO FOREIGN CURRENCIES AND
TRANSACTIONS NOT CONDUCTED ON UNITED STATES EXCHANGES -- The available
information on which a Fund will make trading decisions concerning
transactions related to foreign currencies or foreign securities may not be as
complete as the comparable data on which a Fund makes investment and trading
decisions in connection with other transactions. Moreover, because the foreign
currency market is a global, 24-hour market, and the markets for foreign
securities as well as markets in foreign countries may be operating during
non-business hours in the United States, events could occur in such markets
which would not be reflected until the following day, thereby rendering it
more difficult for a Fund to respond in a timely manner.
In addition, over-the-counter transactions can only be entered into with a
financial institution willing to take the opposite side, as principal, of a
Fund's position, unless the institution acts as broker and is able to find
another counterparty willing to enter into the transaction with a Fund. This
could make it difficult or impossible to enter into a desired transaction or
liquidate open positions, and could therefore result in trading losses.
Further, over-the-counter transactions are not subject to the performance
guarantee of an exchange clearing house and a Fund will therefore be subject
to the risk of default by, or the bankruptcy of, a financial institution or
other counterparty.
Transactions on exchanges located in foreign countries may not be conducted in
the same manner as those entered into on United States exchanges, and may be
subject to different margin, exercise, settlement or expiration procedures.
As a result, many of the risks of over-the-counter trading may be present in
connection with such transactions. Moreover, the SEC or the Commodities
Futures Trading Commission ("CFTC") has jurisdiction over the trading in the
United States of many types of over-the-counter and foreign instruments, and
such agencies could adopt regulations or interpretations which would make it
difficult or impossible for a Fund to enter into the trading strategies
identified herein or to liquidate existing positions.
As a result of its investments in foreign securities, a Fund may receive
interest or dividend payments, or the proceeds of the sale or redemption of
such securities, in foreign currencies. A Fund may also be required to receive
delivery of the foreign currencies underlying options on foreign currencies or
Forward Contracts it has entered into. This could occur, for example, if an
option written by a Fund is exercised or the Fund is unable to close out a
Forward Contract it has entered into. In addition, a Fund may elect to take
delivery of such currencies. Under such circumstances, the Fund may promptly
convert the foreign currencies into dollars at the then current exchange rate.
Alternatively, a Fund may hold such currencies for an indefinite period of
time if the Adviser believes that the exchange rate at the time of delivery is
unfavorable or if, for any other reason, the Adviser anticipates favorable
movements in such rates.
While the holding of currencies will permit a Fund to take advantage of
favorable movements in the applicable exchange rate, it also exposes the Fund
to risk of loss if such rates move in a direction adverse to a Fund's
position. Such losses could also adversely affect a Fund's hedging strategies.
Certain tax requirements may limit the extent to which a Fund will be able to
hold currencies.
RESTRICTIONS ON THE USE OF OPTIONS AND FUTURES: In order to assure that a Fund
will not be deemed to be a "commodity pool" for purposes of the Commodity
Exchange Act, regulations of the CFTC require that a Fund enter into
transactions in Futures Contracts and Options on Futures Contracts only (i)
for bona fide hedging purposes (as defined in CTFC regulations), or (ii) for
non-hedging purposes, provided that the aggregate initial margin and premiums
on such non-hedging positions does not exceed 5% of the liquidation value of
the Fund's assets. In addition, a Fund must comply with the requirements of
various state securities laws in connection with such transactions.
Each Fund has adopted the additional policy that it will not enter into a
Futures Contract if, immediately thereafter, the value of securities and other
obligations underlying all such Futures Contracts would exceed 50% of the
value of the Fund's total assets. Moreover, each Fund will not purchase put
and call options if, as a result, more than 5% of its total assets would be
invested in such options.
When a Fund purchases a Futures Contract, an amount of cash and cash
equivalents will be deposited in a segregated account with a Fund's custodian
so that the amount so segregated will at all times equal the value of the
Futures Contract, thereby insuring that the leveraging effect of such Futures
contract is minimized.
SWAPS AND RELATED TRANSACTIONS: The Worldwide Fund, the Emerging Markets Fund
and the Core Plus Fund may enter into interest rate swaps, currency swaps and
other types of available swap agreements, such as caps, collars and floors.
Swap agreements may be individually negotiated and structured to include
exposure to a variety of different types of investments or market factors.
Depending on their structure, swap agreements may increase or decrease a
Fund's exposure to long or short-term interest rates (in the U.S. or abroad),
foreign currency values, mortgage securities, corporate borrowing rates, or
other factors such as securities prices or inflation rates. Swap agreements
can take many different forms and are known by a variety of names. A Fund is
not limited to any particular form or variety of swap agreement if MFS
determines it is consistent with the Fund's investment objective and policies.
A Fund will maintain cash or appropriate liquid assets with its custodian to
cover its current obligations under swap transactions. If a Fund enters into a
swap agreement on a net basis (i.e., the two payment streams are netted out,
with the Fund receiving or paying, as the case may be, only the net amount of
the two payments), the Fund will maintain cash or liquid assets with its
Custodian with a daily value at least equal to the excess, if any, of the
Fund's accrued obligations under the swap agreement over the accrued amount
the Fund is entitled to receive under the agreement. If a Fund enters into a
swap agreement on other than a net basis, it will maintain cash or liquid
assets with a value equal to the full amount of the Fund's accrued obligations
under the agreement.
The most significant factor in the performance of swaps, caps, floors and
collars is the change in the specific interest rate, currency or other factor
that determines the amount of payments to be made under the arrangement. If
MFS is incorrect in its forecasts of such factors, the investment performance
of a Fund would be less than what it would have been if these investment
techniques had not been used. If a swap agreement calls for payments by a
Fund, the Fund must be prepared to make such payments when due. In addition,
if the counter-party's creditworthiness declined, the value of the swap
agreement would be likely to decline, potentially resulting in losses. If the
counterparty defaults, a Fund's risk of loss consists of the net amount of
payments that the Fund is contractually entitled to receive. Each Fund
anticipates that it will be able to eliminate or reduce its exposure under
these arrangements by assignment or other disposition or by entering into an
offsetting agreement with the same or another counterparty.
INDEXED SECURITIES: The Emerging Markets Fund and the Core Plus Fund may
purchase securities whose prices are indexed to the prices of foreign
currencies, interest rates, commodities, securities or other financial
indicators. Indexed securities typically, but not always, are debt securities
or deposits whose value at maturity (i.e., principal value) or coupon rate is
determined by reference to a specific instrument or statistic. Currency-
indexed securities typically are short-term to intermediate-term debt
securities whose maturity values or interest rates are determined by reference
to the values of one or more specified foreign currencies, and may offer
higher yields than U.S. dollar-denominated securities of equivalent issuers.
Currency-indexed securities may be positively or negatively indexed; that is,
their maturity value may increase when the specified currency value increases,
resulting in a security that performs similarly to a foreign-denominated
instrument, or their maturity value may decline when foreign currencies
increase, resulting in a security whose price characteristics are similar to a
put on the underlying currency. Currency-indexed securities may also have
prices that depend on the values of a number of different foreign currencies
relative to each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the U.S. and
abroad. At the same time, indexed securities are subject to the credit risks
associated with the issuer of the security, and their value may decline
substantially if the issuer's creditworthiness deteriorates.
INVESTMENT RESTRICTIONS. Each Fund has adopted the following restrictions
which cannot be changed without the approval of the holders of a majority of
that Fund's shares (which, as used in this SAI, means the lesser of (i) more
than 50% of its outstanding shares, or (ii) 67% or more of its outstanding
shares present at a meeting at which holders of more than 50% of its
outstanding shares are represented in person or by proxy):
Each Fund except the Worldwide Fund and the Emerging Equities Fund may not:
(1) borrow amounts in excess of 33 1/3% of its assets including amounts
borrowed;
(2) underwrite securities issued by other persons except insofar as the Fund
may technically be deemed an underwriter under the Securities Act of 1933 in
selling a portfolio security;
(3) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein and
securities of companies, such as real estate investment trusts, which deal in
real estate or interests therein), interests in oil, gas or mineral leases,
commodities or commodity contracts (excluding Options, Options on Futures
Contracts, Options on Stock Indices, Options on Foreign Currencies and any
other type of option, and Futures Contracts) in the ordinary course of its
business. Each Fund reserves the freedom of action to hold and to sell real
estate, mineral leases, commodities or commodity contracts (including Options,
Options on Futures Contracts, Options on Stock Indices, Options on Foreign
Currencies and any other type of option, and Futures Contracts) acquired as a
result of the ownership of securities;
(4) issue any senior securities except as permitted by the 1940 Act. For
purposes of this restriction, collateral arrangements with respect to any type
of option (including Options, Options on Futures Contracts, Options on Stock
Indices, Options on Foreign Currencies), Forward Contracts, Futures Contracts
and swap and collateral arrangements with respect to initial and variation
margin are not deemed to be the issuance of a senior security;
(5) make loans to other persons. For these purposes, the purchase of short-
term commercial paper, the purchase of a portion or all of an issue of debt
securities, the lending of portfolio securities, or the investment of a Fund's
assets in repurchase agreements, shall not be considered the making of a loan;
or
(6) purchase any securities of an issuer of a particular industry if, as a
result, 25% or more of its gross assets would be invested in securities of
issuers whose principal business activities are in the same industry (except
obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities and repurchase agreements collateralized by such
obligations).
In addition, each Fund except the Worldwide Fund and the Emerging Equities
Fund has adopted the following nonfundamental policies which may be changed
without shareholder approval. Each Fund will not:
(1) invest in illiquid investments, including securities subject to legal or
contractual restrictions on resale or for which there is no readily available
market (e.g., trading in the security is suspended, or, in the case of
unlisted securities, where no market exists) if more than 15% of the Fund's
net assets (taken at market value) would be invested in such securities.
Repurchase agreements maturing in more than seven days will be deemed to be
illiquid for purposes of a Fund's limitation on investment in illiquid
securities. Securities that are not registered under the Securities Act of
1933, as amended, and sold in reliance on Rule 144A thereunder, but are
determined to be liquid by the Trust's Board of Trustees (or its delegee),
will not be subject to this 15% limitation;
(2) purchase securities issued by any other investment company in excess of
the amount permitted by the 1940 Act, except when such purchase is part of a
plan of merger or consolidation;
(3) purchase or retain securities of an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of the Trust,
or is an officer or a director of the investment adviser of the Fund, if one
or more of such persons also owns beneficially more than 0.5% of the
securities of such issuer, and such persons owning more than 0.5% of such
securities together own beneficially more than 5% of such securities;
(4) purchase any securities or evidences of interest therein on margin,
except that each Fund may obtain such short-term credit as may be necessary
for the clearance of any transaction and except that each Fund, may make
margin deposits in connection with any type of option (including Options on
Futures Contracts, Options, Options on Foreign Currencies and Options on Stock
Indices) and Futures Contracts;
(5) sell any security which a Fund does not own unless by virtue of its
ownership of other securities the Fund has at the time of sale a right to
obtain securities without payment of further consideration equivalent in kind
and amount to the securities sold and provided that if such right is
conditional the sale is made upon the same conditions;
(6) invest more than 5% of its gross assets in companies which, including
predecessors, controlling persons, sponsoring entities, general partners and
guarantors, have a record of less than three years' continuous operation or
relevant business experience;
(7) pledge, mortgage or hypothecate in excess of 33 1/3% of its gross
assets. For purposes of this restriction, collateral arrangements with respect
to any type of option (including Options on Futures Contracts, Options and
Options on Foreign Currencies and Options on Stock Indices), Futures Contracts
and payments of initial and variation margin in connection therewith, are not
considered a pledge of assets;
(8) borrow, except as a temporary measure for extraordinary or emergency
purposes;
(9) purchase or sell any put or call option or any combination thereof,
provided that this shall not prevent (a) the purchase, ownership, holding or
sale of (i) warrants where the grantor of the warrants is the issuer of the
underlying securities or (ii) put or call options or combinations thereof with
respect to securities, indexes of securities, Options, Options on Futures
Contracts, Options on Foreign Currencies or (b) the purchase, ownership,
holding or sale of contracts for the future delivery of securities or
currencies; or
(10) invest for the purpose of exercising control or management.
The Emerging Equities Fund may not:
(1) borrow amounts in excess of 5% of its gross assets, and then only as a
temporary measure for extraordinary purposes, or pledge, mortgage or
hypothecate an amount of its assets taken at market value which would exceed
15% of its gross assets, in each case taken at the lower of cost or market
value. For the purpose of this restriction, collateral arrangements with
respect to options, Futures Contracts, Options on Futures Contracts, Forward
Contracts, and payments of initial and variation margin in connection
therewith are not considered a pledge of assets;
(2) underwrite securities issued by other persons except insofar as the Fund
may technically be deemed an underwriter under the Securities Act of 1933 in
selling a portfolio security;
(3) concentrate investments in any particular industry, but if it is deemed
appropriate for the attainment of the Fund's investment objective, up to 25%
of the Fund's assets, at market value at the time of each investment, may be
invested in any one industry;
(4) purchase or sell real estate (including limited partnership interests
but excluding securities of companies, such as real estate investment trusts,
which deal in real estate or interests therein) or mineral leases, commodities
or commodity contracts (except for options, Futures Contracts, Options on
Futures Contracts and Forward Contracts) in the ordinary course of its
business. The Fund reserves the freedom of action to hold and to sell real
estate or mineral leases, commodities or commodity contracts acquired as a
result of the ownership of securities. The Fund will not purchase securities
for the purpose of acquiring real estate or mineral leases, commodities or
commodity contracts (except for options, Futures Contracts, Options on Futures
Contracts and Forward Contracts);
(5) make loans to other persons except that the Fund may enter into
repurchase agreements. Not more than 15% of the Fund's total assets will be
invested in repurchase agreements maturing in more than seven days. Subject to
the limitation set forth in the policies below, the Fund may purchase a
portion of an issue of debt securities of types commonly distributed to
financial institutions. For these purposes the purchase of short-term
commercial paper or a portion of an issue of debt securities which are part of
an issue to the public shall not be considered the making of a loan;
(6) purchase the securities of any issuer if such purchase, at the time
thereof, would cause more than 5% of the Fund's total assets taken at market
value to be invested in the securities of such issuer, other than U.S.
Government securities;
(7) purchase voting securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the outstanding voting securities of
such issuer to be held by the Fund;
(8) invest for the purpose of exercising control or management;
(9) purchase securities issued by any other registered investment company or
registered investment trust except by purchase in the open market where no
commission or profit to a sponsor or dealer results from such purchase other
than the customary broker's commission, or except when such purchase, though
not made in the open market, is part of a plan of merger or consolidation;
provided, however, that the Fund shall not purchase the securities of any
investment company or investment trust if such purchase at the time thereof
would cause more than 10% of the Fund's total assets, taken at market value,
to be invested in the securities of such issuer; and provided, further, that
the Fund shall not purchase securities issued by any open-end investment
company;
(10) purchase or retain any securities of an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of the Trust,
or is a member, officer or Director of the Adviser, if after the purchase of
the securities of such issuer by the Fund one or more of such persons owns
beneficially more than 1/2 of 1% of the shares or securities, or both, all
taken at market value, of such issuer, and such persons owning more than 1/2
of 1% of such shares or securities together own beneficially more than 5% of
such shares or securities, or both, all taken at market value;
(11) purchase any securities or evidences of interest therein on margin,
except that the Fund may obtain such short-term credit as may be necessary for
the clearance of purchases and sales of securities and except that the Fund
may make margin deposits in connection with options, Futures Contracts,
Options on Futures Contracts and Forward Contracts;
(12) sell any security which the Fund does not own unless by virtue of its
ownership of other securities the Fund has at the time of sale a right to
obtain securities without payment of further consideration equivalent in kind
and amount to the securities sold and provided that if such right is
conditional the sale is made upon the same conditions; or
(13) issue any senior securities except as permitted by the 1940 Act.
In addition, the Emerging Equities Fund has adopted the following non-
fundamental investment policies which may be changed without shareholder
approval. The Fund will not:
(1) Invest in securities which are subject to legal or contractual
restrictions on resale, or for which there is no readily available market
(e.g., trading in the security is suspended or, in the case of unlisted
securities, market makers do not exist or will not entertain bids or offers)
unless the Board of Trustees has determined that such securities are liquid
based upon trading markets for the specific security, or repurchase agreements
maturing in more than seven days, if more than 15% of the Fund's assets (taken
at market value) would be invested in such securities or such repurchase
agreements;
(2) Invest more than 20% of its total assets in foreign securities
(excluding American Depositary Receipts);
(3) Invest more than 5% of the Fund's net assets in warrants and not more
than 2% of the Fund's net assets, in warrants which are not listed on the New
York or American Stock Exchange; or
(4) Invest more than 5% of its assets in companies which, including their
respective predecessors, have a record of less than three years' continuous
operation.
The Worldwide Fund may not:
(1) Borrow amounts in excess of 10% of its gross assets, and then only as a
temporary measure for extraordinary or emergency purposes, or pledge, mortgage
or hypothecate its assets (taken at market value) to an extent greater than 33
1/3% of its gross assets, in each case taken at the lower of cost or market
value and subject to a 300% asset coverage requirement (for the purpose of
this restriction, collateral arrangements with respect to Options, Futures
Contracts, Options on Futures Contracts, Forward Contracts and Options on
Foreign Currencies and payments of initial and variation margin in connection
therewith are not considered a pledge of assets);
(2) Underwrite securities issued by other persons except insofar as the
Trust may technically be deemed an underwriter under the Securities Act of
1933 in selling a portfolio security;
(3) Invest more than 25% of the market value of its total assets in
securities of issuers in any one industry;
(4) Purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities (except gold, and then
subject to a limit of 10% of its gross assets) or commodity contracts (except
gold futures/forward contracts, Forward Contracts, Futures Contracts, Options,
Options on Futures Contracts and Options on Foreign Currencies) in the
ordinary course of its business. The Fund reserves the freedom of action to
hold and to sell real estate acquired as a result of the ownership of
securities;
(5) Make loans to other persons except through the lending of its portfolio
securities in accordance with, and to the extent permitted by, its investment
objective and policies and except through repurchase agreements. Not more than
15% of the Fund's assets will be invested in repurchase agreements maturing in
more than seven days. For these purposes the purchase of commercial paper or a
portion of an issue of debt securities shall not be considered the making of a
loan;
(6) Purchase the securities of any issuer if such purchase, at the time
thereof, would cause more than 5% of its total assets (taken at market value)
to be invested in the securities of such issuer, other than securities issued
or guaranteed by the U.S. Government, any foreign government or any of their
agencies or instrumentalities;
(7) Purchase voting securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the outstanding voting securities of
such issuer to be held by the Fund; or purchase securities of any issuer if
such purchase at the time thereof would cause more than 10% of any class of
securities of such issuer to be held by the Fund. For this purpose all
indebtedness of an issuer shall be deemed a single class and all preferred
stock of an issuer shall be deemed a single class;
(8) Invest for the purpose of exercising control or management;
(9) Purchase securities issued by any closed-end investment company except
by purchase in the open market where no commission or profit to a sponsor or
dealer results from such purchase other than the customary broker's
commission, or except when such purchase, though not made in the open market,
is part of a plan of merger or consolidation; provided, however, that the Fund
shall not purchase such securities if such purchase at the time thereof would
cause more than 10% of its total assets (taken at market value) to be invested
in the securities of such issuers, or more than 3% of the total outstanding
voting securities of any closed-end investment company to be held by the Fund.
The Fund shall not purchase securities issued by any open-end investment
company;
(10) Invest more than 5% of its assets in companies which, including
predecessors, have a record of less than three years' continuous operation;
(11) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an officer
or Trustee of the Fund, or is a partner, officer, Director or Trustee of the
Adviser, if after the purchase of the securities of such issuer by the Fund
one or more of such persons owns beneficially more than 1/2 of 1% of the
shares or securities, or both, of such issuer, and such persons owning more
than 1/2 of 1% of such shares or securities together own beneficially more
than 5% of such shares or securities, or both;
(12) Purchase any securities, gold or evidences of interest therein on
margin, except that the Fund may obtain such short-term credit as may be
necessary for the clearance of any transactions and except that the Fund may
make margin deposits in connection with Futures Contracts, Options on Futures
Contracts, Options and Options on Foreign Currencies; or
(13) Sell any security which the Fund does not own unless by virtue of its
ownership of other securities the Fund has at the time of sale a right to
obtain securities without payment of further consideration equivalent in kind
and amount to the securities sold and provided that if such right is
conditional the sale is made upon the same conditions.
In addition, the Worldwide Fund has adopted the following non-fundamental
investment policy which may be changed without shareholder approval. The Fund
will not:
(1) Invest in securities which are subject to legal or contractual
restrictions on resale, or for which there is no readily available market
(e.g., trading in the security is suspended or, in the case of unlisted
securities, market makers do not exist or will not entertain bids or offers),
unless the Board of Trustees has determined that such securities are liquid
based upon trading markets for a specific security, if more than 15% of the
Fund's assets (taken at market value) would be invested in such securities.
3. MANAGEMENT OF THE FUNDS
The Trust's Board of Trustees provides broad supervision over the affairs of
the Trust. The Adviser is responsible for the investment management of each
Fund's assets, and the officers of the Trust are responsible for its
operations. The Trustees and officers are listed below, together with their
principal occupations during the past five years. (Their titles may have
varied during that period.)
TRUSTEES
A. KEITH BRODKIN,* Chairman and President
Massachusetts Financial Services Company, Chairman and Director
NELSON J. DARLING, JR.
Director or Trustee of several corporations or trusts, including Eastern
Enterprises (diversified holding company)
Address: 27 School Street, Boston, Massachusetts
WILLIAM R. GUTOW
Vice Chairman, Capitol Entertainment Management Company
Address: 3 Ruedulac, Dallas, Texas
OFFICERS
W. THOMAS LONDON,* Treasurer
Massachusetts Financial Services Company, Senior Vice President
STEPHEN E. CAVAN,* Secretary and Clerk
Massachusetts Financial Services Company, Senior Vice President, General
Counsel and Assistant Secretary
JAMES O. YOST,* Assistant Treasurer
Massachusetts Financial Services Company, Vice President
JAMES R. BORDEWICK, JR.,* Assistant Secretary
Massachusetts Financial Services Company, Vice President and Associate General
Counsel
- ----------
*"Interested persons" (as defined in the 1940 Act) of the Adviser, whose
address is 500 Boylston Street, Boston, Massachusetts 02116.
Each Trustee and officer holds comparable positions with certain MFS
affiliates or with certain other funds of which MFS or a subsidiary of MFS is
the investment adviser or distributor.
As of September 30, 1996, all Trustees and officers as a group owned less than
1% of each Fund, not including the following shares of the following funds,
representing the following percentage of the outstanding shares of such Fund,
owned by certain employee benefit plans of MFS of which Messrs. Brodkin,
Shames and Scott are Trustees.
APPROXIMATE APPROXIMATE
NUMBER OF % OF
FUND SHARES OUTSTANDING SHARES
- ---- ----------- ------------------
Worldwide Fund 486,758 7.1%
Emerging Equities Fund 247,744 1.85%
Emerging Markets Fund 220,545 57.6%
Mid-Cap Fund 296,333 30.5%
International Equity Fund 244,748 100.0%
Each Fund pays the compensation of any Trustee who is not affiliated with the
Adviser (who will receive from $1,300 to $1,900 annually depending on
attendance at meetings, plus fees for meetings of special committees, such as
the Audit Committee).
Set forth in Exhibit A hereto is certain information concerning cash
compensation paid to the Trustees.
As of September 30, 1996, the following shareholders owned more than 5% of the
outstanding shares of the Funds indicated:
APPROXIMATE APPROXIMATE
NUMBER OF % OF OUTSTANDING
FUND SHAREHOLDER SHARES OWNED SHARES OWNED
---- ----------- ------------ ----------------
Worldwide Fund Common Balanced Fund of 1,258,043 18.4%
the Joint Investment Trust
of Chrisitian Church
Foundation, Inc., P.O. Box
1986, Indianapolis, IN
Worldwide Fund Elkem Metals Company, The 1,061,334 15.5%
Retirement Program for
Employees of Elkem and
affiliated companies, P.O.
Box 266, Pittsburgh, PA
Worldwide Fund Berklee College of Music, 1,001,056 14.6%
Inc., Endowment Fund, 1140
Boylston Street, Boston,
MA
Worldwide Fund The Defined Benefit Plan, 908,453 13.3%
Cooperative Banks
Employees Retirement
Association, 1 Edgewater
Drive, Norwood, MA
Worldwide Fund Boat & Co., P.O. Box 587,697 8.6%
14737,
St. Louis, MO
Worldwide Fund State Street Bank and 567,201 8.3%
Trust Company, Trustee
under Palmer & Dodge
Qualified Plans,
Batterymarch Park, Three
Pine Hill Drive, Quincy,
MA
Worldwide Fund Trustees of the MFS 466,807 6.8%
Pension Plan, c/o Mark
Leary, MFS, 500 Boylston
Street, Boston, MA
Worldwide Fund Catholic Foreign Mission 466,807 6.8%
Society Common Fund, 55
Ryder Road, Maryknoll, NY
Worldwide Fund The Archdiocesan Joint 382,777 5.6%
Perpetual Care Fund, 1011
First Avenue, New York, NY
Emerging Norwest Bank Minnesota, 2,820,873 21.0%
Equities Fund N.A., Trustee, Rosemont,
Inc., Master Investment
Trust, 733 Marquette Ave.,
Minneapolis, MN
Emerging Northern Trust Co., 1,843,569 13.7%
Equities Fund Trustee, FBO American
Brands 401K Plan, P.O. Box
92956, Chicago, IL
Emerging Norwest Bank North Dakota, 1,301,997 9.7%
Equities Fund N.A., Trustee, Dakota
Clinic Ltd. Retirement
Plan, 406 Main Avenue,
Fargo, ND
Emerging ICMA Retirement Trust, 777 1,800,563 13.4%
Equities Fund North Capitol Street NE,
Washington, DC
Emerging Markets Trustees of the MFS 207,592 54.2%
Fund Pension Plan, c/o Mark
Leary, MFS, 500 Boylston
St., Boston, MA
Emerging Markets MFD, Attn: Thomas 162,369 42.4%
Fund Hastings, 500 Boylston
St., Boston, MA
Research Fund Boston Safe Deposit and 2,131,136 100.0%
Trust Co., Trustee, TWA
Pilots DAP 401K Plan, 1
Cabot Road, Medford, MA
Mid-Cap Fund Depauw University, 313 S. 675,853 69.5%
Locust
St., Greencastle, IN
Mid-Cap Fund Trustees of the MFS 296,333 30.5%
Pension Plan, c/o Mark
Leary, MFS, 500 Boylston
St., Boston, MA
International Trustees of the MFS 200,000 81.7%
Equity Fund Pension Plan, c/o Mark
Leary, MFS, 500 Boylston
St., Boston, MA
International Trustees of the MFS 44,748 18.3%
Equity Fund Defined Contribution Plan,
c/o Mark Leary, MFS, 500
Boylston St., Boston, MA
The Trust's Declaration of Trust provides that the Trust will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with
the Trust, unless, as to liabilities to the Trust or its shareholders, it is
finally adjudicated that they engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in their offices, or
with respect to any matter unless it is adjudicated that they did not act in
good faith in the reasonable belief that their actions were in the best
interest of the Trust. In the case of settlement, such indemnification will
not be provided unless it has been determined by a court or other body
approving the settlement or other disposition, or by a reasonable
determination based upon a review of readily available facts, by vote of a
majority of disinterested Trustees or in a written opinion of independent
counsel, that such officers and Trustees have not engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of their
duties.
INVESTMENT ADVISER
MFS and its predecessor organizations have a history of money management
dating from 1924. MFS is a subsidiary of Sun Life Assurance Company of Canada
(U.S.) which in turn is a wholly owned subsidiary of Sun Life Assurance
Company of Canada. The Prospectus contains information with respect to the
management of the Adviser and other investment companies for which MFS serves
as investment adviser.
The Adviser manages the assets of the Worldwide Fund and the Emerging Equities
Fund pursuant to Investment Advisory Agreements dated August 7, 1992,
respectively, the Emerging Markets Fund pursuant to an Investment Advisory
Agreement dated August 1, 1995 and each of the Core Plus Fund, the Research
Fund, the Mid-Cap Fund and the International Equity Fund pursuant to an
Investment Advisory Agreement dated November 30, 1995 (collectively, the
"Advisory Agreements"). The Adviser provides each Fund with overall investment
advisory and administrative services, as well as general office facilities.
Subject to such policies as the Trustees may determine, the Adviser makes
investment decisions for each Fund. For these services and facilities, the
Adviser receives a management fee computed and paid monthly equal on an
annualized basis to 0.65% of the Worldwide Fund's average daily net assets,
0.75% of the Emerging Equities Fund's average daily net assets, 0.85% of the
Emerging Markets Fund's average daily net assets, 0.45% of the Core Plus
Fund's average daily net assets, 0.60% of the Research Fund's average daily
net assets, 0.60% of the Mid-Cap Fund's average daily net assets and 0.75% of
the International Equity Fund's average daily net assets.
For the Trusts fiscal year ended June 30, 1996, 1995 and 1994, MFS received
the following aggregate fees and MFS waived the following fees, in whole or in
part, for the same periods:
For the fiscal year ended June 30, 1996:
ADVISORY FEES ADVISORY FEES
RECEIVED BY WAIVED BY
FUND(1) MFS(2) MFS
- ------- ------------- --------------
Worldwide Fund $ 241,940 $210,968
Emerging Equities Fund 1,175,336 211,515
Emerging Markets Fund(3) 0 20,043
Research Fund(4) 0 14,286
Mid-Cap Growth Fund(5) 0 14,827
International Equity Fund(6) 0 7,030
(1) The Core Plus Fund had not commenced investment operations prior to June
30, 1996.
(2) After any applicable fee reduction.
(3) For the period from the commencement of investment operations on August 7,
1995 to June 30, 1996.
(4) For the period from the commencement of investment operations on May 21,
1996 to June 30, 1996.
(5) For the period from the commencement of investment operation on December
28, 1995, to June 30, 1996.
(6) For the period from the commencement of investment operations on January
31, 1996, to June 30, 1996.
For the fiscal year ended June 30, 1995:
ADVISORY FEES ADVISORY FEES
RECEIVED BY WAIVED BY
FUND(1) MFS(2) MFS
- ------- ------------- --------------
Worldwide Fund $173,837 $222,036
Emerging Equities Fund 372,024 168,512
(1) The remaining Funds did not commence investment operations prior to June
30, 1995.
(2) After any applicable fee reduction.
For the fiscal year ended June 30, 1994:
ADVISORY FEES ADVISORY FEES
RECEIVED BY WAIVED BY
FUND(1) MFS(2) MFS
- ------- ------------- --------------
Worldwide Fund $ 89,826 $153,944
Emerging Equities Fund 0 127,028
(1) The remaining Funds did not commence investment operations prior to June
30, 1994.
(2) After any applicable fee reduction.
MFS pays the compensation of the Trust's officers and any Trustee who is
affiliated with the Adviser. The Adviser also furnishes at its own expense all
necessary administrative services, including office space, equipment, clerical
personnel, investment advisory facilities, and all executive and supervisory
personnel necessary for managing each Fund's investments, effecting each
Fund's portfolio transactions and, in general, administering the Funds'
affairs.
The Advisory Agreements of the Worldwide Fund, the Emerging Equities Fund, the
Emerging Markets Fund, the Core Plus Fund, the Research Fund, the Mid-Cap Fund
and the International Equity Fund will remain in effect until August 1, 1997.
Each Agreement will continue in effect thereafter only if such continuance is
specifically approved at least annually by the Board of Trustees or by vote of
a majority of each Fund's outstanding voting securities (as defined in
"Investment Policies and Restrictions -- Investment Restrictions") and, in
either case, by a majority of the Trustees who are not parties to the Advisory
Agreements or interested persons of any such party. Each Advisory Agreement
terminates automatically if it is assigned and may be terminated without
penalty by vote of a majority of each Fund's outstanding voting securities (as
defined in "Investment Policies and Restrictions -- Investment Restrictions")
or by either party on not more than 60 days' nor less than 30 days' written
notice. Each Advisory Agreement further provides that MFS may render services
to others. Each Advisory Agreement also provides that neither the Adviser nor
its personnel shall be liable for any error of judgment or mistake of law or
for any loss arising out of any investment or for any act or omission in the
execution and management of each Fund, except for willful misfeasance, bad
faith or gross negligence in the performance of its or their duties or by
reason of reckless disregard of its or their obligations and duties under the
Advisory Agreements.
CUSTODIAN
State Street Bank and Trust Company (the "Custodian") is the custodian of each
Fund's assets. The Custodian's responsibilities include safekeeping and
controlling each Fund's cash and securities, handling the receipt and delivery
of securities, determining income and collecting interest and dividends on
each Fund's investments, maintaining books of original entry for portfolio and
fund accounting and other required books and accounts, and calculating the
daily net asset value of shares of each Fund. The Custodian does not determine
the investment policies of each Fund or decide which securities each Fund will
buy or sell. Each Fund may, however, invest in securities, including
repurchase agreements, issued by the Custodian and may deal with the Custodian
as principal in securities transactions. The Trustees have reviewed and
approved as in the best interests of each Fund except the Emerging Equities
Fund and the Worldwide Fund and its shareholders subcustodial arrangements
with the Custodian for securities of those Funds held outside the United
States. The Trustees have reviewed and approved, as in the best interests of
the Emerging Equities Fund and the Worldwide Fund and their shareholders
subcustodial arrangements with The Custodian also acts as the dividend
disbursing agent of each Fund. The Custodian has contracted with the Adviser
for the Adviser to perform certain accounting functions related to option
transactions for which the Adviser receives remuneration on a cost basis.
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc. (the "Shareholder Servicing Agent"), a wholly owned
subsidiary of MFS, is the Trust's shareholder servicing agent, pursuant to a
Shareholder Servicing Agreement, dated November 30, 1995 (the "Agency
Agreement"). The Shareholder Servicing Agent's responsibilities under the
Agency Agreement include administering and performing transfer agent functions
and keeping records in connection with the issuance, transfer and redemption
of the shares of each Fund. For these services, the Shareholder Servicing
Agent will receive a fee of up to 0.0075% per annum of each Fund's average
daily net assets. In addition, the Shareholder Servicing Agent will be
reimbursed by each Fund for certain expenses incurred by the Shareholder
Servicing Agent on behalf of the Fund. State Street Bank and Trust Company,
the dividend and distribution disbursing agent of each Fund, has contracted
with the Shareholder Servicing Agent to perform certain dividend and
distribution disbursing functions for each Fund.
DISTRIBUTOR
MFD, a wholly owned subsidiary of MFS, serves as the distributor for the
continuous offering of shares of the Trust pursuant to a Distribution
Agreement dated as of June 15, 1994 (the "Distribution Agreement").
The Distribution Agreement will remain in effect until August 1, 1997 and will
continue in effect thereafter only if such continuance is specifically
approved at least annually by the Board of Trustees or by vote of a majority
of the Trust's shares (as defined in "Investment Restrictions") and in either
case, by a majority of the Trustees who are not parties to such Distribution
Agreement or interested persons of any such party. The Distribution Agreement
terminates automatically if it is assigned and may be terminated without
penalty by either party on not more than 60 days' nor less than 30 days'
notice.
4. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Specific decisions to purchase or sell securities for the Funds are made by
employees of the Adviser who are appointed and supervised by its senior
officers. Changes in each Fund's investments are reviewed by its Board of
Trustees. Each Fund's portfolio manager or management committee may serve
other clients of the Adviser or any subsidiary of the Adviser in a similar
capacity.
The primary consideration in placing portfolio security transactions is
execution at the most favorable prices. The Adviser has complete freedom as to
the markets in and broker-dealers through which it seeks this result. In the
United States and in some other countries debt securities are traded
principally in the over-the-counter market on a net basis through dealers
acting for their own account and not as brokers. In other countries both debt
and equity securities are traded on exchanges at fixed commission rates. The
cost of securities purchased from underwriters includes an underwriter's
commission or concession, and the prices at which securities are purchased and
sold from and to dealers include a dealer's mark-up or mark-down. The Adviser
normally seeks to deal directly with the primary market makers or on major
exchanges unless, in its opinion, better prices are available elsewhere.
Subject to the requirement of seeking execution at the best available price,
securities may, as authorized by each Advisory Agreement, be bought from or
sold to dealers who have furnished statistical, research and other information
or services to the Adviser. At present no arrangements for the recapture of
commission payments are in effect.
Consistent with the foregoing primary consideration, the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. (the "NASD")
and such other policies as the Trustees may determine, the Adviser may
consider sales of shares of the Trust and of the other investment company
clients of MFD, the principal underwriter of certain funds in the MFS Family
of Funds (the "MFS Funds"), as a factor in the selection of broker-dealers to
execute the Trust's portfolio transactions.
Under the Advisory Agreements and as permitted by Section 28(e) of the
Securities Exchange Act of 1934, the Adviser may cause a Fund to pay a broker-
dealer which provides brokerage and research services to the Adviser an amount
of commission for effecting a securities transaction for the Fund in excess of
the amount other broker-dealers would have charged for the transaction if the
Adviser determines in good faith that the greater commission is reasonable in
relation to the value of the brokerage and research services provided by the
executing broker-dealer viewed in terms of either a particular transaction or
their respective overall responsibilities to the Fund or to their other
clients. Not all of such services are useful or of value in advising a Fund.
The term "brokerage and research services" includes advice as to the value of
securities, the advisability of investing in, purchasing, or selling
securities, and the availability of securities or of purchasers or sellers of
securities; furnishing analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy and the
performance of accounts; and effecting securities transactions and performing
functions incidental thereto, such as clearance and settlement.
Although commissions paid on every transaction will, in the judgment of the
Adviser, be reasonable in relation to the value of the brokerage services
provided, commissions exceeding those which another broker might charge may
be paid to broker-dealers who were selected to execute transactions on behalf
of a Fund and the Adviser's other clients in part for providing advice as to
the availability of securities or of purchasers or sellers of securities and
services in effecting securities transactions and performing functions
incidental thereto, such as clearance and settlement.
Broker-dealers may be willing to furnish statistical, research and other
factual information or services ("Research") to the Adviser for no
consideration other than brokerage or underwriting commissions. Securities may
be bought or sold through such broker-dealers, but at present, unless
otherwise directed by a Fund, a commission higher than one charged elsewhere
will not be paid to such a firm solely because it provided such Research.
In certain instances there may be securities which are suitable for a Fund's
portfolio as well as for that of one or more of the other clients of the
Adviser or any subsidiary of the Adviser. Investment decisions for a Fund and
for such other clients are made with a view to achieving their respective
investment objectives. It may develop that a particular security is bought or
sold for only one client even though it might be held by, or bought or sold
for, other clients. Likewise, a particular security may be bought for one or
more clients when one or more other clients are selling that same security.
Some simultaneous transactions are inevitable when several clients receive
investment advice from the same investment adviser, particularly when the same
security is suitable for the investment objectives of more than one client.
When two or more clients are simultaneously engaged in the purchase or sale of
the same security, the securities are allocated among clients in a manner
believed by the Adviser to be equitable to each. It is recognized that in some
cases this system could have a detrimental effect on the price or volume of
the security as far as a Fund is concerned. In other cases, however, the
Adviser believes that a Fund's ability to participate in volume transactions
will produce better executions for the Fund.
For the period ended June 30, 1996, the following Funds paid total brokerage
commissions on total transactions as follows:
TOTAL TOTAL
COMMISSIONS TRANSACTIONS
----------- ------------
Emerging Equities Fund $289,407 $173,945,262
Research Fund 28,468 18,323,484
Mid-Cap Fund 6,525 4,320,341
International Equity Fund 11,367 2,526,195
5. TAX STATUS
Each Fund intends to elect or has elected to be treated and to qualify each
year as a "regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), by meeting all applicable
requirements of Subchapter M, including requirements as to the nature of the
Fund's gross income, the amount of Fund distributions, and the composition and
holding period of the Fund's portfolio assets. Because each Fund intends to
distribute all of its net investment income and net realized capital gains to
shareholders in accordance with the timing requirements imposed by the Code,
it is not expected that any Fund will be required to pay any federal income or
excise taxes, although a Fund's foreign-source income may be subject to
foreign withholding taxes. If a Fund should fail to qualify as a "regulated
investment company" in any year, that Fund would incur a regular corporate
federal income tax upon its taxable income and Fund distributions would
generally be taxable as ordinary dividend income to shareholders.
Shareholders of each Fund normally will have to pay federal income taxes, and
any state or local taxes, on the dividends and capital gain distributions they
receive from the Fund. Dividends from ordinary income and any distributions
from net short-term capital gains (whether received in cash or reinvested in
additional shares) are taxable to each Fund's shareholders as ordinary income
for federal income tax purposes, whether the distributions are made in cash or
in additional shares. Because the Core Plus Fund expects to earn primarily
interest income, it is expected that none of that Fund's dividends will
qualify for the dividends received deduction for corporations. A portion of
the ordinary income dividends paid by each Fund other than the Core Plus Fund
is normally eligible for the dividends received deduction for corporations if
the recipient otherwise qualifies for that deduction with respect to its
holding of Fund shares. Availability of the deduction for particular
shareholders is subject to certain limitations, and deducted amounts may be
subject to the alternative minimum tax or result in certain basis adjustments.
Distributions of net capital gains (i.e., the excess of net long-term capital
gains over net short-term capital losses), whether made in cash or in
additional shares, are taxable to each Fund's shareholders as long-term
capital gains without regard to the length of time the shareholders have held
their shares. Any Fund dividend that is declared in October, November or
December of any calendar year, that is payable to shareholders of record in
such a month, and that is paid the following January, will be treated as if
received by the shareholders on December 31 of the year in which the dividend
is declared.
Any Fund distribution will have the effect of reducing the per share net asset
value of shares in the paying Fund by the amount of the distribution.
Shareholders purchasing shares shortly before the record date of any
distribution may thus pay the full price for the shares and then effectively
receive a portion of the purchase price back as a taxable distribution.
In general, any gain or loss realized upon a taxable disposition of shares of
a Fund by a shareholder that holds such shares as a capital asset will be
treated as long-term capital gain or loss if the shares have been held for
more than twelve months and otherwise as a short-term capital gain or loss.
However, any loss realized upon a disposition of shares in a Fund held for six
months or less will be treated as a long-term capital loss to the extent of
any distributions of net capital gain made with respect to those shares. Any
loss realized upon a disposition of shares may also be disallowed under rules
relating to wash sales. Gain may be increased (or loss reduced) upon a
redemption of shares of a Fund within ninety days after their purchase
followed by any purchase (including purchases by exchange or by reinvestment)
of shares of that Fund or of another MFS Fund without payment of an additional
sales charge.
Each Fund's current dividend and accounting policies will affect the amount,
timing, and character of distributions to shareholders, and may, under certain
circumstances, make an economic return of capital taxable to shareholders. Any
investment in zero coupon bonds, deferred interest bonds, payment-in-kind
bonds and certain stripped securities, and certain securities purchased at a
market discount will cause that Fund to realize income prior to the receipt of
cash payments with respect to those securities. In order to distribute this
income and avoid a tax on the Fund, that Fund may be required to liquidate
portfolio securities that it might otherwise have continued to hold,
potentially resulting in additional taxable gain or loss to the Fund.
Any investment in residual interests of a CMO that has elected to be treated
as a real estate mortgage investment conduit, or "REMIC", can create complex
tax problems, especially if the Fund has state or local governments or other
tax-exempt organizations as shareholders.
Any Fund's transactions in options, Futures Contracts and Forward Contracts
will be subject to special tax rules that may affect the amount, timing and
character of Fund income and distributions to shareholders. For example,
certain positions held by a Fund on the last business day of each taxable year
will be marked to market (i.e., treated as if closed out) on that day, and any
gain or loss associated with the positions will be treated as 60% long-term
and 40% short-term capital gain or loss. Certain positions held by a Fund that
substantially diminish its risk of loss with respect to other positions in its
portfolio may constitute "straddles," and may be subject to special tax rules
that would cause deferral of Fund losses, adjustments in the holding periods
of Fund securities and conversion of short-term into long-term capital losses.
Certain tax elections exist for straddles that may alter the effects of these
rules. Each Fund will limit its activities in options, Futures Contracts,
Forward Contracts, and swaps and related transactions to the extent necessary
to meet the requirements of Subchapter M of the Code.
Special tax considerations apply with respect to foreign investments of a
Fund. Foreign exchange gains and losses realized by a Fund will generally be
treated as ordinary income and losses. Use of foreign currencies for
nonhedging purposes and investment by a Fund in certain "passive foreign
investment companies" may be limited in order to avoid a tax on that Fund.
Investment income received by a Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source. The United States
has entered into tax treaties with many foreign countries which may entitle a
Fund to a reduced rate of tax or an exemption from tax on such income; the
Funds intend to qualify for treaty reduced rates where available. It is
impossible to determine the effective rate of foreign tax in advance since the
amount of each Fund's assets to be invested within various countries is not
known. If a Fund holds more than 50% of its assets in foreign stock and
securities at the close of its taxable year, the Fund may elect to "pass
through" to that Fund's shareholders foreign income taxes paid. If the Fund so
elects, shareholders will be required to treat their pro rata portion of the
foreign income taxes paid by the Fund as part of the amounts distributed to
them by the Fund and thus includible in their gross income for federal income
tax purposes. Shareholders who itemize deductions would then be allowed to
claim a deduction or credit (but not both) on their federal income tax returns
for such amounts, subject to certain limitations. Shareholders who do not
itemize deductions would be able (subject to such limitations) to claim a
credit but not a deduction. No deduction will be permitted to individuals in
computing their alternative minimum tax liability. If a Fund does not qualify
or elect to "pass through" to its shareholders foreign income taxes paid by
it, its shareholders will not be able to claim any deduction or credit for any
part of the foreign taxes paid by that Fund.
Dividends and certain other payments to non-exempt persons who are not
citizens or residents of the United States or U.S. entities ("Non-U.S.
Persons") are generally subject to U.S. tax withholding at a rate of 30%. Each
Fund intends to withhold U.S. Federal income tax at the rate of 30% on taxable
dividends and other payments to Non-U.S. Persons that are subject to such
withholding, regardless of whether a lower rate may be permitted under an
applicable treaty. Any amounts overwithheld may be recovered by such persons
by filing a claim for refund with the U.S. Internal Revenue Service within the
time period appropriate to such claims. Distributions received from a Fund by
Non-U.S. Persons may also be subject to tax under the laws of their own
jurisdictions. Each Fund is also required in certain circumstances to apply
backup withholding of 31% of taxable dividends and redemption proceeds paid to
any shareholder (including a Non-U.S. Person) who does not furnish to the Fund
certain information and certifications or who is otherwise subject to backup
withholding. Backup withholding however will not be applied to payments that
have been subject to 30% withholding.
As long as each Fund qualifies as a regulated investment company under the
Code, it will not be required to pay Massachusetts income or excise tax.
Distributions of a Fund that are derived from interest on obligations of the
U.S. Government and certain of its agencies and instrumentalities (but
generally not from capital gains realized upon the disposition of such
obligations) may be exempt from state and local taxes. The Fund intends to
advise individual shareholders of the extent, if any, to which its
distributions consist of such interest. Shareholders are urged to consult
their tax advisors regarding the possible exclusion of such portion of their
dividends for state and local income tax purposes as well as regarding the tax
consequences of an investment in the Fund.
6. DETERMINATION OF NET ASSET VALUE AND PERFORMANCE
NET ASSET VALUE -- The net asset value of shares of each Fund is determined
each day during which the New York Stock Exchange (the "Exchange") is open for
trading. (As of the date of this SAI, such Exchange is open for trading every
week day except for the following holidays or the days on which they are
observed: New Year's Day; President's Day; Good Friday; Memorial Day;
Independence Day; Labor Day; Thanksgiving Day; and Christmas Day.) This
determination of net asset value of shares of a Fund is made once during each
such day as of the close of regular trading on such Exchange by deducting the
amount of the Fund's liabilities from the value of its assets and dividing the
difference by the number of its shares outstanding. Bonds and other fixed
income securities (other than short-term obligations but including listed
issues) in a Fund's portfolio are valued on the basis of valuations furnished
by a pricing service which utilizes both dealer-supplied valuations and
electronic data processing techniques which take into account appropriate
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 quoted prices or
exchange or over-the-counter prices, since such valuations are believed by the
Board of Trustees to reflect the fair value of such securities. Use of the
pricing service has been approved by the Board of Trustees. Forward Contracts
will be valued using a pricing model taking into consideration market data
from an external pricing source. All other securities, futures contracts and
listed options in a Fund's portfolio (other than short-term obligations) for
which the principal market is one or more securities or commodities exchanges
(whether domestic or foreign) will be valued at the last reported sale price
or at the settlement price prior to the determination (or if there has been no
current sale, at the closing bid price) on the primary exchange on which such
securities, Futures Contracts or options are traded; but, if a securities
exchange is not the principal market for securities, such securities will, if
market quotations are readily available, be valued at current bid prices
unless such securities are reported on the NASDAQ system, in which case they
are valued at the last sale price or, if no sales occurred during the day, at
the last quoted bid price. Short-term securities with a remaining maturity in
excess of 60 days will be valued upon dealer supplied valuations. Other short-
term obligations are valued at amortized cost, which constitutes fair value as
determined by the Board of Trustees. Portfolio investments 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 Board of Trustees.
Short-term obligations with a remaining maturity in excess of 60 days will be
valued based upon dealer supplied valuations. Other short-term obligations in
a Fund's portfolio are valued at amortized cost, which constitutes fair value
as determined by the Board of Trustees. Portfolio investments 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 Board of Trustees.
Generally, trading in foreign securities is substantially completed each day
at various times prior to the close of regular trading on the New York Stock
Exchange. Occasionally, events affecting the values of such securities may
occur between the times at which they are determined and the close of regular
trading on the Exchange which will not be reflected in the computation of a
Fund's net asset value unless the Trustees deem that such event would
materially affect the net asset value in which case an adjustment would be
made.
All investments and assets are expressed in U.S. dollars based upon current
currency exchange rates. A share's net asset value is effective for orders
received by the dealer prior to its calculation and received by MFD, each
Fund's distributor, prior to the close of that business day.
TOTAL RATE OF RETURN: Each Fund will calculate its total rate of return for
certain periods by determining the average annual compounded rates of return
over those periods that would cause an investment of $1,000 (made at net asset
value with all distributions reinvested) to reach the value of that investment
at the end of the periods. Each Fund may also calculate total rates of return
which represent aggregate performance over a period or year-by-year
performance.
The average annual total rates of return for the Worldwide Fund and the
Emerging Equities Fund, and the aggregate total rates of return for the
Research Fund, the Mid-Cap Fund, the Emerging Markets Fund and the
International Equity Fund, for periods ending June 30, 1996, are as follows:
1 YEAR LIFE OF FUND
------ ------------
Worldwide Fund 1.51% 5.44%(1)
Emerging Equities Fund 41.37 33.71(2)
Research Fund N/A -2.20(3)*
Mid-Cap Fund N/A 11.30(4)*
Emerging Markets Fund N/A 12.93(5)*
International Equity Fund N/A 9.60(6)*
* These figures are not calculated on an annualized basis and represent a
limited time frame.
(1) For the period from the commencement of investment operations on September
30, 1992 to June 30, 1996.
(2) For the period from the commencement of investment operations on June 16,
1993 to June 30, 1996.
(3) For the period from the commencement of investment operations on May 21,
1996 to June 30, 1996.
(4) For the period from the commencement of investment operations on December
28, 1995 to June 30, 1996.
(5) For the period from the commencement of investment operations on August 7,
1995 to June 30, 1996.
(6) For the period from the commencement of investment operations on January
31, 1996 to June 30, 1996.
Total rate of return reflects the performance of both principal and income.
Total rates of return would have been lower if certain expense waivers had not
been in place.
YIELD: Any yield quotation of a Fund is based on the annualized net investment
income per share of the Fund over a 30-day period. The yield for the Fund is
calculated by dividing the net investment income per share of the Fund earned
during the period by the net asset value per share of the Fund on the last day
of that period. The resulting figure is then annualized. Net investment income
per share is determined by dividing (i) the dividends and interest earned by
the Fund during the period, minus accrued expenses for the period, by (ii) the
average number of Fund shares entitled to receive dividends during the period
multiplied by the net asset value per share on the last day of the period. The
30-day yield for the Worldwide Fund as of June 30, 1996 was 5.80% taking into
account certain fee waivers; without these waivers, the yield would have been
5.57%.
PERFORMANCE INFORMATION: Any yield or total rate of return quotation provided
by a Fund should not be considered as representative of the performance of a
Fund in the future since the net asset value of shares of each Fund will vary
based not only on the type, quality and maturities of the securities held in a
Fund's portfolio, but also on changes in the current value of such securities
and on changes in the expenses of a Fund. These factors and possible
differences in the methods used to calculate yields and total rates of return
should be considered when comparing the yield and total rate of return of a
Fund to yields and total rates of return published for other investment
companies or other investment vehicles.
GENERAL: From time to time, each Fund may discuss or quote its current
portfolio manager as well as other investment personnel, including such
persons' views on: the economy; securities markets; portfolio securities and
their issuers; investment philosophies, strategies, techniques and criteria
used in the selection of securities to be purchased or sold for the Fund; the
Fund's portfolio holdings; the investment research and analysis process; the
formulation and evaluation of investment recommendations; and the assessment
and evaluation of credit, interest rate, market and economic risks, and
similar or related matters.
The Fund may also quote evaluations mentioned in independent radio or
television broadcasts.
From time to time the Fund may use charts and graphs to illustrate the past
performance of various indices such as those mentioned above and illustrations
using hypothetical rates of return to illustrate the effects of compounding
and tax-deferral.
From time to time the Fund may also discuss or quote the views of its
distributor, its investment adviser and other financial planning, legal, tax,
accounting, insurance, estate planning and other professionals, or from
surveys, regarding individual and family financial planning. Such views may
include information regarding: retirement planning; tax management strategies;
estate planning; general investment techniques (e.g., asset allocation and
disciplined saving and investing); business succession; ideas and information
provided through the MFS Heritage Planning\s/\m/ program, an intergenerational
financial planning assistance program; issues with respect to insurance (e.g.,
disability and life insurance and Medicare supplemental insurance); issues
regarding financial and health care management for elderly family members; and
other similar or related matters.
The Fund may advertise examples of the effects of periodic investment plans,
including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a fund at periodic intervals,
thereby purchasing fewer shares when prices are low. While such a strategy
does not assure a profit or guard against a loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers of shares
are purchased at the same intervals.
MFS FIRSTS: MFS has a long history of innovations.
-- 1924 -- Massachusetts Investors Trust is established as the first open-
end mutual fund in America.
-- 1924 -- Massachusetts Investors Trust is the first mutual fund to make
full public disclosure of its operations in shareholder reports.
-- 1932 -- One of the first internal research departments is established to
provide in-house analytical capability for an investment management firm.
-- 1933 -- Massachusetts Investors Trust is the first mutual fund to
register under the Securities Act of 1933 ("Truth in Securities Act" or
"Full Disclosure Act").
-- 1936 -- Massachusetts Investors Trust is the first mutual fund to allow
shareholders to take capital gain distributions either in additional
shares or cash.
-- 1976 -- MFS(R) Municipal Bond Fund is among the first municipal bond
funds established.
-- 1979 -- Spectrum becomes the first combination fixed/variable annuity
with no initial sales charge.
-- 1981 -- MFS(R) World Governments Fund is established as America's first
globally diversified fixed/income mutual fund.
-- 1984 -- MFS(R) Municipal High Income Fund is the first open-end mutual
fund to seek high tax-free income from lower-rated municipal securities.
-- 1986 -- MFS(R) Managed Sectors Fund becomes the first mutual fund to
target and shift investments among industry sectors for shareholders.
-- 1986 -- MFS(R) Municipal Income Trust is the first closed-end, high-yield
municipal bond fund traded on the New York Stock Exchange.
-- 1987 -- MFS(R) Multimarket Income Trust is the first-closed-end,
multimarket high income fund listed on the New York Stock Exchange.
-- 1989 -- MFS Regatta becomes America's first non-qualified market-value-
adjusted fixed/variable annuity.
-- 1990 -- MFS(R) World Total Return Fund is the first global balanced fund.
-- 1993 -- MFS(R) World Growth Fund is the first global emerging markets
fund to offer the expertise of two sub-advisers.
-- 1993 -- MFS(R) Union Standard Trust is the first fund to invest solely in
companies deemed to be union-friendly by an Advisory Board of senior
labor officials, senior managers of companies with significant labor
contracts, academics and other national labor leaders.
7. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional Shares of Beneficial Interest (without par value) and to
divide or combine the shares into a greater or lesser number of shares without
thereby changing the proportionate beneficial interests in the Trust. The
Trust presently has seven series and reserves the right to create and issue
additional series of shares. Each share of a series represents an equal
proportionate interest in that series with each other share of that series.
Shares of each series participate equally in the earnings, dividends and
assets of the particular series. Shares of each series vote separately to
approve investment advisory agreements or changes in investment restrictions,
but shares of all series vote together in the election of Trustees or
selection of accountants. Should the Trust be liquidated, shareholders of each
series would be entitled to share pro rata in the net assets of their
respective series available for distribution to shareholders.
Shareholders are entitled to one vote for each share held and may vote in the
election of Trustees and on other matters submitted to meetings of
shareholders. To the extent any Fund's shareholder owns a controlling
percentage of the Fund's shares, such shareholder may affect the outcome of
such matters to a greater extent than other Fund shareholders (see
"Description of Shares, Voting Rights and Liabilities" in the Prospectus).
Although Trustees are not elected annually by the shareholders, shareholders
have the right under certain circumstances to remove one or more Trustees. No
material amendment may be made to the Declaration of Trust without the
affirmative vote of the holders of a majority of the Trust's outstanding
shares (as defined in "Investment Policies and Restrictions -- Investment
Restrictions"). Shares have no pre-emptive or conversion rights. Shares when
issued are fully paid and non-assessable. The Trust may be terminated (i) upon
the merger or consolidation of the Trust with another organization or upon the
sale of all or substantially all of its assets, if approved by the vote of the
holders of two-thirds of the outstanding shares of the Trust, except that if
the Trustees recommend such merger, consolidation or sale, the approval by
vote of the holders of more than 50% of the outstanding shares will be
sufficient, (ii) upon liquidation and distribution of the assets of the Trust
or the Fund (as applicable), if approved by the holders of not less than two-
thirds of the outstanding shares of the Trust or the Fund (as applicable), or
(iii) by the Trustees by written notice to the Trust's shareholders or Fund
shareholders (as applicable). If not so terminated, the Trust will continue
indefinitely.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the Declaration of Trust contains an express disclaimer
of shareholder liability for acts or obligations of the Trust and provides for
indemnification and reimbursement of expenses out of the Trust property for
any shareholder held personally liable for the obligations of the Trust. The
Declaration of Trust also provides that the Trust shall maintain appropriate
insurance (for example, fidelity bonding and errors and omissions insurance)
for the protection of the Trust, its shareholders, Trustees, officers,
employees and agents covering possible tort and other liabilities. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which both inadequate insurance
existed and the Trust itself was unable to meet its obligations.
The Declaration of Trust further provides that obligations of the Trust are
not binding upon the Trustees individually but only upon the property of the
Trust and that the Trustees will not be liable for any action or failure to
act, but nothing in the Declaration of Trust protects a Trustee against any
liability to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
8. INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
Deloitte & Touche LLP are each Fund's independent auditors providing audit
services, tax return preparation, and assistance and consultation with respect
to the preparation of filings with the SEC.
For each Fund the following documents, each of which is included in the Annual
Report to shareholders for each Fund, are incorporated by reference into this
SAI and have been so incorporated in reliance upon the report of Deloitte &
Touche LLP, independent auditors, as experts in accounting and auditing:
PERIOD COVERED
DOCUMENT FUND IN DOCUMENT
-------- ---- ---------------
Portfolio of Investments Each Fund at June 30, 1996
Statement of Assets and Each Fund at June 30, 1996
Liabilities
Statement of Changes in Each of the Each year in the two
Net Assets Worldwide and the year period ended June
Emerging Equities 30, 1996
Fund
Statement of Changes in Emerging Markets From the commencement of
Net Assets Fund investment operations
on August 7, 1995 to
June 30, 1996
Statement of Changes in Research Fund From the commencement of
Net Assets investment operations
on May 21, 1996 to
June 30, 1996
Statement of Changes in Mid-Cap Fund From the commencement of
Net Assets investment operations
on December 28, 1995
to June 30, 1996
Statement of Changes in International From the commencement of
Net Assets Equity Fund investment operations
on January 31, 1996 to
June 30, 1996
Statement of Operations Each of the For the year ended June
Worldwide 30, 1996
and the Emerging
Equities Fund
Statement of Operations Emerging Markets From the commencement of
Fund investment operations
on August 7, 1995 to
June 30, 1996
Statement of Operations Research Fund From the commencement of
investment operations
on May 21, 1996 to
June 30, 1996
Statement of Operations Mid-Cap Fund From the commencement of
investment operations
December 28, 1995 to
June 30, 1996
Statement of Operations International From the commencement of
Equity Fund investment operations
on January 31, 1996 to
June 30, 1996
Notes to the Financial Each Fund
Statements
Independent Auditors' Report Each Fund
A copy of each Fund's Annual Report accompanies this SAI. As of the date of
this SAI, the Core Plus Fund had not yet commenced investment operations.
<PAGE>
EXHIBIT A
TRUSTEE COMPENSATION TABLE
<TABLE>
<CAPTION>
TRUSTEE FEES
FROM EACH OF THE TRUSTEES FEES TRUSTEE FEES
WORLDWIDE FUND FROM EACH OF THE FROM EACH OF THE
AND THE EMERGING MARKETS CORE PLUS TRUSTEE FEES TOTAL TRUSTEE FEES
EMERGING EQUITIES FUND AND THE FUND AND THE FROM INTERNATIONAL FROM FUND AND
NAME OF TRUSTEE FUND(1) MID-CAP FUND(1) RESEARCH FUND(1) EQUITY FUND(1) FUND COMPLEX(2)
- ---------------- ----------------- ---------------- ---------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
A. Keith Brodkin ............. $ 0 $ 0 $ 0 $ 0 $ 0
Nelson J. Darling, Jr. ....... 2,892 1,250 0 625 15,858
William R. Gutow ............. 2,892 1,250 0 625 15,858
<FN>
NOTES:
(1) For fiscal year ending June 30, 1996.
(2) For calendar year ended December 31, 1995. All Trustees served as Trustees of 21 funds advised by MFS (having aggregate net
assets at December 31, 1995 of approximately $306.3 million).
</FN>
</TABLE>
ESTIMATED ANNUAL BENEFITS PAYABLE BY FUNDS UPON RETIREMENT(4)
FOR EACH OF THE WORLDWIDE FUND AND THE EMERGING EQUITIES FUND
YEARS OF SERVICE
-------------------------------------------
AVERAGE TRUSTEE FEES 3 5 7 10 OR MORE
- ---------------------------------------------------------------
$2,603 $390 $651 $ 911 $1,301
2,718 408 680 951 1,359
2,834 425 708 992 1,417
2,950 442 737 1,032 1,475
3,065 460 766 1,073 1,533
3,181 477 795 1,113 1,590
FOR EACH OF THE EMERGING MARKETS FUND AND THE MID-CAP FUND
-------------------------------------------
AVERAGE TRUSTEE FEES 3 5 7 10 OR MORE
- ---------------------------------------------------------------
$1,125 $169 $281 $ 394 $ 563
1,175 176 294 411 588
1,225 184 306 429 613
1,275 191 319 446 638
1,325 199 331 464 663
1,375 206 344 481 688
FOR EACH OF THE CORE PLUS FUND AND THE RESEARCH FUND
-------------------------------------------
AVERAGE TRUSTEE FEES 3 5 7 10 OR MORE
- ---------------------------------------------------------------
$ 0 $ 0 $ 0 $ 0 $ 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
<PAGE>
FOR THE INTERNATIONAL EQUITY FUND
-------------------------------------------
AVERAGE TRUSTEE FEES 3 5 7 10 OR MORE
- ---------------------------------------------------------------
$ 563 $ 84 $ 141 $ 197 $ 281
588 88 147 206 294
613 92 153 214 306
638 96 159 223 319
663 99 166 232 331
688 103 172 241 344
(4) Other funds in the MFS fund complex provide similar retirement benefits to
the Trustees.
<PAGE>
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
(800) 637-2262
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
(617) 954-5000
CUSTODIAN AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc.
500 Boylston Street, Boston, MA 02116
Toll free: (800) 637-2262
MAILING ADDRESS:
P.O. Box 1400, Boston, MA 02107-9906
INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street, Boston MA 02110
MFS(R) INSTITUTIONAL WORLDWIDE FIXED INCOME FUND
MFS(R) INSTITUTIONAL EMERGING EQUITIES FUND
MFS(R) INSTITUTIONAL EMERGING MARKETS INCOME FUND
MFS(R) INSTITUTIONAL CORE PLUS FIXED INCOME FUND
MFS(R) INSTITUTIONAL RESEARCH FUND
MFS(R) INSTITUTIONAL MID-CAP GROWTH EQUITY FUND
MFS(R) INSTITUTIONAL INTERNATIONAL EQUITY FUND
500 BOYLSTON STREET
BOSTON, MA 02116
[graphic omitted: MFS logo]
<PAGE>
<PAGE>
[logo] Annual Report for
THE FIRST NAME IN MUTUAL FUNDS Year Ended
June 30, 1996
MFS(R) INSTITUTIONAL EMERGING EQUITIES FUND
[graphic omitted: two men sitting in front of a window]
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
With the help of strong performance from many of its holdings in the consumer
and technology sectors, as well as from those of many smaller companies, the
Fund provided a total return of 41.37% (including the reinvestment of
distributions) for the 12 months ended June 30, 1996. Over the same period, the
stock market, as measured by the Standard & Poor's 500 Composite Index (the S&P
500), a popular, unmanaged index of common stock performance, returned 25.98%,
while the Russell 2000 Total Return Index (an index comprised of 2,000 of the
smallest U.S.-domiciled company common stocks which are traded on the New York
Stock Exchange, the American Stock Exchange and NASDAQ) returned 26.49%. A
discussion of the Fund's performance during this reporting period may be found
in the Portfolio Performance and Strategy section of this letter.
Economic Outlook
Real (inflation-adjusted) economic growth in the first quarter of 1996 was 2.3%
on an annualized basis, and it appears that second-quarter growth could be even
stronger. Thus, real growth in gross domestic product has started the year at a
rate exceeding our expectations. While we continue to believe that growth from
quarter to quarter will be uneven, it is now our expectation that growth for all
of 1996 could exceed 2.5%. Although individual consumers appear to be carrying
an excessive debt load, the consumer sector itself, which represents two-thirds
of the economy, continues to be impressive as the auto and housing markets
remain resilient. Consumer spending has also been positively impacted by
widespread job growth. At the same time, however, the economies of Europe and
Japan continue to be in the doldrums, weakening U.S. export markets while
subduing the capital spending plans of American corporations. Finally, due to
the pickup in economic activity and increasing job growth, it appears that
inflation may accelerate slightly this year, and the Federal Reserve Board is
expected to continue its diligent anti-inflationary stance.
Stock Market
While we do not expect the stock market to match the extraordinary performance
of 1995, we continue to be positive about the equity market this year. Although
we believe the equity market represents fair value at current levels, the
expected slowdown in the growth of corporate earnings and the increases in
interest rates experienced so far this year raise near-term concerns. Further
increases in interest rates, and an acceleration of inflation coupled with an
additional slowdown in corporate earnings growth, could have a negative effect
on the stock market. However, to the extent that some earnings disappointments
are taken as a sign that the economy is not overheating, this may prove
beneficial for the longer-term health of the equity market. We continue to
believe that many of the technology-driven productivity gains that U.S.
companies have made in recent years will continue to enhance corporate America's
competitiveness and profitability. Therefore, while we have some near-term
concerns, we remain quite constructive on the long-term viability of the equity
market.
Portfolio Performance and Strategy
The Fund's performance has benefited from the strong appreciation in the stock
prices of many of its holdings in the technology and consumer sectors. The
technology sector started the year with very poor performance as investors
worried about the slowdown in this sector's earnings growth versus 1995's, which
saw very strong earnings growth of 50% for this sector. However, once investors
became accustomed to the fact that 1996 earnings for the technology sector could
still be in a range of 25% to 30%, and that this growth would appear to be very
strong versus corporate America as a whole, the sector rebounded strongly.
Consumer stocks, which were some of the most disappointing in terms of
earnings and stock performance in 1995, have rebounded very smartly in 1996. One
sector which has not performed as yet for the Fund in 1996 is health care.
Perhaps because of the strength in other areas of the market, many of our health
care companies have lagged the general market in spite of strong earnings
growth.
The performance of our consumer-oriented stocks has been particularly
helpful. HFS, the nation's largest franchiser of hotels and real estate
companies, has seen the price of its stock appreciate almost 50% since the
beginning of the year as strong earnings gains and acquisitions such as Coldwell
Banker appeared to assure investors of its future growth prospects.
Several of the Fund's retail and restaurant stocks rebounded dramatically
based on strong consumer sentiment. Applebee's, the nation's largest franchiser
of casual restaurants, appreciated substantially as strong earnings were
reported from the first quarter. Similarly, Gymboree, perhaps the retailer
best-positioned to service the lucrative children's clothing niche, soared
almost 100% from depressed levels as first-quarter earnings were very strong.
While the Fund's technology stocks had, on average, mixed results, the Fund
was fortunately overweighted in software and networking stocks relative to
computer systems and semiconductors. Meanwhile, an excess of inventories held by
customers of semiconductor manufacturers has been a drag on earnings for this
sector so far this year. While we expect this overhang to dissipate, other
investors have aggressively sold their positions and depressed the stocks.
We have been surprised that the health care sector has not performed better.
United Healthcare, the largest managed health care company in the nation, which
had been one of the Fund's largest positions, has been a particularly poor
performer this year and has been sold out of the portfolio. Despite reporting
strong earnings versus last year's and maintaining its position as a dominant
force in the sector, the stock is down for the year. However, we believe the
health maintenance organization (HMO) companies should perform better by the end
of the year and still have positions in such stocks as Healthsource, which
operates HMOs in New England, the Midwest, and the Southeast.
Respectfully,
/S/ A. Keith Brodkin /s/ John W. Ballen /s/ Brian E. Stack
A. Keith Brodkin John W. Ballen Brian E. Stack
Chairman and President Portfolio Manager Portfolio Manager
July 10, 1996
<PAGE>
PORTFOLIO MANAGER PROFILES
John Ballen began his career at MFS as an industry specialist in 1984 and was
promoted to Investment Officer in 1986, Vice President - Investments in 1987,
Director of Research in 1988 and Senior Vice President in 1990. In 1993, he
became Director of Equity Portfolio Management. He has been the Portfolio
Manager of MFS Institutional Emerging Equities Fund since 1993.
Brian Stack joined the MFS Research Department as Vice President - Investments
in 1993. A graduate of Boston College and the Darden School of Business at the
University of Virginia, he has worked as an equity analyst since 1987. Mr. Stack
has served as Portfolio Manager of MFS Institutional Emerging Equities Fund
since January 1996.
PERFORMANCE SUMMARY
The information below illustrates the historical performance of MFS
Institutional 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 June 16, 1993 to June 30, 1996)
- -------------------------------------------------------------------------------
PLOT PONTS TO COME
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
6/16/93* -
1 Year 3 Years 6/30/96
- ----------------------------------------------------------------------------
MFS Institutional Emerging Equities Fund +41.37% +33.49% +33.71%
- ----------------------------------------------------------------------------
Russell 2000 Index +23.89% +15.80% +15.80%
- ----------------------------------------------------------------------------
Standard & Poor's 500 +25.98% +17.20% +17.20%
- ----------------------------------------------------------------------------
Consumer Price Index+ + 2.75% + 2.76% + 2.76%
- ----------------------------------------------------------------------------
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.
+The Consumer Price Index is a popular measure of change in prices.
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS
For the year ended June 30, 1996, the amount of distributions from income
eligible for the 70% dividends-received deduction for corporations came to
1.26%.
<PAGE>
PORTFOLIO OF INVESTMENTS - June 30, 1996
Common Stocks - 91.7%
- -----------------------------------------------------------------------------
Issuer Shares Value
- -----------------------------------------------------------------------------
U.S. Stocks - 89.4%
Agricultural Products - 0.4%
AGCO Corp. 36,100 $ 1,001,775
- -----------------------------------------------------------------------------
Apparel and Textiles - 0.4%
Nine West Group, Inc.* 22,000 $ 1,124,750
- -----------------------------------------------------------------------------
Business Machines - 1.8%
Affiliated Computer Services, Inc.* 98,900 $ 4,648,300
- -----------------------------------------------------------------------------
Business Services - 12.4%
American List Corp. 21,200 $ 561,800
BDM International, Inc. 33,500 1,557,750
BISYS Group, Inc.* 41,100 1,551,525
CUC International, Inc.* 81,000 2,875,500
Career Horizons, Inc.* 12,800 448,000
Ceridian Corp.* 82,300 4,156,150
Computer Sciences, Inc.* 44,400 3,318,900
DST Systems, Inc.* 11,800 377,600
Dendrite International Inc.* 11,900 410,550
Employee Solutions, Inc.* 37,100 1,168,650
Equity Corporation International* 22,100 596,700
Fine Host Corp.* 34,200 410,400
FIserv, Inc.* 77,100 2,313,000
Franklin Quest Co.* 90,000 1,867,500
Global Directmail Corp.* 15,900 628,050
Intellequest Information Group, Inc.* 1,500 49,125
Interim Services, Inc.* 99,400 4,274,200
Learning Tree International, Inc.* 2,500 76,875
PMT Services, Inc. 33,750 966,094
Registry, Inc.* 700 20,475
Rural/Metro Corp.* 16,500 565,125
SPS Transaction Services, Inc.* 91,600 1,648,800
Technology Solutions Co.* 52,800 1,828,200
Transaction Systems Architects, Inc., "A"* 5,400 361,800
Walsh International, Inc.* 21,800 201,650
Western Staff Services, Inc.* 900 12,600
------------
$ 32,247,019
- -----------------------------------------------------------------------------
Cellular Telephones - 0.7%
Cellular Communications of Puerto Rico, Inc.* 55,000 $ 1,787,500
- -----------------------------------------------------------------------------
Chemicals - 0.5%
Hanna (M.A.) Co. 48,050 $ 1,003,044
Polymer Group, Inc.* 16,700 292,250
------------
$ 1,295,294
- -----------------------------------------------------------------------------
Computer Software - Personal Computers - 1.0%
Autodesk, Inc. 13,100 $ 391,362
Electronic Arts, Inc.* 14,300 382,525
Sierra On-Line, Inc.* 16,700 732,713
Spectrum Holobyte, Inc.* 33,200 190,900
Symantec Corp.* 87,200 1,090,000
------------
$ 2,787,500
- -----------------------------------------------------------------------------
Computer Software - Systems - 15.3%
Adobe Systems, Inc. 89,300 $ 3,203,637
BMC Software, Inc.* 136,800 8,173,800
Cadence Design Systems, Inc.* 231,950 7,828,312
Catalyst International, Inc.* 47,400 545,100
Cognos, Inc.* 137,200 3,155,600
Compuware Corp.* 89,700 3,543,150
Control Data Systems, Inc.* 114,900 2,455,988
INTERSOLV, Inc.* 38,400 355,200
SCB Computer Technology, Inc.* 13,800 224,250
Softquad International, Inc.* 37,300 206,898
Sybase, Inc.* 230,300 5,440,837
Sysnopsys, Inc.* 52,400 2,082,900
System Software Associates, Inc. 154,700 2,629,900
------------
$ 39,845,572
- -----------------------------------------------------------------------------
Construction Services - 0.1%
Barnett, Inc.* 2,300 $ 66,125
- -----------------------------------------------------------------------------
Consumer Goods and Services - 0.5%
Blyth Industries, Inc.* 19,500 $ 884,812
META Group, Inc.* 16,600 406,700
------------
$ 1,291,512
- -----------------------------------------------------------------------------
Electronics - 4.0%
Altera Corp.* 3,100 $ 117,800
Analog Devices, Inc.* 54,900 1,399,950
Atmel Corp.* 21,900 659,737
Burr Brown Corp.* 65,200 1,157,300
DuPont Photomasks, Inc.* 1,800 36,900
LSI Logic Corp.* 155,500 4,043,000
Tower Semiconductor Ltd.* 53,400 520,650
Xilinx, Inc.* 77,700 2,466,975
------------
$ 10,402,312
- -----------------------------------------------------------------------------
Entertainment - 8.3%
American Radio Systems Corp.* 31,800 $ 1,367,400
Bally Entertainment Corp.* 55,300 1,520,750
Chancellor Broadcasting, "A" 2,600 81,250
Clear Channel Communications, Inc.* 27,200 2,240,600
Harrah's Entertainment, Inc.* 98,400 2,779,800
Heritage Media Corp., "A"* 72,300 2,882,962
Infinity Broadcasting Corp., "A"* 87,900 2,637,000
Jacor Communications, Inc.* 52,300 1,614,762
LIN Television Corp.* 36,500 1,314,000
Mirage Resorts, Inc.* 30,400 1,641,600
National Lodging Corp.* 12,900 206,400
Rio Hotel & Casino, Inc.* 14,500 222,938
Sinclair Broadcast Group, Inc., "A"* 32,600 1,418,100
Trump Hotels & Casino Resorts, Inc.* 19,800 564,300
Young Broadcasting Corp., "A"* 25,300 967,725
------------
$ 21,459,587
- -----------------------------------------------------------------------------
Financial Institutions - 4.5%
Advanta Corp., "B" 25,100 $ 1,135,775
Franklin Resources, Inc. 132,900 8,106,900
Student Loan Corp. 66,000 2,376,000
------------
$ 11,618,675
- -----------------------------------------------------------------------------
Insurance - 1.4%
Chartwell Re Corp. 17,600 $ 389,400
Equitable of Iowa Cos. 87,800 3,116,900
------------
$ 3,506,300
- -----------------------------------------------------------------------------
Medical and Health Products - 0.3%
Cohr, Inc.* 1,700 $ 40,375
Innovasive Devices, Inc.* 1,800 18,000
NCS Healthcare, Inc., "A"* 2,000 60,500
Urologix, Inc.* 1,600 21,600
Uromed Corp.* 42,700 587,125
------------
$ 727,600
- -----------------------------------------------------------------------------
Medical and Health Technology and Services - 12.9%
ABR Information Services, Inc.* 1,700 $ 85,425
CRA Managed Care, Inc.* 12,400 554,900
Community Health Systems, Inc.* 34,800 1,800,900
Coventry Corp.* 1,700 26,775
General Surgical Innovations, Inc.* 1,100 16,775
Genesis Health Ventures, Inc.* 50,350 1,579,731
Health Management Assoc., Inc., "A"* 177,000 3,584,250
Healthsource, Inc.* 105,300 1,842,750
HealthSouth Corp.* 171,500 6,174,000
Lincare Holdings, Inc.* 39,400 1,546,450
Living Centers of America, Inc.* 35,800 1,230,625
Manor Care, Inc. 12,900 507,938
Mariner Health Group, Inc.* 23,400 429,975
Owen Healthcare, Inc.* 194,600 2,700,075
Oxford Health Plans, Inc.* 8,800 361,900
Pacificare Health Systems, Inc., "A"* 26,100 1,722,600
Pacificare Health Systems, Inc., "B"* 29,600 2,005,400
Pediatric Services of America, Inc.* 22,600 514,150
PhyMatrix Corp.* 5,600 130,200
Physician Support Systems, Inc.* 2,300 52,037
Regency Health Services, Inc.* 51,100 581,263
Riscorp, Inc., "A"* 51,100 932,575
Safeguard Health Enterprises, Inc.* 6,900 123,337
St. Jude Medical, Inc.* 58,500 1,959,750
Sterling Healthcare Group* 6,300 126,000
Total Renal Care Holdings, Inc.* 12,500 528,125
Vivra, Inc.* 69,700 2,291,388
------------
$ 33,409,294
- -----------------------------------------------------------------------------
Metals and Minerals - 0.2%
Titanium Metals Corp.* 20,400 $ 527,850
- -----------------------------------------------------------------------------
Oil Services - 0.1%
Trico Marine Services, Inc.* 2,200 $ 48,950
- -----------------------------------------------------------------------------
Oils - 0.4%
Belco Oil & Gas Corp.* 27,500 $ 976,250
- -----------------------------------------------------------------------------
Pollution Control - 1.3%
Sanifill, Inc.* 68,400 $ 3,368,700
- -----------------------------------------------------------------------------
Printing and Publishing - 1.2%
Pulitzer Publishing Co. 51,000 $ 3,021,750
- -----------------------------------------------------------------------------
Railroads - 0.3%
Wisconsin Central Transportation Corp.* 27,000 $ 877,500
- -----------------------------------------------------------------------------
Restaurants and Lodging - 7.6%
Apple South, Inc. 70,600 $ 1,888,550
Applebee's International, Inc. 55,800 1,792,575
Buffets, Inc.* 106,600 1,305,850
Doubletree Corp.* 15,700 557,350
HFS, Inc.* 122,300 8,561,000
Hometown Buffet, Inc.* 10,700 151,137
Promus Hotel Corp.* 89,450 2,649,956
Renaissance Hotel Group N.V.* 13,300 285,950
ShoLodge, Inc.* 60,266 753,325
Sonic Corp.* 55,500 1,345,875
Suburban Lodges of America, Inc.* 1,000 23,125
Taco Cabana, Inc., "A"* 43,800 317,550
Wyndham Hotel Corp.* 2,100 43,838
------------
$ 19,676,081
- -----------------------------------------------------------------------------
Special Products and Services - 0.2%
Central Packaging Corp. 15,850 $ 469,556
F.Y.I., Inc.* 4,000 74,000
------------
$ 543,556
- -----------------------------------------------------------------------------
Stores - 6.5%
BT Office Products International, Inc.* 45,600 $ 815,100
Discount Auto Parts, Inc.* 30,000 761,250
Dollar General Corp. 67,400 1,971,450
Duty Free International, Inc. 8,200 125,050
General Nutrition Cos., Inc.* 169,200 2,961,000
Gymboree Corp.* 66,200 2,019,100
Micro Warehouse, Inc.* 43,500 870,000
Mothers Work, Inc.* 14,500 369,750
Office Depot, Inc.* 155,700 3,172,388
OfficeMax, Inc.* 97,800 2,334,975
Sunglass Hut International, Inc.* 22,300 543,563
Thrifty PayLess Holdings, Inc., "B" 62,400 1,076,400
------------
$ 17,020,026
- -----------------------------------------------------------------------------
Telecommunications - 7.1%
Bay Networks, Inc.* 26,600 $ 684,950
Cabletron Systems, Inc.* 156,000 10,705,500
Equalnet Holding Corp.* 6,100 23,638
Excel Communications, Inc.* 6,300 170,100
Glenayre Technologies, Inc.* 59,900 2,995,000
LCI International, Inc.* 16,200 508,275
Omnipoint Corp.* 2,400 62,550
PageMart Wireless, Inc.* 3,500 35,000
Paging Network, Inc.* 17,900 429,600
Premiere Technologies, Inc.* 2,000 63,000
Sterling Commerce, Inc.* 2,500 92,812
Tel-Save Holdings, Inc.* 12,500 265,625
Tellabs, Inc.* 5,500 367,813
U.S. Robotics Corp.* 24,100 2,060,550
United States Satellite Broadcasting Co., Inc., "A"* 1,600 60,400
------------
$ 18,524,813
- -----------------------------------------------------------------------------
Total U.S. Stocks $231,804,591
- -----------------------------------------------------------------------------
Foreign Stocks - 2.3%
Belgium
Xeikon N.V., ADR* (Printing and Publishing) 2,600 $ 29,575
- -----------------------------------------------------------------------------
Canada - 1.5%
Loewen Group, Inc. (Special Products and Services) 2,900 $ 87,726
Loewen Group, Inc. (Special Products and
Services)## 45,200 1,378,029
Rogers Cantel Mobile Communications, "B"
(Telecommunications)* 103,900 2,428,662
------------
$ 3,894,417
- -----------------------------------------------------------------------------
France
Dassault Systemes, ADR (Computer
Software - Systems)* 2,300 $ 71,300
- -----------------------------------------------------------------------------
Italy - 0.5%
Fila Holdings, ADR (Apparel and Textiles) 13,900 $ 1,198,875
- -----------------------------------------------------------------------------
United Kingdom - 0.3%
Danka Business Systems PLC (Business Services) 21,900 $ 640,575
- -----------------------------------------------------------------------------
Total Foreign Stocks $ 5,834,742
- -----------------------------------------------------------------------------
Total Common Stocks (Identified Cost, $202,611,447) $237,639,333
- -----------------------------------------------------------------------------
Short-Term Obligations - 7.6%
- -----------------------------------------------------------------------------
Principal Amount
(000 Omitted)
- -----------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., due 7/01/96 $ 985 $ 985,000
Federal Home Loan Mortgage Corp., due 7/03/96 3,650 3,648,932
Federal Home Loan Mortgage Corp., due 7/08/96 4,000 3,995,893
Federal Home Loan Mortgage Corp., due 7/12/96 4,240 4,233,198
Federal Home Loan Mortgage Corp., due 7/19/96 2,220 2,214,140
General Motors Acceptance Corp., due 7/02/96 4,720 4,719,297
- -----------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost and Value $ 19,796,460
- -----------------------------------------------------------------------------
Total Investments (Identified Cost, $222,407,907) $257,435,793
Other Assets, Less Liabilities - 0.7% 1,926,174
- -----------------------------------------------------------------------------
Net Assets - 100.0% $259,361,967
- -----------------------------------------------------------------------------
* Non-income producing security.
## SEC Rule 144A restriction.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
June 30, 1996
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $222,407,907) $257,435,793
Cash 4,528
Receivable for investments sold 3,362,166
Receivable for Fund shares sold 776,664
Dividends receivable 21,246
Receivable from investment adviser 211,515
Deferred organization expenses 2,402
Other assets 1,770
------------
Total assets $261,816,084
------------
Liabilities:
Payable for investments purchased $ 2,291,373
Payable for Fund shares reacquired 61,406
Payable to affiliate - management fee 15,679
Accrued expenses and other liabilities 85,659
------------
Total liabilities $ 2,454,117
------------
Net assets $259,361,967
============
Net assets consist of:
Paid-in capital $192,765,696
Unrealized appreciation on investments 35,027,886
Accumulated undistributed net realized gain on investments 31,568,385
------------
Total $259,361,967
============
Shares of beneficial interest outstanding 12,254,198
============
Net asset value, redemption price and offering price per share
(net assets of $259,361,967 / 12,254,198 shares of
beneficial interest outstanding) $21.17
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ------------------------------------------------------------------------------
Year Ended June 30, 1996
- ------------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 711,315
Dividends 268,848
-----------
Total investment income $ 980,163
-----------
Expenses -
Management fee $ 1,386,851
Trustees' compensation 5,733
Shareholder servicing agent fee 13,734
Custodian fee 77,884
Auditing fees 38,883
Printing 11,409
Legal fees 7,948
Amortization of organization expenses 1,562
Miscellaneous 60,980
-----------
Total expenses $ 1,604,984
Fees paid indirectly (6,618)
Reduction of expenses by investment adviser (211,515)
-----------
Net expenses $ 1,386,851
-----------
Net investment loss $ (406,688)
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (identified cost basis) on investment
transactions - $40,014,721
Change in unrealized appreciation on investments 19,192,449
-----------
Net realized and unrealized gain on investments $59,207,170
-----------
Increase in net assets from operations $58,800,482
===========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------
Year Ended June 30, 1996 1995
- ------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment loss $ (406,688) $ (137,307)
Net realized gain on investments 40,014,721 7,226,805
Net unrealized gain on investments 19,192,449 17,594,663
------------ ------------
Increase in net assets from operations $ 58,800,482 $ 24,684,161
------------ ------------
Distributions declared to shareholders
from net realized gain on investments $(14,424,189) $ (1,742,406)
------------ ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $106,165,196 $ 60,983,226
Net asset value of shares issued to
shareholders in reinvestment of
distributions 14,196,197 1,687,224
Cost of shares reacquired (12,395,002) (6,152,083)
------------ ------------
Increase in net assets from Fund share
transactions $107,966,391 $ 56,518,367
------------ ------------
Total increase in net assets $152,342,684 $ 79,460,122
Net assets:
At beginning of period 107,019,283 27,559,161
------------ ------------
At end of period $259,361,967 $107,019,283
============ ============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------
Year Ended June 30, 1996 1995 1994 1993*
- ------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C>
Net asset value - beginning of period $16.42 $11.75 $10.17 $10.00
------ ------ ------ ------
Income from investment operations# -
Net investment income (loss)(S) $(0.04) $(0.03) $(0.03) $ 0.01
Net realized and unrealized gain on
investments 6.55 5.04 1.82*** 0.16
------ ------ ------ ------
Total from investment operations $ 6.51 $ 5.01 $ 1.79 $ 0.17
------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- $ -- $ -- ** $ --
From net realized gain on investments (1.76) (0.34) (0.21) --
------ ------ ------ ------
Total distributions declared to
shareholders $(1.76) $(0.34) $(0.21) $ 0.00
------ ------ ------ ------
Net asset value - end of period $21.17 $16.42 $11.75 $10.17
====== ====== ====== ======
Total return 41.37% 43.21% 17.50% 1.70%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.75% 0.75% 0.78% 0.90%+
Net investment income (loss) (0.22)% (0.19)% (0.27)% 2.24%+
Portfolio turnover 97% 86% 94% 0%
Net assets at end of period (000 omitted) $259,362 $107,019 $27,559 $3,052
<FN>
* For the period from the commencement of investment operations, June 16, 1993 to June 30, 1993.
** The per share distribution from net investment income was $0.00175.
*** 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.
+ Annualized.
++ Not annualized.
# Per share data is based on average shares outstanding.
## For fiscal years ending after July 1, 1995, the Fund's expenses are calculated without reduction for fees paid indirectly.
(S) The investment adviser voluntarily waived a portion of their management fee for the periods indicated. If the fees had been
incurred by the Fund, the net investment income per share and the ratios would have been:
Net investment loss $(0.06) $(0.07) $(0.11) $ 0.00
Ratios (to average net assets):
Expenses 0.87% 0.98% 1.54% 2.50%+
Net investment income (loss) (0.34)% (0.42)% (1.02)% 0.64%+
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Institutional Emerging Equities Fund (the Fund), is a diversified series of
MFS Institutional Series 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.
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.
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
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.
Fees Paid Indirectly - The Fund's custodian bank calculates its fee based on the
Fund's average daily net assets. The fee is reduced according to a fee
arrangement, which provides for custody fees to be reduced based on a formula
developed to measure 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. 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 tax 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, 1996, $406,688 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 has voluntarily agreed to waive
its management fee and or pay expenses of the Fund in order to maintain total
expenses at no more than 0.75% of the Fund's average daily net assets.
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 calculated as a
percentage of the average daily net assets at an effective annual rate of up to
0.0075%.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions and short-term obligations, aggregated
$243,361,739 and $167,658,845, 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 $223,435,793
============
Gross unrealized appreciation $ 46,784,141
Gross unrealized depreciation (12,816,042)
------------
Net unrealized appreciation $ 33,968,099
============
(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:
1996 1995
--------------------------- -------------------------
Years Ended June 30, Shares Amount Shares Amount
- ------------------------------------------------------------------------------
Shares sold 5,588,149 $106,165,196 4,431,790 $60,983,226
Shares issued to
shareholders in
reinvestment of
distributions 784,320 14,196,197 123,788 1,687,224
Shares reacquired (635,040) (12,395,002) (384,807) (6,152,083)
--------- ------------ --------- -----------
Net increase 5,737,429 $107,966,391 4,170,771 $56,518,367
========= ============ ========= ===========
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS in an unsecured line of credit with a bank which permits
borrowings up to $350 million, collectively. 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 year ended June 30,
1996 was $2,445.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Institutional Trust and Shareholders of MFS Institutional
Emerging Equities Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Institutional Emerging Equities Fund (one
of the series comprising MFS Institutional Trust) as of June 30, 1996, the
related statement of operations for the year then ended, the statement of
changes in net assets for the years ended June 30, 1996 and 1995, and the
financial highlights for each of the years in the four-year period ended June
30, 1996. 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, 1996 by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Institutional
Emerging Equities Fund at June 30, 1996, 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 2, 1996
--------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
<PAGE>
<PAGE>
[Logo] ANNUAL REPORT FOR
THE FIRST NAME IN MUTUAL FUNDS YEAR ENDED
JUNE 30, 1996
MFS(R) INSTITUTIONAL WORLDWIDE FIXED INCOME FUND
[graphic omitted: two men sitting in front of a window]
<PAGE>
MFS(R) INSTITUTIONAL WORLDWIDE FIXED INCOME FUND
TRUSTEES INVESTMENT ADVISER
A. KEITH BRODKIN* Massachusetts Financial Services Company
Chairman and President 500 Boylston Street
Boston, MA 02116-3741
Nelson J. Darling, Jr.
Trustee, Eastern Enterprises DISTRIBUTOR
(diversified holding company) MFS Fund Distributors, Inc.
500 Boylston Street
William R. Gutow Boston, MA 02116-3741
Vice Chairman
Capital Entertainment PORTFOLIO MANAGER
(Blockbuster Video Franchise) Richard Hawkins*
SHAREHOLDER SERVICE CENTER TREASURER
MFS Service Center, Inc. W. Thomas London*
P.O. Box 2281
Boston, MA 02107-9906 ASSISTANT TREASURER
James O. Yost*
For general information,
call toll free: 1-800-637-2262 SECRETARY
Stephen E. Cavan*
CUSTODIAN
State Street Bank and Trust Company ASSISTANT SECRETARY
James R. Bordewick, Jr.*
AUDITORS
Deloitte & Touche LLP
*Affiliated with the Investment Adviser
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
For the year ended June 30, 1996, the Fund provided a total return of 1.51%
(including the reinvestment of distributions), which compares to a -1.16%
return for the J.P. Morgan Global Government Bond Index (the Morgan Index), an
aggregate index of actively traded government bonds issued from 13 countries,
including the United States, with remaining maturities of at least one year.
Our decision to keep average maturities in the Fund shorter than the Morgan
Index contributed to performance, as did underweighted positions in the U.S.
market and in the European currency bloc. A discussion of factors which
affected the Fund's performance may be found in the Portfolio Performance and
Strategy section of this letter.
Economic Outlook
Real (inflation-adjusted) economic growth in the first quarter of 1996 was
2.3% on an annualized basis, and it appears that second-quarter growth could
be even stronger. Thus, real growth in gross domestic product has started the
year at a rate exceeding our expectations. While we continue to believe that
growth from quarter to quarter will be uneven, it is now our expectation that
growth for all of 1996 could exceed 2.5%. Although individual consumers appear
to be carrying a heavy debt load, the consumer sector itself, which represents
two-thirds of the economy, continues to show strength as the auto and housing
markets remain resilient. Consumer spending has also been positively impacted
by widespread job growth. At the same time, however, the economies of Europe
and Japan continue to be in the doldrums, weakening U.S. export markets while
subduing the capital spending plans of American corporations. Finally, due to
the pickup in economic activity and increasing job growth, it appears that
inflation may accelerate slightly this year, and the Federal Reserve Board is
expected to continue its diligent anti-inflationary stance.
Bond Markets
In U.S. bond markets, persistent signs of economic weakness led to decreases
in short-term interest rates by the Federal Reserve in late 1995 and early
1996. However, should signs of economic growth and, particularly, of higher
inflation continue, we would expect the Fed to maintain its anti-inflationary
stance. In the beginning of the year, bond markets were trading in a narrow
range as investors shifted between concern about the lack of a budget
resolution in Washington and hopes that sluggish economic reports and low
inflation might lead to lower interest rates. Later, fixed-income markets
began reacting to conflicting signals regarding the strength of the economy
with more-volatile trading patterns marked by an upward bias in interest
rates. Interest rates may move even higher over the coming months, but we
believe the current rise in bond yields is reaching a point where fixed-income
markets are becoming attractively valued.
Portfolio Performance and Strategy
The most important factor for the international fixed-income market in recent
months has been the better-than-expected strength of the U.S. economy. Market
expectations for further interest rate reductions by the Federal Reserve have
swung to concerns of possible interest rate increases later this year if
growth remains in an above-trend pattern. Long-term interest rates have also
risen, reflecting increased concerns about inflation and disappointment with
the failed attempt to reach an accord on the federal budget. The rise in U.S.
rates has helped push up rates worldwide, although foreign rates have
generally risen less than in the United States. The overperformance versus the
United States has been most pronounced in some of the higher-yielding European
bond markets.
During this challenging period, the Fund's overweighting in European
markets generally and, in particular, the higher-yielding markets, contributed
to performance against the benchmark. In addition, the Fund's average maturity
was shortened in the first quarter to reduce sensitivity to changes in
interest rates. Within Europe, our weightings have been concentrated in the
markets where central banks have been reducing short-term interest rates.
Earlier in the period, Germany was leading the way and represented a
significant exposure for the Fund. More recently, with German rate cuts
nearing an end, the weightings have shifted in favor of the higher-yielding
markets such as Italy, Spain, and Sweden. Growth in these countries is
falling, bringing inflation down with it and allowing the central bankers to
drop their official rates quite considerably.
Within the dollar bloc, our concerns for U.S. growth and inflation risks
have led us to overweight the other markets in the bloc, especially Canada and
Australia. Canadian growth and inflation are both running below the U.S.
levels, while fiscal consolidation is well on track to significantly reduce
the budget deficits at the federal and provincial levels. Australian bonds
offer a yield advantage which we believe more than adequately compensates for
the economic risks, especially since the new government entered office. New
Zealand, where we have often been overweighted over the past several years, is
approaching a crossroads. In October, voters will face a new proportional
voting system. In addition, polls show strong support for parties wishing to
unravel the fiscal gains of the past decade. Until the risks are reduced, we
expect to have little, if any, exposure to New Zealand in the portfolio.
The stronger-than-expected U.S. economy was also a major factor in the
currency markets. As the rise in U.S. interest rates coincided with further
reductions in short-term rates in Europe, the yield advantage of U.S. dollars
over German marks grew even larger. The weakening of the mark also helped the
performance of some of the higher-yielding European currencies. The Fund has
been overweighted in dollars against the mark and has benefited from the
improvement in certain other European currencies. Our underweighted yen
position has benefited from its weakening trend.
Overall, the combination of rising interest rates and a stronger dollar
has translated into negative performance for international bonds. Looking
forward, we believe the dollar strength may continue until growth in Europe,
and especially in Germany, rebounds, which we expect to occur in the second
half of this year. We believe the outlook for world growth is continuing to
improve and, thus, some caution regarding bond markets is probably warranted.
Given our outlook, we expect the portfolio to emphasize shorter-maturity and
higher-yielding issues.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
/s/ A. Keith Brodkin /s/ Richard O. Hawkins
A. Keith Brodkin Richard O. Hawkins
Chairman and President Portfolio Manager
July 12, 1996
PORTFOLIO MANAGER PROFILE
Richard Hawkins joined MFS in 1988 as a member of the Fixed Income Department.
A graduate of Brown University and the University of Pennsylvania's Wharton
School of Business, he was named Vice President in 1991 and Senior Vice
President in 1994. On January 1, 1996, Mr. Hawkins was named Director of the
International Fixed Income Department as well as Portfolio Manager of the
Fund.
<PAGE>
PERFORMANCE SUMMARY
The information below illustrates the historical performance of MFS
Institutional Worldwide Fixed Income 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 September 30, 1992* to June 30, 1996)
[INSERT PLOT POINT TO COME]
AVERAGE ANNUAL TOTAL RETURNS
9/30/92*-
1 Year 3 Years 6/30/96
- -------------------------------------------------------------------------------
MFS Institutional Worldwide Fixed Income Fund +1.51% +5.12% +5.44%
- -------------------------------------------------------------------------------
J.P. Morgan Global Government Bond Index +2.05% +7.60% +7.16%
- -------------------------------------------------------------------------------
Salomon Brothers World Government Bond Index** +0.37% +7.84% +7.45%
- -------------------------------------------------------------------------------
Consumer Price Index+ +2.75% +2.76% +2.80%
- -------------------------------------------------------------------------------
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.
+The Consumer Price Index is a popular measure of change in prices.
**An unmanaged index which consists of complete universes of government bonds
with remaining maturities of at least five years.
<PAGE>
PORTFOLIO OF INVESTMENTS - June 30, 1996
Bonds - 75.3%
- -------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -------------------------------------------------------------------------------
U.S. Treasury Obligations - 6.2%
U.S. Treasury Notes, 0s, 2006
(Identified Cost, $3,799,209) $ 7,600 $ 3,899,408
- -------------------------------------------------------------------------------
Foreign Denominated - 69.1%
Australia - 8.8%
Commonwealth of Australia, 7s, 1998 AUD 2,700 $ 2,079,215
Commonwealth of Australia, 7s, 2000 800 600,953
Commonwealth of Australia, 9.75s, 2002 800 660,136
Commonwealth of Australia, 9.5s, 2003 2,700 2,206,709
-----------
$ 5,547,013
- -------------------------------------------------------------------------------
Belgium - 2.5%
Kingdom of Belgium, 9s, 1998 BEF 15,000 $ 523,211
Kingdom of Belgium, 8.75s, 2002 10,000 363,079
Kingdom of Belgium, 7.25s, 2004 10,000 334,504
Kingdom of Belgium, 8.5s, 2007 10,000 359,120
-----------
$ 1,579,914
- -------------------------------------------------------------------------------
Canada - 8.8%
Government of Canada, 7.5s, 2001 CAD 1,500 $ 1,121,840
Government of Canada, 7.5s, 2003 2,300 1,692,342
Government of Canada, 8.75s, 2005 2,100 1,656,761
Government of Canada, 9.5s, 2010 1,300 1,077,061
-----------
$ 5,548,004
- -------------------------------------------------------------------------------
Denmark - 4.9%
Kingdom of Denmark, 8s, 2001 DKK 16,743 $ 3,049,113
- -------------------------------------------------------------------------------
Germany - 10.9%
German Unity Fund, 8.5s, 2001 2,550 $ 1,873,719
Republic of Germany, 6.375s, 1999 DEM 7,220 4,947,090
-----------
$ 6,820,809
- -------------------------------------------------------------------------------
Italy - 9.7%
Republic of Italy, 8.5s, 1999 ITL 3,720,000 $ 2,442,145
Republic of Italy, 9.5s, 1999 3,165,000 2,121,562
Republic of Italy, 9.5s, 2006 2,340,000 1,551,147
-----------
$ 6,114,854
- -------------------------------------------------------------------------------
Netherlands - 2.1%
Netherlands
Government, 6s, 2006 NLG 2,220 $ 1,263,330
- -------------------------------------------------------------------------------
Spain - 8.7%
Government of Spain, 8.3s, 1998 ESP 273,100 $ 2,166,465
Government of Spain, 10.1s, 2001 394,200 3,311,465
-----------
$ 5,477,930
- -------------------------------------------------------------------------------
Sweden - 5.8%
Kingdom of Sweden, 10.25s, 2000 SEK 21,800 $ 3,635,088
- -------------------------------------------------------------------------------
<PAGE>
United Kingdom - 6.9%
United Kingdom Treasury, 9s, 2000 GBP 1,895 $ 3,121,070
United Kingdom Treasury, 7s, 2001 800 1,221,354
-----------
$ 4,342,424
- -------------------------------------------------------------------------------
Total Foreign Denominated
(Identified Cost, $43,055,038) $43,378,479
- -------------------------------------------------------------------------------
Total Bonds (Identified Cost, $46,854,247) $47,277,887
- -------------------------------------------------------------------------------
<PAGE>
Short-Term Obligations - 23.0%
- -------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -------------------------------------------------------------------------------
Federal Home Loan Bank, due 7/08/96 $2,100 $ 2,097,860
Federal Home Loan Bank, due 7/16/96 1,510 1,506,678
Federal Home Loan Mortgage Corp., due 7/01/96 1,505 1,505,000
Federal Home Loan Mortgage Corp., due 7/03/96 2,000 1,999,415
Federal Home Loan Mortgage Corp., due 7/10/96 2,990 2,986,053
Federal Home Loan Mortgage Corp., due 7/12/96 2,000 1,996,792
Federal Home Loan Mortgage Corp., due 7/19/96 2,350 2,343,796
- -------------------------------------------------------------------------------
Total Short-Term Obligations, at
Amortized Cost and Value $14,435,594
- -------------------------------------------------------------------------------
Call Options Purchased - 0.3%
- -------------------------------------------------------------------------------
Principal Amount
Description/Expiration of Contracts
Month/Strike Price (000 Omitted)
- -------------------------------------------------------------------------------
Australian Dollars
July/0.80 AUD 3,186 $ 1,290
Canadian Dollars
October/1.332 CAD 5,122 7,929
Deutsche Marks
July/1.52 DEM 9,130 52,856
Japanese Bonds
July/98.207 JPY 223,000 10,566
July/108.277 60,000 12,240
August/113.318 245,000 37,730
August/113.3606 143,000 17,732
September/96.324 244,000 11,956
September/108.659 186,000 23,436
Spanish Pesetas/Deutsche Marks
August/83.65 ESP 451,710 3,614
- -------------------------------------------------------------------------------
Total Call Options Purchased (Premiums
Paid, $197,585) $ 179,349
- -------------------------------------------------------------------------------
Put Options Purchased - 0.2%
- -------------------------------------------------------------------------------
Deutsche Marks
July/1.55 DEM 15,595 $ 374
Deutsche Marks/British Pounds
August/2.3316 9,597 86,543
French Francs/Deutsche Marks
July/3.60 FRF 32,571 --
Swiss Francs/Deutsche Marks
July/0.805 CHF 3,162 53,554
- -------------------------------------------------------------------------------
Total Put Options Purchased (Premiums
Paid, $177,715) $ 140,471
- -------------------------------------------------------------------------------
Total Investments (Identified Cost,
$61,665,141) $62,033,301
- -------------------------------------------------------------------------------
<PAGE>
Put Options Written - (0.1)%
- -------------------------------------------------------------------------------
Principal Amount
Description/Expiration of Contracts
Date/Strike Price (000 Omitted) Value
- -------------------------------------------------------------------------------
Canadian Dollars
October/1.3858 CAD 5,329 $ (10,637)
Japanese Bonds
September/96.324 JPY 244,000 (25,132)
September/108.659 186,000 (16,554)
July/98.207 223,000 (10,566)
July/108.277 60,000 --
August/113.318 245,000 (1,470)
August/113.3606 143,000 (4,004)
Spanish Pesetas/Deutsche Marks
August/86.0 ESP 464,400 (929)
- -------------------------------------------------------------------------------
Total Put Options Written (Premiums
Received, $116,436) $ (69,292)
- -------------------------------------------------------------------------------
Other Assets, Less Liabilities - 1.3% $ 842,888
- -------------------------------------------------------------------------------
Net Assets - 100.0% $62,806,897
- -------------------------------------------------------------------------------
Abbreviations have been used throughout this report to indicate amounts shown
in currencies other than the U.S. dollar. A list of abbreviations is shown
below.
AUD = Australian Dollars FRF = French Francs
BEF = Belgian Francs GBP = British Pounds
CAD = Canadian Dollars IEP = Irish Punts
CHF = Swiss Francs ITL = Italian Lire
DEM = Deutsche Marks JPY = Japanese Yen
DKK = Danish Kroner NLG = Dutch Guilders
ESP = Spanish Pesetas NZD = New Zealand Dollars
FIM = Finnish Markkaa SEK = Swedish Kronor
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
June 30, 1996
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $61,665,141) $62,033,301
Cash 3,450
Net receivable for forward foreign currency exchange
contracts sold 1,365,199
Net receivable for forward foreign currency exchange contracts 1,508,210
Receivable for investments sold 7,391,826
Interest receivable 1,380,660
Premium receivable on options written 10,566
Receivable from investment adviser 210,968
Deferred organization expenses 1,752
Other assets 765
-----------
Total assets $73,906,697
-----------
Liabilities:
Payable for investments purchased $ 7,460,017
Written options outstanding, at value (premiums received,
$116,436) 69,292
Net payable for forward foreign currency exchange contracts
purchased 3,500,307
Payable to affiliate for management fee 3,345
Accrued expenses and other liabilities 66,839
-----------
Total liabilities $11,099,800
-----------
Net assets $62,806,897
===========
Net assets consist of:
Paid-in capital $66,138,581
Unrealized depreciation on investments and translation of
assets and liabilities in foreign currencies (216,236)
Accumulated net realized loss on investments and foreign
currency transactions (6,868,393)
Accumulated undistributed net investment income 3,752,945
-----------
Total $62,806,897
===========
Shares of beneficial interest outstanding 6,769,302
===========
Net asset value, redemption price and offering price per share
(net assets of $62,806,897 / 6,769,302 shares of beneficial
interest outstanding) $9.28
=====
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ------------------------------------------------------------------------------
Year Ended June 30, 1996
- ------------------------------------------------------------------------------
Net investment income:
Interest income $ 4,989,732
-----------
Expenses -
Management fee $ 452,908
Trustees' compensation 5,733
Shareholder servicing agent fee 5,203
Custodian fee 68,666
Auditing fees 66,328
Registration fees 38,001
Printing 12,916
Legal fees 4,767
Amortization of organization expenses 1,869
Miscellaneous 7,485
-----------
Total expenses $ 663,876
Reduction of expenses by investment adviser (210,968)
-----------
Net expenses $ 452,908
-----------
Net investment income $ 4,536,824
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 2,301,437
Written option transactions 156,803
Foreign currency transactions (5,142,993)
-----------
Net realized loss on investments $(2,684,753)
-----------
Change in unrealized appreciation (depreciation) - $
Investments (996,201)
Written options (151,334)
Translation of assets and liabilities in foreign currencies 378,353
-----------
Net unrealized loss on investments $ (769,182)
-----------
Net realized and unrealized loss on investments and
foreign currency $(3,453,935)
-----------
Increase in net assets from operations $ 1,082,889
===========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------
Year Ended June 30, 1996 1995
- ------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment income $ 4,536,824 $ 3,508,113
Net realized gain (loss) on investments and
foreign currency transactions (2,684,753) 2,407,671
Net unrealized loss on investments and foreign
currency translation (769,182) (195,007)
------------ -----------
Increase in net assets from operations $ 1,082,889 $ 5,720,777
------------ -----------
Distributions declared to shareholders -
From net investment income $ (3,328,966) $(1,092,709)
From net realized gain on investments and
foreign currency transactions (2,149,194) (2,993,073)
In excess of net realized gain on investments
and foreign currency transactions (1,526,539) --
------------ -----------
Total distributions declared to shareholders $ (7,004,699) $(4,085,782)
------------ -----------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 13,866,245 $31,100,133
Net asset value of shares issued to
shareholders in reinvestment of distributions 6,002,734 3,030,706
Cost of shares reacquired (27,218,552) (2,051,722)
------------ -----------
Increase (decrease) in net assets from Fund
share transactions $ (7,349,573) $32,079,117
------------ -----------
Total increase (decrease) in net assets $(13,271,383) $33,714,112
Net assets:
At beginning of period 76,078,280 42,364,168
------------ -----------
At end of period (including accumulated
undistributed net investment income of
$3,752,945 and accumulated distributions in
excess of net investment income of $112,014,
respectively) $ 62,806,897 $76,078,280
============ ===========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended June 30, 1996 1995 1994 1993*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.13 $ 9.64 $10.50 $10.00
------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.64 $ 0.65 $ 0.63 $ 0.17
Net realized and unrealized gain (loss) on investments (0.48) 0.70 (0.63) 0.33
------ ------ ------ ------
Total from investment operations $ 0.16 $ 1.35 $ -- $ 0.50
------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.48) $(0.23) $(0.31) $ --
In excess of net investment income -- -- (0.55) --
From net realized gain on investments (0.31) (0.63) -- --
In excess of net realized gains on investments (0.22) -- -- --
------ ------ ------ ------
Total distributions declared to shareholders $(1.01) $(0.86) $(0.86) $ --
------ ------ ------ ------
Net asset value - end of period $ 9.28 $10.13 $ 9.64 $10.50
====== ====== ====== ======
Total return 1.51% 15.10% (0.57)% 5.00%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 0.65% 0.72% 0.75% 0.80%+
Net investment income 6.52% 6.66% 6.09% 5.53%+
Portfolio turnover 425% 279% 212% 73%
Net assets at end of period (000 omitted) $62,807 $76,078 $42,364 $23,966
*For the period from the commencement of investment operations, September 30, 1992 to June 30, 1993.
+ Annualized.
++ Not annualized.
# Per share data for the periods subsequent to June 30, 1993 is based on average shares outstanding.
(S) The investment adviser voluntarily waived 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 income $ 0.61 $ 0.61 $ 0.58 $ 0.15
Ratios (to average net assets):
Expenses 0.95% 1.14% 1.23% 1.48%+
Net investment income 6.22% 6.23% 5.61% 4.85%+
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Institutional Worldwide Fixed Income Fund (the Fund), formerly known as
MFS Worldwide Fixed Income Fund, is a non-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.
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 and forward
contracts, 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. Short-
term obligations, which mature in 60 days or less, are valued at amortized
cost, which approximates market value. Non-U.S. dollar denominated short-term
obligations are valued at amortized cost as calculated in the base currency
and translated into U.S. dollars at the closing daily exchange rate. Futures
contracts, options and options on futures contracts listed on commodities
exchanges are valued at closing settlement prices. Over-the-counter options
are valued by brokers through the use of a pricing model which takes into
account closing bond valuations, implied volatility and short-term repurchase
rates. 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 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
operations of the Fund.
Written Options - The Fund may write covered call or put options for which
premiums are received and are recorded as liabilities, and are subsequently
adjusted to the current value of the options written. Premiums received from
writing options which expire are treated as realized gains. Premiums received
from writing options which are exercised or are closed are offset against the
proceeds or amount paid on the transaction to determine the realized gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
security purchased by the Fund. The Fund, as writer of an option, may have no
control over whether the underlying security may be sold (call) or purchased
(put) and, as a result, bears the market risk of an unfavorable change in the
price of the securities underlying the written option. In general, written
call options may serve as a partial hedge against decreases in value in the
underlying securities to the extent of the premium received. Written options
may also be used as a part of an income producing strategy reflecting the view
of the Fund's management on the direction of interest rates.
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 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 will 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. It 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 for financial statement purposes as unrealized until
the contract settlement date.
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.
Fees Paid Indirectly - The Fund's custodian bank calculates its fee based on
the Fund's average daily net assets. The fee is reduced according to a fee
arrangement, which provides for custody fees to be reduced based on a formula
developed to measure 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. 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 tax 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, 1996, $2,657,101 was
reclassified from accumulated net realized loss on investments and foreign
currency transactions to undistributed net investment income due to
differences between book and tax accounting for currency transactions. This
change had no effect on net assets or net asset value per share.
At June 30, 1996, the Fund, for federal income tax purposes, had a capital
loss carryforward of $6,768,015 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, 2004.
(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 0.65%
of average daily net assets.
The investment adviser has voluntarily agreed to waive its management fee and/
or pay expenses of the Fund in order to maintain total expenses at no more
than 0.65% of the Fund's average daily net assets.
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 calculated as
a percentage of the average daily net assets at an effective annual rate of up
to 0.0075%.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
Purchases Sales
- ------------------------------------------------------------------------------
U.S. government securities $ 84,236,425 $102,671,166
============ ============
Investments (non-U.S. government securities) $141,945,777 $126,245,471
============ ============
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 $61,665,141
===========
Gross unrealized appreciation $ 1,010,312
Gross unrealized depreciation (664,758)
-----------
Net unrealized appreciation $ 345,554
===========
(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:
1996 1995
--------------------------------------------------
Year Ended June 30, Shares Amount Shares Amount
- ------------------------------------------------------------------------------
Shares sold 1,392,424 $13,866,245 2,994,435 $31,100,133
Shares issued to
shareholders in
reinvestment of
distributions 642,004 6,002,734 335,998 3,030,706
Shares reacquired (2,773,858) (27,218,552) (214,803) (2,051,722)
--------- ----------- --------- -----------
Net increase (decrease) (739,430) $(7,349,573) 3,115,630 $32,079,117
========= =========== ========= ===========
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS in an unsecured line of credit with a bank which permits
borrowings up to $350 million, collectively. 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 year ended June 30,
1996 was $1,128.
(7) Financial Instruments
The Fund trades financial instruments with off-balance sheet risk in the
normal course of its investing activities in order to manage exposure to
market risks such as interest rates and foreign currency exchange rates. These
financial instruments include written options, forward foreign currency
exchange contracts and futures contracts. The notional or contractual amounts
of these instruments represent the investment the Fund has in particular
classes of financial instruments and does not necessarily represent the
amounts potentially subject to risk. The measurement of the risks associated
with these instruments is meaningful only when all related and offsetting
transactions are considered. A summary of obligations under these financial
instruments at June 30, 1996, is as follows:
<TABLE>
Written Option Transactions
<CAPTION>
1996 Calls 1996 Puts
----------------------------------- -------------------------------------
Principal Amounts Principal Amounts
of Contracts of Contracts
(000 Omitted) Premiums (000 Omitted) Premiums
----------------------------------- -------------------------------------
<S> <C> <C> <C> <C>
Outstanding, beginning of period -
Australian Dollars - $ - $ 3,279 $ 39,069
British Pounds - - 2,626 44,337
Deutsche Marks - - 25,147 151,956
Italian Lire/Deutsche Marks - - 1,964,000 15,773
Japanese Yen 1,747,927 423,385 992,656 161,285
Options written -
Australian Dollars 7,216 63,269 3,343 33,926
Canadian Dollars 8,416 11,088 11,030 34,834
Deutsche Marks 39,667 188,925 24,260 123,235
Deutsche Marks/British Pounds 20,646 88,863 - -
Italian Lire/Deutsche Marks 23,839,063 252,345 15,022,034 447,958
Japanese Yen 1,597,517 181,354 9,962,614 999,719
Japanese Yen/Deutsche Marks - - 1,654,495 58,983
New Zealand Dollars - - 4,306 6,404
Spanish Pesetas/Deutsche Marks - - 795,400 19,762
Swedish Kronor/Deutsche Marks 51,612 33,337 - -
Options terminated in closing transactions
Australian Dollars (7,216) (63,269) (4,611) (47,213)
Canadian Dollars (2,289) (4,800) (2,698) (9,654)
Deutsche Marks (21,306) (130,496) (28,642) (188,030)
Deutsche Marks/British Pounds (17,479) (74,780) - -
Italian Lire/Deutsche Marks (18,146,216) (234,003) (10,493,476) (386,380)
Japanese Yen (2,577,520) (539,946) (9,515,487) (1,058,621)
Japanese Yen/Deutsche Marks - - (1,654,495) (58,983)
New Zealand Dollars - - (4,306) (6,404)
Swedish Kronor/Deutsche Marks (51,612) (33,337) - -
Options exercised -
Italian Lire/Deutsche Marks - - (4,528,558) (61,578)
Options expired -
Australian Dollars - - (2,011) (25,782)
British Pounds - - (2,626) (44,337)
Canadian Dollars (6,127) (6,288) (3,003) (6,721)
Deutsche Marks (18,361) (58,429) (20,765) (87,161)
Deutsche Marks/British Pounds (3,167) (14,083) - -
Italian Lire/Deutsche Marks (5,692,847) (18,342) (1,964,000) (15,773)
Japanese Yen (767,924) (64,793) (338,783) (16,161)
Spanish Pesetas/Deutsche Marks - - (331,000) (8,007)
------------ ----------- ------------ -----------
Outstanding, end of period - $ - 1,570,729 $ 116,436
============ =========== ============ ===========
Options outstanding at end of period
consist of -
Canadian Dollars - $ - 5,329 $ 18,459
Japanese Yen - - 1,101,000 86,222
Spanish Pesetas/Deutsche Marks - - 464,400 11,755
------------ ----------- ------------ -----------
Outstanding, end of period - $ - 1,570,729 $ 116,436
============ =========== ============ ===========
</TABLE>
At June 30, 1996, the Fund had sufficient cash and/or securities at least
equal to the value of the written options.
<PAGE>
<TABLE>
Forward Foreign Currency Exchange Contracts
<CAPTION>
Net Unrealized
Contracts to Contracts Appreciation
Settlement Date Deliver/Receive In Exchange for at Value (Depreciation)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales 8/22/96 BEF 51,450,892 $ 1,642,224 $ 1,647,818 $ (5,594)
8/30/96 - 11/01/96 CAD 8,276,477 6,061,066 6,075,788 (14,722)
7/31/96 - 8/15/96 CHF 82,935,534 67,665,749 66,471,845 1,193,904
7/05/96 - 4/27/97 DEM 93,579,432 61,474,890 61,764,859 (289,969)
9/09/96 DKK 18,327,197 3,103,149 3,134,702 (31,553)
8/13/96 ESP 509,487,995 3,975,587 3,968,909 6,678
8/02/96 FIM 13,868,476 2,872,569 2,997,616 (125,047)
8/09/96 GBP 5,710,509 8,749,979 8,862,007 (112,028)
9/23/96 IEP 1,877,262 2,968,703 2,997,444 (28,741)
7/24/96 - 4/28/97 ITL 38,646,081,620 24,591,318 25,088,578 (497,260)
7/25/96 - 8/01/96 JPY 4,541,404,061 42,997,293 41,631,032 1,366,261
8/01/96 NLG 2,207,938 1,293,992 1,296,713 (2,721)
10/18/96 NZD 3,751,055 2,530,762 2,540,215 (9,453)
8/02/96 SEK 19,323,246 2,831,245 2,915,801 (84,556)
============ ============ ===========
$232,758,526 $231,393,327 $ 1,365,199
============ ============ ===========
Purchases 8/20/96 AUD 2,988,758 $ 2,365,313 $ 2,345,601 $ (19,712)
7/31/96 - 8/15/96 CHF 78,203,953 63,830,761 62,677,780 (1,152,981)
7/05/96 - 4/28/97 DEM 91,852,621 60,424,536 60,642,988 218,452
8/02/96 FIM 22,518,003 4,788,067 4,867,178 79,111
9/09/96 FRF 23,897,054 4,618,681 4,657,894 39,213
8/09/96 GBP 3,812,471 5,820,400 5,916,486 96,086
9/23/96 IEP 1,877,262 2,935,025 2,997,444 62,419
7/24/96 - 4/27/97 ITL 39,615,077,384 25,428,125 25,710,962 282,837
7/25/96 - 8/29/96 JPY 7,836,580,168 74,981,832 71,876,100 (3,105,732)
============ ============ ===========
$245,192,740 $241,692,433 $(3,500,307)
============ ============ ===========
</TABLE>
Forward foreign currency purchases and sales under master netting arrangements
and closed forward foreign currency exchange contracts excluded above amounted
to a net receivable of $1,508,210 at June 30, 1996.
At June 30, 1996, the Fund had sufficient cash and/or securities to cover any
commitments under these contracts.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Institutional Trust and Shareholders of MFS
Institutional Worldwide Fixed Income Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Institutional Worldwide Fixed
Income Fund (a series of MFS Institutional Trust) as of June 30, 1996, the
related statement of operations for the year then ended, the statement of
changes in net assets for the years ended June 30, 1996 and 1995, and the
financial highlights for each of the years in the four-year period ended June
30, 1996. 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, 1996 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Institutional
Worldwide Fixed Income Fund at June 30, 1996, 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 2, 1996
--------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
<PAGE>
<PAGE>
[logo] Annual Report for
THE FIRST NAME IN MUTUAL FUNDS Year Ended
June 30, 1996
MFS(R) INSTITUTIONAL EMERGING MARKETS INCOME FUND
[graphic omitted: two men sitting in front of a window]
<PAGE>
MFS(R) INSTITUTIONAL EMERGING MARKETS INCOME FUND
TRUSTEES INVESTMENT ADVISER
A. Keith Brodkin* Massachusetts Financial Services Company
Chairman and President 500 Boylston Street
Boston, MA 02116-3741
Nelson J. Darling, Jr.
Trustee, Eastern Enterprises DISTRIBUTOR
(diversified holding company) MFS Fund Distributors, Inc.
500 Boylston Street
William R. Gutow Boston, MA 02116-3741
Vice Chairman,
Capitol Entertainment SHAREHOLDER SERVICE CENTER
(Blockbuster Video Franchise) MFS Service Center, Inc.
P.O. Box 2281
PORTFOLIO MANAGER Boston, MA 02107-9906
Jeffrey A. Kaufman*
For general information,
TREASURER call toll free: 1-800-637-2262
W. Thomas London*
CUSTODIAN
ASSISTANT TREASURER State Street Bank and Trust Company
James O. Yost*
AUDITORS
SECRETARY Deloitte & Touche LLP
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
From commencement of operations on August 7, 1995 through June 30, 1996, the
Fund provided a total return of 12.93% as it participated in the strong rally in
emerging market debt that followed panic market conditions early in 1995. The
Fund's return compares to a 4.76% return for the J.P. Morgan U.S. Treasury
Index, an unmanaged index of U.S. Treasury bonds with remaining maturities of at
least one year, and a 16.63% return for a blend of the J.P. Morgan Emerging
Markets Bond Index (50% of the blended index) and the Merrill Lynch U.S.
Treasury 91-Day Index (50%), an unmanaged index of U.S. Treasury bills. The J.P.
Morgan Emerging Markets Bond Index, an unmanaged total return index comprised
entirely of Brady bonds (U.S. dollar-denominated restructured bank loans), had a
total return of 29.09% during the period. The Fund typically invests half its
net assets in Brady bonds and half in local currency money market instruments.
Economic Environment
The global economic environment was benign for emerging markets during the past
year. Moderate economic growth of 2.5% in the OECD (Organization for Economic
Cooperation and Development) countries was strong enough to provide export
opportunities for most emerging markets, yet low enough to preclude significant
rises in both interest rates and external debt service.
Gross domestic product growth in emerging markets has been above OECD levels
for the past decade, and we believe it should remain so for the foreseeable
future. Latin America is bouncing back from the recession brought on by the
December 1994 Mexican peso devaluation, while Europe's emerging economies appear
to be turning the corner and showing positive growth after a difficult
transition from communism. Asia is experiencing a much-needed, policy-induced
easing in its high, stable growth rates. Meanwhile, emerging markets continue to
gain market share in world trade as exports remain strong for most countries.
Current-account deficits generally have fallen over the past year, with foreign
direct investment financing a growing portion of capital needs. Broadly
speaking, fiscal trends in developing countries remain healthy and closer to
balance than in industrial countries.
Most emerging markets have stuck to - and, in many cases, reinforced their
commitment to market reforms in the wake of the Mexican peso crisis. Although
some individual countries face a difficult path to sound macroeconomic
development, the overall thrust of policy has been very constructive throughout
Asia, Europe, Africa, and Latin America. Capital inflows into emerging markets
will continue to be driven by OECD monetary policies in the short term. However,
the longer-term secular trend of rising capital flows to reforming emerging
markets remains on track.
Portfolio Performance and Strategy
While the Fund provided a 4.73% total return from its inception on August 7,
1995 through December 31, 1995, that still represented an underperformance
relative to the Fund's custom index, primarily due to the time it took to become
fully invested. The Brady market steadily rallied as the Fund held its initial
cash balances. In addition, the Fund's investment in Mexican Treasury bills
(cetes) was hurt by currency weakness from October through December 1995.
However, in the first six months of 1996, the Fund essentially matched the
performance of the custom index (7.83% for the Fund and 7.91% for the custom
index). The decision to underweight Brady bonds in mid-February initially led to
dramatic outperformance in the first quarter but hurt the Fund's relative
returns in the second quarter as Brady bonds rallied strongly. Steady returns
from Asian and European local markets continued to boost the Fund's returns.
However, a position in South Africa dragged down performance during a period of
currency weakness in February.
Looking forward, we remain sanguine about the policy environment in most
emerging markets in the long term. In the short term, however, valuations in the
Brady bond market have recovered from the depressed levels of early 1995 and
appear to offer only fair value at the moment. Therefore, we plan to keep our
exposure to that market at or below the index weighting, while maintaining an
overweighting in the local currency markets of high-quality emerging markets.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
/s/ A. Keith Brodkin /s/ Jeffrey A. Kaufman
A. Keith Brodkin Jeffrey A. Kaufman
Chairman and President Portfolio Manager
July 10, 1996
PORTFOLIO MANAGER PROFILE
Jeffrey Kaufman joined MFS in 1994 and was named Assistant Vice President in
1996. He is a graduate of the University of North Carolina and has Masters
degrees in Business Administration and International Affairs from Columbia
University. Mr. Kaufman specializes in emerging markets debt.
OBJECTIVE AND POLICIES
The Fund's objective is to seek total return (high current income and long-term
growth of capital). The Fund seeks to achieve its objective by investing, under
normal market conditions, at least 65% of its total assets in fixed-income
securities of government, government-related, supra-national and corporate
issuers located, or primarily conducting their business, in emerging markets.
The Fund will generally invest not less than 50% of its total assets in
government and government-related issuers, until such time as the net assets of
the Fund reach $10 million. The Fund has adopted the investment policy to
invest, under normal market conditions, at least 65% of its total assets in the
fixed-income securities listed above and in forward foreign currency exchange
contracts. Shares of the Fund are purchased at net asset value.
The minimum initial investment is generally $3 million.
PERFORMANCE SUMMARY
The information on the following page illustrates the historical performance of
MFS Institutional Emerging Markets Income Fund shares 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.
AVERAGE ANNUAL TOTAL RETURNS
Life of Class
through 6/30/96
- ------------------------------------------------------------------------------
MFS(R) Institutional Emerging Markets Income Fund* +12.93%
- ------------------------------------------------------------------------------
J.P. Morgan U.S. Treasury Index* + 4.76%
- ------------------------------------------------------------------------------
50% J.P. Morgan Emerging Markets Bond Index / 50% Merrill
Lynch U.S. Treasury 91-Day Index +16.63%
- ------------------------------------------------------------------------------
J.P. Morgan Emerging Markets Bond Index* +29.09%
- ------------------------------------------------------------------------------
Consumer Price Index(S)+ + 2.49%
- ------------------------------------------------------------------------------
All results are historical and, therefore, are not an indication of future
results. The investment return and principal value 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.
* For the period from the commencement of operations, August 7, 1995 to June
30, 1996.
+ Benchmark comparisons begin on September 1, 1995.
(S) The Consumer Price Index is a popular measure of change in prices.
<PAGE>
PORTFOLIO OF INVESTMENTS - June 30, 1996
Bonds - 46.0%
- -----------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------
Foreign - U.S. Dollar Denominated
Argentina - 7.5%
Republic of Argentina, 5s, 2023 $ 250 $ 137,188
Republic of Argentina, 6.4375s, 2023 250 174,375
----------
$ 311,563
- -----------------------------------------------------------------------------
Brazil - 8.6%
Federal Republic of Brazil, 6.5s, 2024 $ 500 $ 355,625
- -----------------------------------------------------------------------------
Bulgaria - 3.1%
National Republic of Bulgaria, "A", 6.29s,
2024 $ 250 $ 129,375
- -----------------------------------------------------------------------------
Czech Republic - 8.7%
Komercni Banka, 11.55s, 1999 $ 10,000 $ 362,817
- -----------------------------------------------------------------------------
Ecuador - 3.4%
Republic of Ecuador, 6.063s, 2025 $ 250 $ 142,813
- -----------------------------------------------------------------------------
Mexico - 11.0%
Bancomer S.A., 8s, 1998## $ 100 $ 98,950
United States of Mexico, 6.25s, 2019 250 162,812
United States of Mexico, 6.391s, 2019 250 196,562
----------
$ 458,324
- -----------------------------------------------------------------------------
Venezuela - 3.7%
Republic of Venezuela, 6.75s, 2020 $ 250 $ 153,750
- -----------------------------------------------------------------------------
Total Bonds (Identified Cost, $1,817,475) $1,914,267
- -----------------------------------------------------------------------------
Warrant
- -----------------------------------------------------------------------------
Shares
- -----------------------------------------------------------------------------
Foreign Stock
Mexico VRR Discount (Identified Cost, $0) 635,000 $ 0
- -----------------------------------------------------------------------------
Short-Term Obligations - 62.1%
- -----------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------
U.S. Dollar Denominated - 43.3%
Federal Home Loan Mortgage Corp., due 7/01/96 $ 1,800 $1,800,000
- -----------------------------------------------------------------------------
Foreign Denominated - 18.8%
Mexican Pesos - 4.5%
Mexico Cetes, 0s, 1996 MXP 1,500 $ 188,047
- -----------------------------------------------------------------------------
Indonesian Rupiah - 9.6%
Pembangunan Perumahan, 0s, 1996 IDR 1,000,000 $ 400,052
- -----------------------------------------------------------------------------
Thai Baht - 4.7%
Krung Thai NCD, 0s, 1996 THB 5,000 $ 194,728
- -----------------------------------------------------------------------------
Total Foreign Denominated $ 782,827
- -----------------------------------------------------------------------------
Total Short-Term Obligations (Identifed Cost, $2,582,277) $2,582,827
- -----------------------------------------------------------------------------
Total Investments (Identified Cost, $4,399,752) $4,497,094
Other Assets, Less Liabilities - (8.1)% (337,573)
- -----------------------------------------------------------------------------
Net Assets - 100.0% $4,159,521
- -----------------------------------------------------------------------------
## SEC Rule 144A restrictions.
Abbreviations have been used throughout this report to indicate amounts shown in
currencies other than the U.S. dollar. A list of abbreviations is shown below.
CZK = Czech Republic Korunas IDR = Indonesian Rupiah
DEM = Deutsche Marks MXP = Mexican Pesos
HKD = Hong Kong Dollars THB = Thai Baht
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
June 30, 1996
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $4,399,752) $4,497,094
Cash 7,240
Net receivable for forward foreign currency exchange
contracts purchased 2,503
Net receivable for forward foreign currency exchange
contracts sold 4,860
Net receivable for forward foreign currency exchange
contracts 4,332
Interest receivable 42,981
Deferred organization expenses 16,795
Other assets 23
----------
Total assets $4,575,828
----------
Liabilities:
Payable for investments purchased $ 399,085
Payable to affiliate for management fee 290
Accrued expenses and other liabilities 16,932
----------
Total liabilities $ 416,307
----------
Net assets $4,159,521
==========
Net assets consist of:
Paid-in capital $3,902,750
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currency 109,107
Accumulated undistributed net realized gain on investments
and foreign currency transactions 81,629
Accumulated undistributed net investment income 66,035
----------
Total $4,159,521
==========
Shares of beneficial interest outstanding 382,364
==========
Net asset value, redemption price and offering price per share
(net asset of $4,159,521 / 382,364 shares of beneficial
interest outstanding) $10.88
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ------------------------------------------------------------------------------
Year Ended June 30, 1996*
- ------------------------------------------------------------------------------
Net investment income:
Interest income $207,910
--------
Expenses -
Management fee $ 20,043
Trustees' compensation 2,820
Shareholder servicing agent fee 174
Registration fees 32,555
Printing 23,884
Auditing fees 10,770
Amortization of organization expenses 3,622
Legal fees 2,423
Custodian fee 1,691
Miscellaneous 919
--------
Total expenses $ 98,901
Reduction of expenses by investment adviser (69,426)
--------
Net expenses $ 29,475
--------
Net investment income $178,435
--------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $(83,760)
Foreign currency transactions 128,993
--------
Net realized gain on investments $ 45,233
--------
Change in unrealized appreciation -
Investments $ 97,342
Translation of assets and liabilities in foreign currencies 11,765
--------
Net unrealized gain on investments $109,107
--------
Net realized and unrealized gain on investments and
foreign currency $154,340
--------
Increase in net assets from operations $332,775
========
* For the period from the commencement of investment operations, August 7, 1995
to June 30, 1996.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------
Year Ended June 30, 1996*
- ------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment income $ 178,435
Net realized gain on investments and foreign currency
transactions 45,233
Net unrealized gain on investments and foreign currency
translation 109,107
----------
Increase in net assets from operations $ 332,775
----------
Distributions declared to shareholders from net investment income $ (76,004)
----------
Fund share (principal) transactions -
Net proceeds from sale of shares $3,826,723
Net asset value of shares issued to shareholders in
reinvestment of distributions 76,004
Cost of shares reacquired (77)
----------
Increase in net assets from Fund share transactions $3,902,650
---------
Total increase in net assets $4,159,421
Net assets:
At beginning of period 100
----------
At end of period (including accumulated undistributed net
investment income of $66,035) $4,159,521
==========
* For the period from the commencement of investment operations, August 7, 1995
to June 30, 1996.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights
- ------------------------------------------------------------------------------
Year Ended June 30, 1996*
- ------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.00
------
Income from investment operations# -
Net investment income(S) $ 0.70
Net realized and unrealized gain on investments 0.56
------
Total from investment operations $ 1.26
------
Less distributions declared to shareholders from net investment
income $(0.38)
------
Net asset value - end of period $10.88
======
Total return 12.93%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 1.25%+
Net investment income 7.59%+
Portfolio turnover 285%
Net assets at end of period (000 omitted) $4,160
* For the period from the commencement of investment operations, August 7,
1995 to June 30, 1996.
+ Annualized.
++ Not annualized.
# Per share data is based on average shares outstanding.
(S) The Adviser voluntarily agreed to maintain the expenses of the Fund at
not more than 1.25% of average daily net assets. To the extent that actual
expenses were over these limitations, the net investment income per share
and the ratios would have been:
Net investment income $ 0.43
Ratios (to average net assets):
Expenses 4.21%+
Net investment income 4.63%+
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Institutional Emerging Markets Income Fund (the Fund) is a non-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. Effective
April 25, 1996, the Trustees of the Fund voted to change its name from the MFS
Institutional Emerging Markets Fixed Income Fund to the MFS Institutional
Emerging Markets Income Fund.
(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. 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 and forward contracts, 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. Short-term obligations, which mature in 60
days or less, are valued at amortized cost, which approximates market value.
Non-U.S. dollar denominated short-term obligations are valued at amortized cost
as calculated in the base currency and translated into U.S. dollars at the
closing daily exchange rate. 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 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
operations of the Fund.
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 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 will 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.
It 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 for financial statement purposes as unrealized until the contract
settlement date.
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. 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.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net income,
including any net realized gain on investments. Accordingly, no provision for
federal income or excise tax is provided. 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, 1996, $36,396 was reclassified from
accumulated undistributed net investment income to accumulated net realized gain
on investments, due to differences between book and tax accounting for currency
transactions. This change had no effect on the net assets or net asset value per
share.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an effective annual rate of
0.85% of average daily net assets.
Under a temporary expense reimbursement agreement with MFS, MFS has voluntarily
agreed to pay the Fund's operating expenses exclusive of management fees such
that total operating expenses do not exceed, valued basis, 1.25% of its average
daily net assets. The Fund in turn will pay MFS an expense reimbursement fee not
greater than 0.40% of average daily net assets. To the extent that the expense
reimbursement fee exceeds the Fund's actual expenses, the excess will be applied
to amounts paid by MFS in prior years. At June 30, 1996, the aggregate
unreimbursed expenses owed to MFS by the Fund amounted to $69,426 incurred
during the current period.
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 calculated as a
percentage of the average daily net assets of the Fund at an effective annual
rate of up to 0.0075%.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions and
short-term obligations, aggregated $4,585,218 and $2,852,053 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 $4,417,775
==========
Gross unrealized appreciation $ 79,319
----------
Net unrealized appreciation $ 79,319
==========
(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:
Shares Amount
- ------------------------------------------------------------------------------
Shares sold 374,769 $ 3,826,723
Shares issued to shareholders in reinvestment of
distributions 7,593 76,004
Shares reacquired (8) (77)
------- -----------
Net increase 382,354 $ 3,902,650
======= ===========
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS in an unsecured line of credit with a bank which permits
borrowings up to $350 million, collectively. 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 year ended June 30,
1996 was $16.
(7) Financial Instruments
The Fund trades financial instruments with off-balance sheet risk in the normal
course of its investing activities in order to manage exposure to market risks
such as interest rates and foreign currency exchange rates. These financial
instruments include forward foreign currency exchange contracts.
The notional or contractual amounts of these instruments represent the
investment the Fund has in particular classes of financial instruments and does
not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered.
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
Net Unrealized
Contracts to Contracts Appreciation
Settlement Date Deliver/Receive In Exchange for at Value (Depreciation)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales 7/11/96 - 10/23/96 DEM 866,426 $576,616 $571,137 $5,479
12/04/96 HKD 1,547,100 199,240 199,859 (619)
-------- -------- ------
$775,856 $770,996 $4,860
======== ======== ======
Purchases 7/11/96 - 8/15/96 CZK 13,791,640 $497,407 $499,910 $2,503
======== ======== ======
</TABLE>
Forward foreign currency purchases and sales under master netting arrangements
and closed forward foreign currency exchange contracts excluded above amounted
to a net receivable of $4,332 at June 30, 1996.
At June 30, 1996, the Fund had sufficient cash and/or securities to cover any
commitments under these contracts.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Institutional Trust and Shareholders of
MFS Institutional Emerging Markets Income Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Institutional Emerging Markets Income Fund
(one of the series comprising MFS Institutional Trust) as of June 30, 1996 and
the related statement of operations, the statement of changes in net assets and
the financial highlights for the period August 7, 1995 (commencement of
operations) to June 30, 1996. 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 audit.
We conducted our audit 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, 1996 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 audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Institutional
Emerging Markets Income Fund at June 30, 1996, the results of its operations,
the changes in its net assets, and its financial highlights for the period
August 7, 1995 (commencement of operations) to June 30, 1996 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
August 2, 1996
--------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
<PAGE>
<PAGE>
[logo]
ANNUAL REPORT FOR
YEAR ENDED
JUNE 30, 1996
MFS(R) INSTITUTIONAL INTERNATIONAL EQUITY FUND
[graphic omitted: two men sitting in front of a window]
<PAGE>
MFS(R) INSTITUTIONAL INTERNATI0NAL EQUITY FUND
TRUSTEES ASSISTANT TREASURER
A. Keith Brodkin* James O. Yost*
Chairman and President
SECRETARY
Nelson J. Darling, Jr. Stephen E. Cavan*
Trustee, Eastern Enterprises
(diversified holding company) ASSISTANT SECRETARY
James R. Bordewick, Jr.*
William R. Gutow
Vice Chairman, SHAREHOLDER SERVICE CENTER
Capitol Entertainment MFS Service Center, Inc.
(Blockbuster Video Franchise) P.O. Box 2281
Boston, MA 02107-9906
INVESTMENT ADVISER
Massachusetts Financial Services Company For general information,
500 Boylston Street call toll free: 1-800-637-2262
Boston, MA 02116-3741
CUSTODIAN
DISTRIBUTOR State Street Bank and Trust Company
MFS Fund Distributors, Inc.
500 Boylston Street AUDITORS
Boston, MA 02116-3741 Deloitte & Touche LLP
PORTFOLIO MANAGER
David Mannheim*
TREASURER
W. Thomas London*
*Affiliated with the Investment Adviser
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
We would like to welcome you as shareholders of MFS Institutional International
Equity Fund, which commenced operations on January 31, 1996. From that date
through June 30, 1996, the Fund provided a total return of 9.6% (including the
reinvestment of distributions). This compares to a 4.2% return for the Morgan
Stanley Capital International (MSCI) Europe, Australia, Far East (EAFE) Index, a
broad, unmanaged index of non-U.S. equities. The Fund seeks to provide capital
appreciation by investing in the stocks of companies whose principal activities
are located outside the United States. Our investment philosophy is to emphasize
stock selection as opposed to industry, country, or currency selection. This
bottom-up approach to stockpicking focuses on seeking quality companies with
superior growth prospects trading at attractive valuations. Country weightings
are merely byproducts of what we believe to be the most attractive investments.
Stock Markets
The first half of 1996 has seen a continuation of the positive performance of
global equity markets exhibited in 1995. Positive local currency returns were
generated throughout the world. The MSCI Europe Index was up 10.4%, with returns
ranging from 2.6% in the United Kingdom to 20.9% in Spain; the MSCI Pacific
Index was up 7.5%, with returns ranging from -2.2% in New Zealand to 14.3% in
Malaysia. Meanwhile, the Standard & Poor's 500 Composite Index, a popular,
unmanaged index of common stock performance, gained 10.1%, and the International
Finance Corp. Global Composite Index, a market-capitalization-weighted index
comprising the most active stocks of emerging markets (as defined by the World
Bank), rose 13.5%. The only major negative was the strong U.S. dollar, which
gained 6% against the Japanese yen and the German mark and ate into dollar-based
returns. We believe that the equity markets will continue to be fundamentally
driven, although the economic outlook is uncertain, with the strength of the
U.S. economy unclear, Japan starting to show more meaningful signs of recovery,
and Europe's recovery still in its early stages. Lower interest rates,
particularly in Europe and Japan, have helped support strong equity markets.
While we believe that interest rates are unlikely to fall further, a subdued
global inflation outlook could mean that rates rise little from current levels,
which should help support current equity market valuations. Therefore, for the
remainder of 1996, we believe corporate earnings growth will be the key to
further stock market gains.
Portfolio Performance and Strategy
Illustrating the importance of individual stock selection, the Fund benefited in
its first five months from the strong performance of a number of its holdings.
In local currency terms, Getronics and Adidas gained over 70% and 50%,
respectively, while DDI (a Japanese cellular and long-distance telephone
operator), Sparbanken (a Swedish bank), Bridgestone (a Japanese tire
manufacturer), Kwik-Fit (a U.K. auto repair chain), and Pilipino Telephone all
generated returns in excess of 20%. The biggest drags on performance were
PowerGen, a U.K. electricity generator, which declined 9% but became the Fund's
largest holding as additional shares were purchased; Singapore Finance, which
was down 9%; and Dalgety, a U.K. food processor, which declined 16%.
As of June 30, 1996, the Fund had holdings in 22 countries. The Fund's
equity weighting was spread as follows: 51% in Europe, 46% in Asia/Pacific, and
3% in the Americas. Globally, we are finding opportunities in companies that can
be characterized as "steady earners" which we believe could perform well
regardless of the state of the world's economies. Several of the Fund's larger
holdings which fit this description are PowerGen, DDI, Telecom Italia Mobile
(Italy's largest cellular telephone company), Lion Nathan (a New Zealand
brewer), and Astra (a Swedish pharmaceutical company).
Respectfully,
/s/ A. Keith Brodkin /s/ David Mannheim
A. Keith Brodkin David Mannheim
Chairman and President Portfolio Manager
July 10, 1996
PORTFOLIO MANAGER PROFILE
David Mannheim began his career at MFS in 1988 as a research specialist and was
promoted to Assistant Vice President - Investments in 1991. In 1992, he was
named Vice President - Investments and Portfolio Manager of MFS World Equity
Fund. Mr. Mannheim is a graduate of Amherst College and of Massachusetts
Institute of Technology's Sloan School of Management.
OBJECTIVE AND POLICIES
The Fund's investment objective is to provide long-term growth of capital. The
Fund invests, under normal market conditions, at least 65% of its total assets
in equity securities of companies whose principal activities are located outside
the United States.
TAX FORM SUMMARY
In January 1997, shareholders will be mailed a Tax Form Summary reporting the
federal tax status of all distributions paid during the calendar year 1996.
<PAGE>
PORTFOLIO OF INVESTMENTS - June 30, 1996
Foreign Stocks and Warrants - 98.8%
- -----------------------------------------------------------------------------
Issuer Shares Value
- -----------------------------------------------------------------------------
Australia - 4.6%
Aristocrat Leisure Ltd. (Leisure)* 6,000 $ 13,693
Q.B.E. Insurance Group (Insurance) 8,800 52,288
Seven Network Ltd. (Broadcasting) 15,700 50,041
----------
$ 116,022
- -----------------------------------------------------------------------------
Canada - 1.5%
Canadian National Railway (Railroads) 2,000 $ 36,750
- -----------------------------------------------------------------------------
Chile - 1.3%
Chilectra S.A., ADR (Utilities - Electric) 600 $ 33,300
- -----------------------------------------------------------------------------
China - 0.3%
Guangshen Railway Ltd., ADR (Railroads)* 400 $ 7,650
- -----------------------------------------------------------------------------
Denmark - 0.8%
Novo-Nordisk, "B" (Pharmaceuticals) 140 $ 19,814
- -----------------------------------------------------------------------------
Finland - 1.8%
Aamulehti Yhtymae Oy II (Publishing) 950 $ 25,626
Huhtamaki Oy I, Free Shares (Consumer Products) 600 20,069
----------
$ 45,695
- -----------------------------------------------------------------------------
France - 4.9%
Dassault Systemes, ADR (Computer Software)* 100 $ 3,100
Michelin (C.G.D.E.) (Tire and Rubber) 550 26,930
Rhone Poulenc Rorer (Pharmaceuticals) 200 13,425
Total S.A., "B" (Oils) 350 25,965
Union des Assurances Federales (Insurance) 440 54,289
----------
$ 123,709
- -----------------------------------------------------------------------------
Germany - 2.6%
Adidas AG (Apparel) 480 $ 40,331
Volkswagen AG (Automobiles) 65 24,147
----------
$ 64,478
- -----------------------------------------------------------------------------
Greece - 0.5%
Hellenic Telecommunications
(Telecommunications) 800 $ 13,260
- -----------------------------------------------------------------------------
Hong Kong - 7.1%
Asia Satellite Telecommunications, ADR
(Telecommunications)* 500 $ 14,875
Cosco Pacific Ltd. (Transportation)*## 44,000 31,549
Dah Sing Financial (Banks and Credit Cos.) 5,600 16,965
Giordano International (Retail) 35,000 33,913
Hong Kong Land Holdings (Real Estate)* 8,000 18,000
Liu Chong Hing Bank (Banks and Credit Cos.) 15,000 20,445
Peregrine Investment Holdings (Finance) 12,000 17,286
Peregrine Investment Holdings, Warrants (Finance) 1,200 148
Wing Hang Bank (Banks and Credit Cos.) 6,000 23,797
----------
$ 176,978
- -----------------------------------------------------------------------------
Italy - 4.5%
Esaote S.p.A., ADR (Medical Technology)*## 400 $ 14,300
Mediolanum (Insurance)*## 2,400 23,874
Telecom Italia Mobile S.p.A.
(Telecommunications) 54,000 73,620
----------
$ 111,794
- -----------------------------------------------------------------------------
Japan - 18.4%
Bridgestone Corp. (Tire and Rubber) 2,000 $ 38,166
Canon, Inc. (Electrical Equipment) 2,000 41,636
DDI Corp. (Telecommunications) 10 87,289
Daiwa House Industrial Co. (Manufactured Housing) 1,000 15,522
East Japan Railway (Railroads) 6 31,501
Kinki Coca-Cola (Beverages) 1,000 15,157
Kirin Beverage (Beverages) 2,000 29,401
Matsushita Electric, Indiana (Electrical Equipment) 2,000 37,253
Murata Manufacturing (Electrical Equipment) 1,000 37,892
Omron Corp. (Electronics) 2,000 42,549
Osaka Sanso Kogyo (Chemicals) 7,000 29,401
Takeda Chemical Industries (Chemicals)* 3,000 53,140
----------
$ 458,907
- -----------------------------------------------------------------------------
Malaysia - 1.3%
New Straits Times (Publishing) 6,000 $ 31,281
- -----------------------------------------------------------------------------
Netherlands - 5.2%
Getronics N.V. (Computer Software and Services) 1,824 $ 40,407
IHC Caland N.V. (Transportation - Marine) 600 29,537
Royal Dutch Petroleum Co. (Oils) 325 50,208
Toolex-Alpha N.V. (Electrical Equipment)* 400 9,600
----------
$ 129,752
- -----------------------------------------------------------------------------
New Zealand - 5.3%
Lion Nathan Ltd. (Beverages) 27,000 $ 70,589
Sky City Ltd. (Casinos)* 11,000 47,931
Tranz Rail Holdings (Railroads)* 1,000 13,875
----------
$ 132,395
- -----------------------------------------------------------------------------
Philippines - 2.3%
Alsons Cement Corp. (Building Materials)*## 41,000 $ 18,780
Hi Cement (Building Materials)*## 27,000 10,203
Pilipino Telephone (Utilities - Telephone)* 19,000 29,000
----------
$ 57,983
- -----------------------------------------------------------------------------
Singapore - 3.5%
Mandarin Oriental Hotel (Lodging) 16,000 $ 22,400
Singapore Finance (Finance) 26,000 44,233
Singapore Finance, Rights (Finance) 5,200 368
Singapore Press (Publishing) 1,000 19,635
----------
$ 86,636
- -----------------------------------------------------------------------------
South Korea - 1.3%
Korea Mobile Telecom, ADR (Telecommunications)* 1,950 $ 33,393
- -----------------------------------------------------------------------------
Spain - 5.9%
Acerinox (Iron and Steel) 440 $ 45,854
Cubiertas Y Mzov (Engineering and Construction) 600 39,110
Iberdrola (Utilities - Electric) 2,000 20,530
Repsol S.A. (Oils) 1,200 41,733
----------
$ 147,227
- -----------------------------------------------------------------------------
Sweden - 12.0%
ABB AB, "B" (Engineering and Construction) 740 $ 78,300
Astra AB, "B", Free Shares (Pharmaceuticals) 1,350 58,890
Ericsson L.M. Co., ADR, "B"
(Telecommunications - Equipment) 1,100 23,650
Marieberg Tidings (Publishing) 1,000 25,056
Nobel Biocare (Medical and Health Products) 1,200 22,279
Sparbanken Svergie, "A" (Banks and Credit Cos.) 4,000 51,924
Tornet Fastighet (Real Estate) 430 3,504
Volvo AB, "B" (Automobiles) 1,600 36,467
----------
$ 300,070
- -----------------------------------------------------------------------------
Thailand - 1.0%
Total Access Communications
(Telecommunications) 3,000 $ 25,500
- -----------------------------------------------------------------------------
United Kingdom - 12.7%
Asda Group PLC (Stores) 28,000 $ 50,856
Capital Radio (Broadcasting) 2,050 20,749
Dalgety PLC (Food Products) 6,200 33,927
Jarvis Hotels (Lodging)*+ 3,000 8,104
Kwik-Fit Holdings (Retail - Automobiles) 9,000 31,855
Lloyds TSB Group (Banks and Credit Cos.) 3,700 18,093
Orange PLC, ADR (Telecommunications)* 700 12,250
Pace Micro Technology (Electronics)* 5,000 14,592
PowerGen PLC (Utilities - Electric) 11,000 80,128
PowerGen PLC -- 380P/P (Utilities - Electric) 3,900 19,918
Storehouse PLC (Retail Department Stores) 5,200 25,766
----------
$ 316,238
- -----------------------------------------------------------------------------
Total Foreign Stocks and Warrants (Identified Cost, $2,305,973) $2,468,832
Other Assets, Less Liabilities - 1.2% 29,032
- -----------------------------------------------------------------------------
Net Assets - 100.0% $2,497,864
- -----------------------------------------------------------------------------
*Non-income producing security.
+Restricted security.
##SEC Rule 144A restriction.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
June 30, 1996
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $2,305,973) $2,468,832
Foreign currency, at value (identified cost, $13,075) 13,130
Receivable for investments sold 32,877
Interest and dividends receivable 9,447
Deferred organization expenses 6,407
----------
Total assets $2,530,693
----------
Liabilities:
Cash overdraft $ 8,894
Payable for investments purchased 16,031
Payable to affiliate for management fee 153
Accrued expenses and other liabilities 7,751
----------
Total liabilities $ 32,829
----------
Net assets $2,497,864
==========
Net assets consist of:
Paid-in capital $2,288,536
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 162,850
Accumulated undistributed net realized gain on investments
and foreign currency transactions 24,653
Accumulated undistributed net investment income 21,825
----------
Total $2,497,864
==========
Shares of beneficial interest outstanding 227,905
==========
Net asset value, redemption price and offering price per share
(net assets of $2,497,864 / 227,905 shares of beneficial
interest outstanding) $10.96
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ------------------------------------------------------------------------------
Period Ended June 30, 1996*
- ------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 26,262
Interest 5,214
--------
Total investment income $ 31,476
--------
Expenses -
Management fee $ 7,030
Trustees' compensation 1,570
Shareholder servicing agent fee 69
Registration fees 18,310
Auditing fees 8,900
Printing 6,500
Legal fees 1,927
Custodian fee 897
Amortization of organization expenses 578
Miscellaneous 85
--------
Total expenses $ 45,866
Fees paid indirectly (317)
Reduction of expenses by investment adviser (37,067)
--------
Net expenses $ 8,482
--------
Net investment income $ 22,994
--------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 24,653
Foreign currency transactions (1,169)
--------
Net realized gain on investments and foreign currency
transactions $ 23,484
--------
Change in unrealized appreciation (depreciation) -
Investments $162,859
Translation of assets and liabilities in foreign currencies (9)
--------
Net unrealized gain on investments $162,850
--------
Net realized and unrealized gain on investments and
foreign currency $186,334
--------
Increase in net assets from operations $209,328
========
*For the period from the commencement of investment operations, January 31, 1996
to June 30, 1996.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------
Period Ended June 30, 1996*
- ------------------------------------------------------------------------------
Increase in net assets:
From operations -
Net investment income $ 22,994
Net realized gain on investments and foreign currency
transactions 23,484
Net unrealized gain on investments and foreign currency
translation 162,850
----------
Increase in net assets from operations $ 209,328
----------
Fund share (principal) transactions -
Net proceeds from sale of shares $2,288,526
----------
Total increase in net assets $2,497,854
Net assets:
At beginning of period 10
----------
At end of period (including accumulated undistributed net
investment income of $21,825) $2,497,864
==========
*For the period from the commencement of investment operations, January 31, 1996
to June 30, 1996.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights
- ------------------------------------------------------------------------------
Period Ended June 30, 1996*
- ------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.00
------
Income from investment operations# -
Net investment income(S) $ 0.13
Net realized and unrealized gain on investments 0.83
------
Total from investment operations $ 0.96
------
Net asset value - end of period $10.96
======
9.60%++
Total return
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.94%+
Net investment income 2.46%+
Portfolio turnover 19%
Average commission rate### $0.0182
Net assets at end of period (000 omitted) $2,498
* For the period from the commencement of investment operations, January 31,
1996 to June 30, 1996.
+ Annualized.
++ Not annualized.
# Per share data is based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid
indirectly.
### Average commission rate is calculated for funds with fiscal years beginning
on or after September 1, 1995.
(S) The investment adviser voluntarily agreed to maintain the expenses of the
Fund at no more than 0.85% of average daily net assets effective May 3,
1996. During the period January 31, 1996 to May 2, 1996, the adviser agreed
to maintain the expenses at not more than 0.95%. To the extent actual
expenses were over these limitations, the net investment loss per share and
ratios would have been:
Net investment loss $(0.08)
Ratios (to average net assets):
Expenses## 4.91 %+
Net investment loss (1.51)%+
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(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. 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 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. 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. 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 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
operations of the Fund.
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 will 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. It 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 for financial statement purposes as unrealized until the contract
settlement date.
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.
Fees Paid Indirectly - The Fund's custodian bank calculates its fee based on the
Fund's average daily net assets. The fee is reduced according to a fee
arrangement, which provides for custody fees to be reduced based on a formula
developed to measure 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. 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 tax 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 period ended June 30, 1996, $1,169 was reclassified from
accumulated undistributed net investment income to accumulated net realized gain
on investments, due to differences between book and tax accounting for currency
transactions. This change had no effect on the net assets or net asset value per
share.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75% of
average daily net assets.
MFS has voluntarily agreed to pay all of the Fund's operating expenses exclusive
of management fees such that the Fund's aggregate expenses do not exceed 0.85%
of its average daily net assets.
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 calculated as a
percentage of average daily net assets of the Fund at an effective annual rate
of up to 0.0075%.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities and
short-term obligations, aggregated $2,622,364 and $341,044, 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 $2,305,973
==========
Gross unrealized appreciation $ 202,362
Gross unrealized depreciation (39,503)
----------
Net unrealized appreciation $ 162,859
==========
(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:
Period Ended June 30, 1996* Shares Amount
- ----------------------------------------------------------
Shares sold 227,904 $2,288,526
======= ==========
*For the period from the commencement of investment operations, January 31,
1996 to June 30, 1996.
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS in an unsecured line of credit with a bank which permits
borrowings up to $350 million, collectively. 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 June 30,
1996 was $11.
(7) Restricted Securities
The Fund may invest not more than 15% of its net assets in securities which are
subject to legal or contractual restrictions on resale. At June 30, 1996, the
Fund owned the following restricted security (constituting 0.3% of net assets)
which may not be publicly sold without registration under the Securities Act of
1933. The Fund does not have the right to demand that such security be
registered. The value of this security is determined by valuations supplied by a
pricing service or brokers or, if not available, in good faith by or at the
direction of the Trustees.
Description Date of Acquisition Share Amount Cost Value
- ----------------------------------------------------------------------------
Jarvis Hotels PLC 6/21/96 3,000 $8,066 $8,057
======
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Institutional Trust and Shareholders of MFS Institutional
International Equity Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Institutional International Equity Fund
(one of the series comprising MFS Institutional Trust) as of June 30, 1996, and
the related statement of operations, the statement of changes in net assets and
the financial highlights for the period from January 31, 1996, the commencement
of operations, to June 30, 1996. 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 audit.
We conducted our audit 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, 1996 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 audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Institutional
International Equity Fund at June 30, 1996, the results of its operations, the
changes in its net assets, and its financial highlights for the period from
January 31, 1996, the commencement of operations, to June 30, 1996 in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
August 2, 1996
--------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
<PAGE>
<PAGE>
[logo] Annual Report for
THE FIRST NAME IN MUTUAL FUNDS Year Ended
June 30, 1996
MFS(R) INSTITUTIONAL MID-CAP GROWTH EQUITY FUND
[graphic omitted: two men sitting in front of a window]
<PAGE>
MFS(R) INSTITUTIONAL MID-CAP GROWTH EQUITY FUND
ASSISTANT TREASURER
TRUSTEES James O. Yost*
A. Keith Brodkin*
Chairman and President SECRETARY
Stephen E. Cavan*
Nelson J. Darling, Jr.
Trustee, Eastern Enterprises ASSISTANT SECRETARY
(diversified holding company) James R. Bordewick, Jr.*
William R. Gutow SHAREHOLDER SERVICE CENTER
Vice Chairman, MFS Service Center, Inc.
Capitol Entertainment P.O. Box 2281
(Blockbuster Video Franchise) Boston, MA 02107-9906
INVESTMENT ADVISER For general information,
Massachusetts Financial Services Company call toll free: 1-800-637-2262
500 Boylston Street
Boston, MA 02116-3741 CUSTODIAN
State Street Bank and Trust Company
DISTRIBUTOR
MFS Fund Distributors, Inc. AUDITORS
500 Boylston Street Deloitte & Touche LLP
Boston, MA 02116-3741
PORTFOLIO MANAGERS
John W. Ballen*
Mark Regan*
TREASURER
W. Thomas London*
*Affiliated with the Investment Adviser
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
The Fund commenced operations on December 28, 1995, and from that date through
June 30, 1996 provided a total return of 11.30%. For the six months from January
1, 1996 through June 30, 1996, the Standard & Poor's 500 Composite Index (the
S&P 500), a popular, unmanaged index of common stock performance, returned
10.09%, while the Russell 2000 Total Return Index (an index comprised of 2,000
of the smallest U.S.-domiciled company common stocks which are traded on the New
York Stock Exchange, the American Stock Exchange and NASDAQ) returned 11.92%. A
discussion of the Fund's performance during this reporting period may be found
in the Portfolio Performance and Strategy section of this letter.
Economic Outlook
Real (inflation-adjusted) economic growth in the first quarter of 1996 was 2.3%
on an annualized basis, and it appears that second-quarter growth could be even
stronger. Thus, real growth in gross domestic product has started the year at a
rate exceeding our expectations. While we continue to believe that growth from
quarter to quarter will be uneven, it is now our expectation that growth for all
of 1996 could exceed 2.5%. Although individual consumers appear to be carrying
an excessive debt load, the consumer sector itself, which represents two-thirds
of the economy, continues to be impressive as the auto and housing markets
remain resilient. Consumer spending has also been positively impacted by
widespread job growth. At the same time, however, the economies of Europe and
Japan continue to be in the doldrums, weakening U.S. export markets while
subduing the capital spending plans of American corporations. Finally, due to
the pickup in economic activity and increasing job growth, it appears that
inflation may accelerate slightly this year, and the Federal Reserve Board is
expected to continue its diligent anti-inflationary stance.
Stock Market
While we do not expect the stock market to match the extraordinary performance
of 1995, we continue to be positive about the equity market this year. Although
we believe the equity market represents fair value at current levels, the
expected slowdown in the growth of corporate earnings and the increases in
interest rates experienced so far this year raise near-term concerns. Further
increases in interest rates, and an acceleration of inflation coupled with an
additional slowdown in corporate earnings growth, could have a negative effect
on the stock market. However, to the extent that some earnings disappointments
are taken as a sign that the economy is not overheating, this may prove
beneficial for the longer-term health of the equity market. We continue to
believe that many of the technology-driven productivity gains that U.S.
companies have made in recent years will continue to enhance corporate America's
competitiveness and profitability. Therefore, while we have some near-term
concerns, we remain constructive on the long-term viability of the equity
market.
Portfolio Performance and Strategy
The Fund's performance has benefited from the strong appreciation in the stock
prices of many of its holdings in the technology and consumer sectors. The
technology sector started the year with very poor performance as investors
worried about the slowdown in this sector's earnings growth versus 1995's, which
saw very strong earnings growth of 50% for this sector.
Consumer stocks, which were some of the most disappointing in terms of
earnings and stock performance in 1995, have rebounded very smartly in 1996. One
sector which has not performed as yet for the Fund in 1996 is health care.
Perhaps because of the strength in other areas of the market, many of our health
care companies have lagged the general market in spite of strong earnings
growth.
The performance of our consumer-oriented stocks has been particularly
helpful. HFS, the nation's largest franchiser of hotels and real estate
companies, has seen the price of its stock appreciate almost 50% since the
beginning of the year as strong earnings gains and acquisitions such as Coldwell
Banker appeared to assure investors of its future growth prospects.
Several of the Fund's retail and restaurant stocks rebounded dramatically
based on strong consumer sentiment. Applebee's, the nation's largest franchiser
of casual restaurants, appreciated substantially as strong earnings were
reported from the first quarter. Similarly, Gymboree, perhaps the retailer
best-positioned to service the lucrative children's clothing niche, soared
almost 100% from depressed levels as first-quarter earnings were very strong.
While the Fund's technology stocks had, on average, mixed results, the Fund
was fortunately overweighted in software and networking stocks relative to
computer systems and semiconductors. Meanwhile, an excess of inventories held by
customers of semiconductor manufacturers has been a drag on earnings for this
sector so far this year. While we expect this overhang to dissipate, other
investors have aggressively sold their positions and depressed the stocks.
We have been surprised that the health care sector has not performed better.
United Healthcare, the largest managed health care company in the nation, which
had been one of the Fund's largest positions, has been a particularly poor
performer this year. Despite reporting strong earnings versus last year's and
maintaining its position as a dominant force in the sector, the stock is down
for the year. However, we believe health maintenance organization (HMO)
companies may perform better by the end of the year and still have positions in
such stocks as Healthsource, which operates HMOs in New England, the Midwest,
and the Southeast, and Pacificare Health Systems.
Respectfully,
/s/ A. Keith Brodkin /s/ John W. Ballen /s/ Mark Regan
A. Keith Brodkin John W. Ballen Mark Regan
Chairman and President Portfolio Manager Portfolio Manager
July 10, 1996
PORTFOLIO MANAGER PROFILES
John Ballen began his career at MFS in 1984 as an industry specialist and was
promoted to Investment Officer in 1986, Vice President - Investments in 1987,
Director of Research in 1988, and Senior Vice President in 1990. In 1993, he
became Director of Equity Portfolio Management.
Mark Regan began his career at MFS in 1989 as a research analyst. A graduate of
Cornell University and the Sloan School of Management at the Massachusetts
Institute of Technology, he was promoted to Investment Officer in 1990,
Assistant Vice President - Investments in 1991, and Vice President Investments
in 1992.
OBJECTIVE AND POLICIES
The Fund seeks to achieve its objective by investing, under normal market
conditions, at least 65% of its total assets in equity securities of companies
with medium market capitalizations (mid-cap companies). Mid-cap companies are
those companies with a market capitalization within the range of approximately
$500 million to $4 billion. Such companies generally would be expected to show
earnings growth over time that is well above the growth rate of the overall
economy and the rate of inflation, and would have the products, management and
market opportunities which are usually necessary to continue sustained growth.
Shares of the Fund are purchased at net asset value.
The minimum initial investment is generally $3 million.
TAX FORM SUMMARY
In January 1997, shareholders will be mailed a Tax Form Summary reporting the
federal tax status of all distributions paid during the calendar year 1996.
<PAGE>
PORTFOLIO OF INVESTMENTS - June 30, 1996
Common Stocks - 94.7%
- -----------------------------------------------------------------------------
Issuer Shares Value
- -----------------------------------------------------------------------------
U.S. Stocks - 94.2%
Apparel and Textiles - 1.3%
Nine West Group, Inc.* 2,000 $ 102,250
- -----------------------------------------------------------------------------
Banks and Credit Companies - 1.6%
Capital One Financial Co.* 3,000 $ 85,500
Northern Trust Co. 800 46,200
----------
$ 131,700
- -----------------------------------------------------------------------------
Business Machines - 0.2%
Gateway 2000, Inc.* 600 $ 20,400
- -----------------------------------------------------------------------------
Business Services - 9.5%
ADT Limited* 5,500 $ 103,813
BISYS Group, Inc.* 1,300 49,075
CUC International, Inc.* 4,000 142,000
Ceridian Corp.* 2,000 101,000
Computer Sciences, Inc.* 1,350 100,912
First USA Paymentech* 100 4,000
Fiserv, Inc.* 3,250 97,500
Franklin Quest Co.* 3,300 68,475
SPS Transaction Services Corp.* 3,300 59,400
----------
$ 726,175
- -----------------------------------------------------------------------------
Cellular Telephones - 1.2%
Telephone & Data Systems, Inc. 2,150 $ 96,750
- -----------------------------------------------------------------------------
Computer Software - Personal Computers - 3.5%
Autodesk, Inc. 3,900 $ 116,513
Electronic Arts, Inc.* 4,175 111,681
Symantec Corp.* 4,500 56,250
----------
$ 284,444
- -----------------------------------------------------------------------------
Computer Software - Systems - 17.0%
Adobe Systems, Inc. 3,000 $ 107,625
BMC Software, Inc.* 3,300 197,175
Cadence Design Systems, Inc.* 2,050 69,188
Compuware Corp.* 1,900 75,050
Davidson & Associates, Inc.* 800 24,000
Informix Corp.* 4,500 101,250
Oracle Systems Corp.* 9,975 393,389
Sybase, Inc.* 5,675 134,072
Synopsis, Inc.* 4,650 184,837
System Software Associates, Inc. 5,600 95,200
----------
$1,381,786
- -----------------------------------------------------------------------------
Consumer Goods and Services - 1.5%
Department 56, Inc.* 2,300 $ 52,038
Service Corp. International 1,300 74,750
----------
$ 126,788
- -----------------------------------------------------------------------------
Electronics - 2.1%
LSI Logic Corp.* 3,800 $ 98,800
Xilinx, Inc.* 2,300 73,025
----------
$ 171,825
- -----------------------------------------------------------------------------
Entertainment - 8.6%
Bally's Entertainment, Inc.* 6,900 $ 189,750
Grand Casinos, Inc.* 2,650 68,237
Harrah's Entertainment, Inc.* 7,150 201,988
Heritage Media Corp.* 1,300 51,838
Infinity Broadcasting Corp., "A"* 2,300 69,000
Showboat, Inc. 3,900 117,487
----------
$ 698,300
- -----------------------------------------------------------------------------
Financial Institutions - 6.9%
Advanta Corp., "B" 2,000 $ 90,500
Countrywide Credit Industries 2,900 71,775
Credit Acceptance Corp.* 4,500 94,500
Finova Group, Inc. 1,300 63,375
Franklin Resources, Inc. 2,300 140,300
Green Tree Financial Corp. 3,300 103,125
----------
$ 563,575
- -----------------------------------------------------------------------------
Medical and Health Products - 1.7%
Ventritex, Inc.* 8,200 $ 140,425
- -----------------------------------------------------------------------------
Medical and Health Technology and Services - 13.5%
Foundation Health Corp.* 2,150 $ 77,131
Health Management Assoc., Inc., "A"* 6,750 136,688
Healthsource, Inc.* 4,200 73,500
HealthSouth Corp.* 2,020 72,720
Manor Care, Inc. 1,850 72,844
Mariner Health Group, Inc.* 3,200 58,800
Pacificare Health Systems, Inc., "A"* 3,450 227,700
St. Jude Medical, Inc. 3,850 128,975
United Healthcare Corp. 4,950 249,975
----------
$1,098,333
- -----------------------------------------------------------------------------
Metals and Minerals - 0.1%
Titanium Metals Corp.* 500 $ 12,937
- -----------------------------------------------------------------------------
Oils - 1.4%
Belco Oil & Gas Corp.* 3,200 $ 113,600
- -----------------------------------------------------------------------------
Printing and Publishing - 0.6%
Pulitzer Publishing Co. 800 $ 47,400
- -----------------------------------------------------------------------------
Railroads - 2.0%
Wisconsin Central Transportation Corp.* 4,950 $ 160,875
- -----------------------------------------------------------------------------
Restaurants and Lodging - 7.4%
Applebee's International, Inc. 4,500 $ 144,563
Buffets, Inc.* 3,800 46,550
HFS, Inc.* 3,850 269,500
Promus Hotel Corp.* 3,850 114,056
Renaissance Hotel Group, N.V.* 1,300 27,950
----------
$ 602,619
- -----------------------------------------------------------------------------
Special Products and Services - 0.4%
Loewen Group, Inc. 1,500 $ 45,375
- -----------------------------------------------------------------------------
Stores - 4.9%
AutoZone, Inc.* 1,350 $ 46,912
General Nutrition Cos., Inc.* 6,200 108,500
Gymboree Corp.* 3,000 91,500
Office Depot, Inc.* 7,300 148,738
----------
$ 395,650
- -----------------------------------------------------------------------------
Telecommunications - 9.3%
Cable Design Technology* 2,300 $ 75,325
Cabletron Systems, Inc.* 2,450 168,131
Glenayre Technologies, Inc.* 2,300 115,000
Paging Network, Inc.* 3,000 72,000
Rogers Cantel Mobile Communications, Inc., "B"* 6,800 158,950
U.S. Robotics Corp.* 1,000 85,500
Worldcom, Inc.* 1,467 81,235
----------
$ 756,141
- -----------------------------------------------------------------------------
Total U.S. Stocks (Identified Cost, $7,630,367) $7,677,348
- -----------------------------------------------------------------------------
Foreign Stock - 0.5%
- -----------------------------------------------------------------------------
Canada
Loewen Group, Inc.## (Identified Cost, $28,727) 1,000 $ 30,487
- -----------------------------------------------------------------------------
Total Common Stocks (Identified Cost, $7,659,094) $7,707,835
- -----------------------------------------------------------------------------
Convertible Preferred Stock
- -----------------------------------------------------------------------------
Printing and Publishing
Times Mirror Co., "B" (PERCS) (Identified Cost, $155) 6 $ 161
- -----------------------------------------------------------------------------
Short-Term Obligation - 4.5%
- -----------------------------------------------------------------------------
Principal Amount
(000 Omitted)
- -----------------------------------------------------------------------------
Federal Home Loan Bank, due 7/12/96, at
Amortized Cost $370 $ 369,403
- -----------------------------------------------------------------------------
Total Investments (Identified Cost, $8,028,652) $8,077,399
Other Assets, Less Liabilities - 0.8% 71,964
- -----------------------------------------------------------------------------
Net Assets - 100.0% $8,149,363
- -----------------------------------------------------------------------------
* Non-income producing security.
## SEC Rule 144A restriction.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
June 30, 1996
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $8,028,652) $8,077,399
Cash 7,034
Receivable for investments sold 63,910
Dividends receivable 1,487
Deferred organization expenses 6,267
----------
Total assets $8,156,097
----------
Liabilities:
Payable to affiliates -
Management fee $ 399
Accrued expenses and other liabilities 6,335
----------
Total liabilities $ 6,734
----------
Net assets $8,149,363
==========
Net assets consist of:
Paid-in capital $7,963,442
Unrealized appreciation on investments 48,747
Accumulated undistributed net realized gain on investments 137,174
----------
Total $8,149,363
==========
Shares of beneficial interest outstanding 731,884
==========
Net asset value, redemption price, and offering price per share
(net assets of $8,149,363 / 731,884 shares of beneficial
interest outstanding) $11.13
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ------------------------------------------------------------------------------
Period Ended June 30, 1996*
- ------------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 7,150
Dividends 3,686
--------
Total investment income $ 10,836
--------
Expenses -
Management fee $ 14,827
Trustees' compensation 2,820
Shareholder servicing agent fee 180
Registration fees 24,090
Printing 10,572
Auditing fees 8,900
Custodian fee 845
Legal fees 752
Amortization of organization expenses 706
Miscellaneous 163
--------
Total expenses $ 63,855
Fees paid indirectly (190)
Reduction of expenses by investment adviser (46,566)
--------
Net expenses $ 17,099
--------
Net investment loss $ (6,263)
--------
Realized and unrealized gain on investments:
Realized gain (identified cost basis) on
investment transactions $143,437
Change in unrealized appreciation on investments 48,747
--------
Net realized and unrealized gain on investments $192,184
--------
Increase in net assets from operations $185,921
========
* For the period from the commencement of investment operations, December 28,
1995 to June 30, 1996.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------
Period Ended June 30, 1996*
- ------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment loss $ (6,263)
Net realized gain on investments 143,437
Net unrealized gain on investments 48,747
----------
Increase in net assets from operations $ 185,921
----------
Fund share (principal) transactions -
Net proceeds from subscriptions in kind $2,963,332
Net proceeds from sale of shares 5,000,100
----------
Increase in net assets from Fund share transactions $7,963,432
----------
Total increase in net assets $8,149,353
Net assets:
At beginning of period 10
----------
At end of period $8,149,363
==========
*For the period from the commencement of investment operations, December 28,
1995 to June 30, 1996.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights
- ------------------------------------------------------------------------------
Period Ended June 30, 1996*
- ------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.00
------
Income from investment operations# -
Net investment loss(S) $(0.01)
Net realized and unrealized gain on investments 1.14
------
Total from investment operations $ 1.13
------
Net asset value - end of period $11.13
======
Total return 11.30%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.70%+
Net investment loss (0.25)%+
Portfolio turnover 33%
Average commission rate### $0.0505
Net assets at end of period (000 omitted) $8,149
* For the period from the commencement of investment operations, December 28,
1995 to June 30, 1996.
+ Annualized.
++ Not annualized.
# Per share data for the period is based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid
indirectly.
### Average commission rate is calculated for funds with fiscal years beginning
on or after September 1, 1995.
(S) The Adviser voluntarily agreed to maintain the expenses of the Fund at not
more than 0.65% of average daily net assets effective May 3, 1996. During
the period December 28, 1995 to May 2, 1996, the Adviser agreed to maintain
the expenses at not more than 0.75%. To the extent actual expenses were over
these limitations, the net investment loss per share and ratios would have
been:
Net investment loss $(0.09)
Ratios (to average net assets):
Expenses## 2.59%+
Net investment loss (2.14)%+
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Institutional Mid-Cap Growth 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.
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. Debt securities (other than
short-term obligations which mature in 60 days or less), including listed issues
and forward contracts, 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.
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.
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 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 custodian bank calculates its fee based on the
Fund's average daily net assets. The fee is reduced according to a fee
arrangement, which provides for custody fees to be reduced based on a formula
developed to measure the value of cash deposited with the custodian by the Fund.
This amount is shown as a reduction of expenses on the Statement of Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net income,
including any net realized gain on investments. Accordingly, no provision for
federal income or excise tax is provided. 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. 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 period ended June 30, 1996, $6,263 was reclassified from
undistributed net investment loss to accumulated net realized gain on
investments due to differences between book and tax accounting for net operating
loss. This change has no effect on net assets or net asset value per share.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.60% of
average daily net assets.
MFS has voluntarily agreed to pay the Fund's operating expenses exclusive of
management fees such that the Fund's aggregate expenses do not exceed 0.65% of
its average daily net assets.
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 calculated as a
percentage of average daily net assets of the Fund at an effective annual rate
of up to 0.0075%.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions and
short-term obligations, aggregated $6,346,035 and $1,690,892, respectively. In
addition, securities with a value of $2,860,514 were received as a subscription
in kind.
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 $8,031,890
==========
Gross unrealized appreciation $ 591,428
Gross unrealized depreciation (545,919)
----------
Net unrealized appreciation $ 45,509
==========
(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:
Period Ended June 30, 1996* Shares Amount
- ------------------------------------------------------------------------------
Subscriptions in kind 296,333 $ 2,963,332
Shares sold 435,550 5,000,100
-------- -----------
Net increase 731,883 $ 7,963,432
======= ===========
* For the period from the commencement of investment operations, December 28,
1995 to June 30, 1996.
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS in an unsecured line of credit with a bank which permits
borrowings up to $350 million, collectively. 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 year ended June 30,
1996 was $19.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Institutional Trust and Shareholders of MFS Institutional
Mid-Cap Growth Equity Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Institutional Mid-Cap Growth Equity Fund
(one of the series comprising MFS Institutional Trust) as of June 30, 1996, and
the related statement of operations, the statement of changes in net assets and
the financial highlights for the period from December 28, 1995, the commencement
of operations, to June 30, 1996. 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 audit.
We conducted our audit 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, 1996 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
audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Institutional
Mid-Cap Growth Equity Fund at June 30, 1996, the results of its operations, the
changes in its net assets, and its financial highlights for the period from
December 28, 1995, the commencement of operations, to June 30, 1996 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
August 2, 1996
--------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
<PAGE>
<PAGE>
[logo] Annual Report for
THE FIRST NAME IN MUTUAL FUNDS Year Ended
June 30, 1996
MFS(R) INSTITUTIONAL RESEARCH FUND
[graphic omitted: two men sitting in front of a window]
<PAGE>
MFS(R) INSTITUTIONAL RESEARCH FUND
TRUSTEES ASSISTANT TREASURER
A. Keith Brodkin* James O. Yost*
Chairman and President
SECRETARY
Nelson J. Darling, Jr. Stephen E. Cavan*
Trustee, Eastern Enterprises
(diversified holding company) ASSISTANT SECRETARY
James R. Bordewick, Jr.*
William R. Gutow
Vice Chairman, SHAREHOLDER SERVICE CENTER
Capitol Entertainment MFS Service Center, Inc.
(Blockbuster Video Franchise) P.O. Box 2281
Boston, MA 02107-9906
INVESTMENT ADVISER
Massachusetts Financial Services Company For general information,
500 Boylston Street call toll free:
Boston, MA 02116-3741 1-800-637-2262
DISTRIBUTOR CUSTODIAN
MFS Fund Distributors, Inc. State Street Bank and Trust Company
500 Boylston Street
Boston, MA 02116-3741 AUDITORS
Deloitte & Touche LLP
PORTFOLIO MANAGER
Kevin R. Parke*
TREASURER
W. Thomas London*
*Affiliated with the Investment Adviser
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
We would like to welcome you as shareholders of MFS Institutional Research Fund,
which commenced operations on May 21, 1996. The Fund seeks to provide long-term
growth of capital and future income by investing, under normal market
conditions, at least 65% of its total assets in equity securities of companies
we believe possess better-than-average prospects for long-term growth. From
inception through June 30, 1996, the Fund provided a total return of -2.20%. A
discussion of the Fund's investments may be found in the Portfolio Performance
and Strategy section of this letter.
Economic Environment
Real (inflation-adjusted) economic growth in the first quarter of 1996 was 2.3%
on an annualized basis, and it appears that second-quarter growth could be even
stronger. Thus, real growth in gross domestic product has started the year at a
rate exceeding our expectations. While we continue to believe that growth from
quarter to quarter will be uneven, it is now our expectation that growth for all
of 1996 could exceed 2.5%. Although individual consumers appear to be carrying
an excessive debt load, the consumer sector itself, which represents two-thirds
of the economy, continues to be impressive as the auto and housing markets
remain resilient. Consumer spending has also been positively impacted by
widespread job growth. At the same time, however, the economies of Europe and
Japan continue to be in the doldrums, weakening U.S. export markets while
subduing the capital spending plans of American corporations. Finally, due to
the pickup in economic activity and increasing job growth, it appears that
inflation may accelerate slightly this year, and the Federal Reserve Board is
expected to continue its diligent anti-inflationary stance.
While we do not expect the U.S. stock market to match the extraordinary
performance of 1995, we continue to be positive about the equity market this
year. Although we believe the equity market represents fair value at current
levels, the expected slowdown in the growth of corporate earnings and the
increases in interest rates experienced so far this year raise near-term
concerns. Further increases in interest rates, and an acceleration of inflation
coupled with an additional slowdown in corporate earnings growth, could have a
negative effect on the stock market. However, to the extent that some earnings
disappointments are taken as a sign that the economy is not overheating, this
may prove beneficial for the longer-term health of the equity market. We
continue to believe that many of the technology-driven productivity gains that
U.S. companies have made in recent years will continue to enhance corporate
America's competitiveness and profitability. Therefore, while we have some
near-term concerns, we remain quite constructive on the long-term viability of
the equity market.
Portfolio Performance and Strategy
The Fund is diversified across 118 companies within 13 different sectors of the
economy, and it is currently overweighted in technology, leisure, industrial
goods and services, and retailing. We believe select companies within each of
these sectors offer strong earnings potential given the current economic
environment. Within the technology sector, companies such as Microsoft, Sun
Microsystems, Compuware, and Glenayre Technologies have contributed to the
Fund's performance, while within the leisure sector the hotel industry continues
to be an attractive area. HFS, Inc., both through recent acquisitions and
existing business growth, has demonstrated superior earnings potential and
remains one of the Fund's top holdings.
The Fund is currently underweighted in utilities and communications, mainly
due to an unfavorable economic outlook for some industries within this sector.
The utility industry, for example, is currently being impacted by increased
competition and lower growth prospects.
Respectfully,
/s/ A. Keith Brodkin /s/ Kevin R. Parke
A. Keith Brodkin Kevin R. Parke
Chairman and President Director of Research
July 10, 1996
A Committee of MFS Institutional Research Analysts is responsible for the
day-to-day management of the Fund under the general supervision of Mr. Parke.
OBJECTIVE AND POLICIES
The Fund's investment objective is to provide long-term growth of capital and
future income. The Fund invests, under normal market conditions, at least 65% of
its total assets in equity securities of companies believed to possess
better-than-average prospects for long-term growth.
TAX FORM SUMMARY
In January 1997, shareholders will be mailed a Tax Form Summary reporting the
federal tax status of all distributions paid during the calendar year 1996.
<PAGE>
PORTFOLIO OF INVESTMENTS - June 30, 1996
Common Stocks - 100.1%
- -----------------------------------------------------------------------------
Issuer Shares Value
- -----------------------------------------------------------------------------
U.S. Stocks - 89.2%
Aerospace - 6.2%
General Dynamics Corp. 4,300 $ 266,600
Lockheed Martin Corp. 3,900 327,600
McDonnell Douglas Corp. 9,200 446,200
United Technologies Corp. 3,300 379,500
-----------
$ 1,419,900
- -----------------------------------------------------------------------------
Agricultural Products - 2.1%
AGCO Corp. 9,200 $ 255,300
Case Corp. 4,800 230,400
-----------
$ 485,700
- -----------------------------------------------------------------------------
Apparel and Textiles - 0.9%
Nike, Inc., "B" 2,000 $ 205,500
- -----------------------------------------------------------------------------
Automotive - 0.5%
B.F. Goodrich Co. 2,900 $ 108,387
- -----------------------------------------------------------------------------
Banks and Credit Companies - 3.0%
BayBanks, Inc. 2,400 $ 258,600
Chase Manhattan Bank Corp. 3,900 275,437
Leader Financial Corp. 3,200 143,200
-----------
$ 677,237
- -----------------------------------------------------------------------------
Biotechnology - 0.2%
Guidant Corp.* 800 $ 39,400
- -----------------------------------------------------------------------------
Business Machines - 3.4%
Affiliated Computer Co.* 2,300 $ 108,100
Digital Equipment Corp.* 3,700 166,500
Gateway 2000, Inc.* 5,800 197,200
Sun Microsystems, Inc.* 5,100 300,262
-----------
$ 772,062
- -----------------------------------------------------------------------------
Business Services - 2.6%
Alco Standard Corp. 4,500 $ 203,625
Ceridian Corp.* 5,700 287,850
Technology Solutions Co.* 2,900 100,412
-----------
$ 591,887
- -----------------------------------------------------------------------------
Chemicals - 3.6%
Air Products & Chemicals, Inc. 3,700 $ 213,675
Grace (W.R.) & Co. 2,400 170,100
Hanna (M.A.) Co. 3,300 68,887
Polymer Group, Inc.* 1,500 26,250
Praxair, Inc. 6,200 261,950
Uniroyal Chemical Corp.* 4,600 68,425
-----------
$ 809,287
- -----------------------------------------------------------------------------
Computer Software - Personal Computers - 2.2%
Electronic Arts, Inc.* 5,900 $ 157,825
Microsoft Corp.* 2,800 336,350
-----------
$ 494,175
- -----------------------------------------------------------------------------
Computer Software - Systems - 7.6%
Adobe Systems, Inc. 4,300 $ 154,262
BMC Software, Inc.* 3,000 179,250
Cadence Design Systems, Inc.* 10,200 344,250
Computer Associates International, Inc. 2,200 $ 156,750
Compuware Corp.* 4,700 185,650
Oracle Systems Corp.* 12,300 485,081
Sybase, Inc.* 3,600 85,050
Synopsis, Inc.* 3,700 147,075
-----------
$ 1,737,368
- -----------------------------------------------------------------------------
Consumer Goods and Services - 9.8%
Colgate-Palmolive Co. 4,500 $ 381,375
Estee Lauder Cos., "A" 2,600 109,850
Gillette Co. 5,000 311,875
Philip Morris Cos., Inc. 4,300 447,200
Procter & Gamble Co. 3,800 344,375
Revlon, Inc., "A"* 3,800 110,675
Tyco International Ltd. 6,600 268,950
UST, Inc. 7,600 260,300
-----------
$ 2,234,600
- -----------------------------------------------------------------------------
Electronics - 1.7%
Analog Devices, Inc.* 3,500 $ 89,250
LSI Logic Corp.* 1,800 46,800
Xilinx, Inc.* 7,600 241,300
-----------
$ 377,350
- -----------------------------------------------------------------------------
Entertainment - 3.3%
Harrah's Entertainment, Inc.* 5,700 $ 161,025
Jacor Communications, Inc., "A"* 5,300 163,637
Showboat, Inc. 6,900 207,862
Viacom, Inc.* 5,800 225,475
-----------
$ 757,999
- -----------------------------------------------------------------------------
Financial Institutions - 1.7%
Advanta Corp., "B" 4,200 $ 190,050
Federal Home Loan Mortgage Corp. 2,200 188,100
-----------
$ 378,150
- -----------------------------------------------------------------------------
Food and Beverage Products - 1.0%
Tyson Foods, Inc., "A" 8,300 $ 227,212
- -----------------------------------------------------------------------------
Forest and Paper Products - 1.6%
Kimberly Clark Corp. 4,700 $ 363,075
- -----------------------------------------------------------------------------
Insurance - 5.5%
Amerin Corp.* 2,600 $ 69,550
CIGNA Corp. 3,200 377,200
Chartwell Re Corp. 2,800 61,950
Equitable of Iowa Cos. 3,800 134,900
Everest Reinsurance Holdings 5,700 147,487
IPC Holdings Ltd. 1,100 22,137
LaSalle Re Holdings Corp. 3,300 74,250
Penncorp Financial Group, Inc. 11,700 371,475
-----------
$ 1,258,949
- -----------------------------------------------------------------------------
Machinery - 0.4%
York International Corp. 2,000 $ 103,500
- -----------------------------------------------------------------------------
Medical and Health Products - 3.3%
Pfizer, Inc. 2,200 $ 157,025
Rhone Poulenc Rorer, Inc. 1,900 127,537
Uromed Corp.* 22,500 309,375
Ventritex, Inc.* 9,000 154,125
-----------
$ 748,062
- -----------------------------------------------------------------------------
Medical and Health Technology and Services - 4.5%
Amisys Managed Care Systems* 6,700 $ 172,525
Living Centers of America* 2,700 92,812
Mariner Health Group, Inc.* 2,000 36,750
Pacificare Health Systems, Inc., "A"* 2,500 165,000
St. Jude Medical, Inc. 9,300 311,550
United Healthcare Corp. 4,900 247,450
-----------
$ 1,026,087
- -----------------------------------------------------------------------------
Oils - 3.0%
Belco Oil & Gas Corp.* 3,400 $ 120,700
Mobil Corp. 2,700 302,737
Newfield Exploration Co.* 3,000 116,625
Seacor Holdings, Inc.* 3,400 152,150
-----------
$ 692,212
- -----------------------------------------------------------------------------
Railroads - 3.3%
Burlington Northern S.A. 2,600 $ 210,275
CSX Corp. 4,700 226,775
Wisconsin Central Transportation Corp.* 9,900 321,750
-----------
$ 758,800
- -----------------------------------------------------------------------------
Restaurants and Lodging - 5.3%
HFS, Inc.* 8,900 $ 623,000
Host Marriott Corp.* 16,900 221,812
MGM Grand, Inc.* 4,300 171,462
Sonic Corp.* 7,600 184,300
-----------
$ 1,200,574
- -----------------------------------------------------------------------------
Special Products and Services - 1.2%
Stanley Works 9,200 $ 273,700
- -----------------------------------------------------------------------------
Stores - 3.9%
CompUSA, Inc.* 6,500 $ 221,812
Gymboree Corp.* 6,700 204,350
Home Depot, Inc. 2,900 156,600
Lowes Co. 3,300 119,212
Micro Warehouse, Inc.* 4,200 84,000
Staples, Inc.* 5,600 109,200
-----------
$ 895,174
- -----------------------------------------------------------------------------
Supermarkets - 0.9%
Safeway, Inc. 6,000 $ 198,000
- -----------------------------------------------------------------------------
Telecommunications - 4.1%
Cabletron Systems, Inc.* 3,300 $ 226,462
Cisco Systems, Inc.* 5,100 288,787
Glenayre Technologies, Inc.* 5,800 290,000
Lucent Technologies 3,600 136,350
-----------
$ 941,599
- -----------------------------------------------------------------------------
Utilities - Gas - 1.9%
Coastal Corp. 5,700 $ 237,975
Panenergy Corp. 5,800 190,675
-----------
$ 428,650
- -----------------------------------------------------------------------------
Utilities - Telephone - 0.5%
MCI Communications Corp. 4,100 $ 105,062
- -----------------------------------------------------------------------------
Total U.S. Stocks (Identified Cost, $21,156,110) $20,309,658
- -----------------------------------------------------------------------------
Foreign Stocks - 10.9%
Denmark - 0.6%
ISS International Service System A/S, "B"
(Business Services) 6,600 $ 147,429
- -----------------------------------------------------------------------------
Finland - 0.5%
Huhtamaki Oy, "I", Free Shares (Consumer Products) 3,600 $ 120,419
- -----------------------------------------------------------------------------
France - 1.0%
TV Francaise (Entertainment) 900 $ 102,827
Union des Assurances Federales (Insurance) 1,000 123,384
-----------
$ 226,211
- -----------------------------------------------------------------------------
Hong Kong - 1.9%
Dah Sing Financial Group (Banks and Credit Cos.) 14,800 $ 44,838
Giordano International Ltd. (Stores) 138,000 133,717
Wharf Holdings Ltd. (Real Estate) 53,000 189,672
Wing Hang Bank Ltd. (Banks and Credit Cos.) 16,000 63,460
-----------
$ 431,687
- -----------------------------------------------------------------------------
Italy - 0.2%
Olivetti Group (Computers)* 83,500 $ 45,045
- -----------------------------------------------------------------------------
Philippines - 1.0%
Pilipino Telephone (Telecommunications)* 141,400 $ 215,894
- -----------------------------------------------------------------------------
Singapore - 0.8%
Singapore Press Holdings Ltd. (Publishing) 9,000 $ 176,720
- -----------------------------------------------------------------------------
South Korea - 0.5%
Korea Mobile Telecom, ADR (Telecommunications) 6,900 $ 118,162
- -----------------------------------------------------------------------------
Sweden - 2.9%
Astra AB, Free Shares, "B" (Medical and
Health Products) 7,100 $ 309,720
Ericsson LM, "B" (Telecommunications) 6,100 131,667
Nobel Biocare AB (Medical and Health Products)* 6,400 118,822
Volvo AB, ADR, "B" (Automotive) 4,200 95,728
-----------
$ 655,940
- -----------------------------------------------------------------------------
United Kingdom - 1.5%
Jarvis Hotels PLC (Restaurants and Lodging)*+ 41,700 $ 112,425
Kwik-Fit Holdings PLC (Automotive) 33,900 119,988
Lloyds TSB Group PLC (Banks and Credit Cos.) 24,700 120,784
-----------
$ 353,197
- -----------------------------------------------------------------------------
Total Foreign Stocks (Identified Cost, $2,171,882) $ 2,490,704
- -----------------------------------------------------------------------------
Total Investments (Identified Cost, $23,327,992) $22,800,362
Other Assets, Less Liabilities - (0.1)% (21,260)
- -----------------------------------------------------------------------------
Net Assets - 100.0% $22,779,102
- -----------------------------------------------------------------------------
*Non-income producing security.
+Restricted security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
June 30, 1996
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $23,327,992) $22,800,362
Cash 186,495
Foreign currency, at value and identified cost 4,432
Receivable for investments sold 317,953
Dividends receivable 19,312
Deferred organization expenses 6,824
-----------
Total assets $23,335,378
-----------
Liabilities:
Payable for investments purchased $ 548,173
Payable to affiliate for management fee 1,119
Accrued expenses and other liabilities 6,984
-----------
Total liabilities $ 556,276
-----------
Net assets $22,779,102
===========
Net assets consist of:
Paid-in capital $23,252,742
Unrealized depreciation on investments and translation of
assets and liabilities in foreign currencies (527,668)
Accumulated undistributed net realized gain on investments
and foreign currency transactions 17,745
Accumulated undistributed net investment income 36,283
-----------
Total $22,779,102
===========
Shares of beneficial interest outstanding 2,329,167
===========
Net asset value and offering price per share
(net assets of $22,779,102 / 2,329,167 shares of beneficial
interest outstanding) $9.78
=====
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ------------------------------------------------------------------------------
Period Ended June 30, 1996*
- ------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 30,277
Interest 21,483
---------
Total investment income $ 51,760
---------
Expenses -
Management fee $ 14,286
Shareholder servicing agent fee 179
Registration fees 17,610
Auditing fees 9,400
Printing 5,821
Legal fees 906
Amortization of organization expenses 149
Custodian fee 100
Postage 10
Miscellaneous 21
---------
Total expenses $ 48,482
Reduction of expenses by investment adviser (33,005)
---------
Net expenses $ 15,477
---------
Net investment income $ 36,283
---------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 18,047
Foreign currency transactions (302)
---------
Net realized gain on investments and foreign currency
transactions $ 17,745
---------
Change in unrealized depreciation -
Investments $(527,630)
Translation of assets and liabilities in foreign currencies (38)
---------
Net unrealized loss on investments and foreign currency
translation $(527,668)
---------
Net realized and unrealized loss on investments and
foreign currency $(509,923)
---------
Decrease in net assets from operations $(473,640)
=========
*For the period from the commencement of investment operations, May 21, 1996 to
June 30, 1996.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------
Period Ended June 30, 1996*
- ------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment income $ 36,283
Net realized gain on investments and foreign currency
transactions 17,745
Net unrealized loss on investments and foreign currency
translation (527,668)
-----------
Decrease in net assets from operations $ (473,640)
Fund share (principal) transactions -
Net proceeds from sale of shares 23,252,732
-----------
Total increase in net assets $22,779,092
Net assets:
At beginning of period 10
-----------
At end of period (including accumulated undistributed net
investment income of $36,283) $22,779,102
===========
*For the period from the commencement of investment operations, May 21, 1996
to June 30, 1996.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights
- ------------------------------------------------------------------------------
Period Ended June 30, 1996*
- ------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.00
------
Income from investment operations# -
Net investment income(S) $ 0.02
Net realized and unrealized loss on investments (0.24)
------
Total from investment operations $(0.22)
------
Net asset value - end of period $ 9.78
======
Total return (2.20)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.65%+
Net investment income 1.52%+
Portfolio turnover 6%
Average commission rate### $0.0260
Net assets at end of period (000 omitted) $22,779
* For the period from the commencement of investment operations, May 21, 1996
to June 30, 1996.
+ Annualized.
++ Not annualized.
# Per share data is based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid
indirectly.
### Average commission rate is calculated for funds with fiscal years beginning
on or after September 1, 1995.
(S) The Adviser voluntarily agreed to maintain the expenses of the Fund
at not more than 0.65% of average daily net assets. To the extent actual
expenses were over/under these limitations, the net investment income per
share and the ratios would have been:
Net investment income $ --
Ratios (to average net assets):
Expenses## 2.03%+
Net investment income 0.14%+
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Institutional Research Fund (the Fund) is a diversified series of MFS
Institutional Trust (the Trust). The Trust is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates. 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 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. 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. Short-term obligations, which mature
in 60 days or less, are valued at amortized cost, which approximates market
value. Non-U.S. dollar denominated short-term obligations are valued at
amortized cost as calculated in the base currency and translated into U.S.
dollars at the closing daily exchange rate. 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 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
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 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.
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. At June 30, 1996, the
Fund elected not to be taxed as a regulated investment company. 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.
(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 effective annual rate of
0.60% of average daily net assets. The investment adviser did not impose a
portion of its fee, which is reflected as a reduction of expenses on the
Statement of Operations.
MFS has voluntarily agreed to pay the Fund's operating expenses exclusive of
management fees such that the Fund's aggregate expenses do not exceed 0.65% of
its average daily net assets.
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 calculated as a
percentage of average daily net assets of the Fund at an effective annual rate
of up to 0.0075%.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions and
short-term obligations, aggregated $24,712,259 and $1,402,314, 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 $23,327,992
===========
Gross unrealized depreciation $(1,024,273)
Gross unrealized appreciation 496,643
-----------
Net unrealized depreciation $ (527,630)
===========
(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:
Period Ended June 30, 1996* Shares Amount
- ------------------------------------------------------------------------------
Shares sold 2,329,166 $23,252,732
--------- -----------
*For the period from the commencement of investment operations, May 21, 1996 to
June 30, 1996.
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS in an unsecured line of credit with a bank which permits
borrowings up to $350 million, collectively. 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 June 30,
1996 was $5.
(7) Restricted Securities
The Fund may invest not more than 15% of its net assets in securities which are
subject to legal or contractual restrictions on resale. At June 30, 1996, the
Fund owned the following restricted security (constituting 0.5% of net assets)
which may not be publicly sold without registration under the Securities Act of
1933. The Fund does not have the right to demand that such security be
registered. The value of this security is determined by valuations supplied by a
pricing service or brokers or, if not available, in good faith by or at the
direction of the Trustees.
Date of
Description Acquisition Share Amount Cost Value
- -----------------------------------------------------------------------------
Jarvis Hotels PLC 6/21/96 - 6/25/96 $41,700 $116,049 $112,425
========
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Institutional Trust and Shareholders of MFS Institutional
Research Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Institutional Research Fund (one of the
series comprising MFS Institutional Trust) as of June 30, 1996, and the related
statement of operations, the statement of changes in net assets and the
financial highlights for the period from May 21, 1996, commencement of
operations, to June 30, 1996. 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 audit.
We conducted our audit 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, 1996 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 audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Institutional
Research Fund at June 30, 1996, the results of its operations, the changes in
its net assets, and its financial highlights for the period from May 21, 1996,
commencement of operations, to June 30, 1996 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
August 2, 1996
--------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS
MFS INSTITUTIONAL WORLDWIDE FIXED INCOME FUND
INCLUDED IN PART A OF THIS REGISTRATION STATEMENT:
For the period from September 30, 1992,
commencement of operations, to June 30, 1996:
Financial Highlights
INCLUDED IN PART B OF THIS REGISTRATION STATEMENT: At
June 30, 1996:
Portfolio of Investments*
Statement of Assets and Liabilities*
For each year in the two year period ended June 30, 1996:
Statement of Changes in Net Assets*
For the year ended June 30, 1996:
Statement of Operations*
MFS INSTITUTIONAL EMERGING EQUITIES FUND
INCLUDED IN PART A OF THIS REGISTRATION STATEMENT:
For the period from June 16, 1993, commencement of
operations, to June 30, 1996:
Financial Highlights
INCLUDED IN PART B OF THIS REGISTRATION STATEMENT: At
June 30, 1996:
Portfolio of Investments*
Statement of Assets and Liabilities*
For each year in the two year period ended June 30, 1996:
Statement of Changes in Net Assets*
For the year ended June 30, 1996:
Statement of Operations*
MFS INSTITUTIONAL EMERGING MARKETS INCOME FUND
INCLUDED IN PART A OF THIS REGISTRATION STATEMENT:
For the period from August 7, 1995, commencement
of operations, to June 30, 1996:
Financial Highlights
INCLUDED IN PART B OF THIS REGISTRATION STATEMENT: At
June 30, 1996:
Portfolio of Investments*
Statement of Assets and Liabilities*
For the period from August 7, 1995, commencement
of operations, to June 30, 1996: Statement
of Operations* Statement of Changes in Net
Assets*
MFS INSTITUTIONAL RESEARCH FUND
INCLUDED IN PART A OF THIS REGISTRATION STATEMENT:
For the period from May 21, 1996, commencement of
operations, to June 30, 1996:
Financial Highlights
INCLUDED IN PART B OF THIS REGISTRATION STATEMENT: At
June 30, 1996:
Portfolio of Investments*
Statement of Assets and Liabilities*
For the period from May 21, 1996, commencement
of operations, to June 30, 1996: Statement
of Operations* Statement of Changes in Net
Assets*
MFS INSTITUTIONAL MID-CAP GROWTH EQUITY FUND
INCLUDED IN PART A OF THIS REGISTRATION STATEMENT:
For the period from December 28, 1995,
commencement of operations, to June 30, 1996:
Financial Highlights
INCLUDED IN PART B OF THIS REGISTRATION STATEMENT: At
June 30, 1996:
Portfolio of Investments*
Statement of Assets and Liabilities*
For the period from December 28, 1995,
commencement of operations, to June 30,
1996: Statement of Operations* Statement of
Changes in Net Assets*
MFS INSTITUTIONAL INTERNATIONAL EQUITY FUND
INCLUDED IN PART A OF THIS REGISTRATION STATEMENT:
For the period from January 31, 1996, commencement
of operations, to June 30, 1996:
Financial Highlights
INCLUDED IN PART B OF THIS REGISTRATION STATEMENT: At
June 30, 1996:
Portfolio of Investments*
Statement of Assets and Liabilities*
For the period from January 31, 1996, commencement
of operations, to June 30, 1996:
Statement of Operations*
Statement of Changes in Net Assets*
- -----------------------
* Incorporated by reference to the Annual Report to Shareholders of each Fund,
filed with the SEC via EDGAR on or before September 5, 1996.
(B) EXHIBITS ON BEHALF OF MFS INSTITUTIONAL TRUST
1 (a) Declaration of Trust, dated September 13, 1990. (1)
(b) Certificate of Amendment to Declaration of Trust,
dated June 1, 1992. (1)
(c) Amendment No. 2 to the Declaration of Trust, dated
August 13, 1992. (1)
(d) Amendment to Declaration of Trust - Designation of
Series, dated May 16, 1995. (1)
(e) Amendment to Declaration of Trust - Designation of
Series, dated August 29, 1995. (2)
(f) Amendment to Declaration of Trust - Redesignation
of Series, dated October 31, 1995. (7)
(g) Amendment to Declaration of Trust - Redesignation
of Series, dated November 28, 1995. (7)
(h) Amendment to Declaration of Trust - Redesignation
of Series, dated April 24, 1996. (8)
2 (a) Amended and Restated By-Laws, dated June 1,
1992. (5)
(b) Amendment No. 1 to Amended and Restated By-Laws,
dated October 14, 1993. (5)
3 Not Applicable.
4 Form of Share Certificate. (4)
5 (a) Investment Advisory Agreement between
MFS Emerging Equities Fund and Massachusetts
Financial Services Company, as adviser, dated
August 7, 1992. (5)
(b) Investment Advisory Agreement between MFS
Worldwide Fixed Income Fund and
Massachusetts Financial Services Company, as
adviser, dated August 7, 1992. (5)
(c) Investment Advisory Agreement between the
Registrant, on behalf of MFS Institutional Emerging
Markets Fixed Income Fund, and Massachusetts
Financial Services Company, as
adviser, dated November 30, 1995. (1)
(d) Investment Advisory Agreement between the
Registrant, on behalf of MFS Institutional Core
Plus Fixed Income Fund, and Massachusetts Financial
Services Company, as adviser, dated November 30,
1995. (7)
(e) Investment Advisory Agreement between the
Registrant, on behalf of MFS Institutional Research
Fund, and Massachusetts Financial Services Company,
as adviser, dated November 30, 1995. (7)
(f) Investment Advisory Agreement between the
Registrant, on behalf of MFS Institutional Mid-Cap
Growth Equity Fund, and Massachusetts Financial
Services Company, as adviser, dated November 30,
1995. (7)
(g) Investment Advisory Agreement between the
Registrant, on behalf of MFS Institutional
International Equity Fund, and Massachusetts
Financial Services Company, as adviser, dated
November 30, 1995. (7)
6 Not Applicable.
7 Not Applicable.
8 (a) Custodian Agreement between the Registrant and
State Street Bank and Trust Company, dated July 31,
1995. (2)
(b) Amendment to Custodian Contract dated November 30,
1995. (7)
9 (a) Amended and Restated Shareholder Servicing Agent
Agreement between Registrant and MFS Service
Center, Inc. as Shareholder Servicing Agent dated
November 30, 1995. (7)
(b) Exchange Privilege Agreement between the MFS
Institutional Trust, on behalf of each of its
series, and MFS Fund Distributors, Inc., dated July
26, 1995. (7)
(c) Dividend Disbursing Agency Agreement between the
Registrant and State Street Bank and Trust Company,
dated October 31, 1990. (5)
(d) Loan Agreement by and among the Banks named
therein, the MFS Funds named therein and The First
National Bank of Boston, dated February 21, 1995.
(6)
10 Consent and Opinion of Counsel filed with
Registrant's Rule 24f-2 Notice for the fiscal year
ended June 30, 1996 on August 28, 1996.
11 Consent of Deloitte & Touche LLP; filed herewith.
12 Not Applicable.
13 (a) Investment representation letter from initial
shareholder of MFS Institutional Emerging Markets
Fixed Income Fund. (1)
14 Not Applicable.
15 Distribution Agreement by and between MFS
Institutional Trust and MFS Fund Distributors,
Inc., dated June 15, 1994. (5)
16 Schedule of Computation for Performance
Quotations - Aggregate Total Rate of Return,
Average Annual Total Rate of Return and Yield
Calculations. (3)
17 Financial Data Schedules for MFS
Institutional Emerging Equities Fund, MFS
Institutional Worldwide Fixed Income Fund,
MFS Institutional Emerging Markets Income
Fund, MFS Institutional International Equity
Fund, MFS Institutional Mid-Cap Growth
Equity Fund and MFS Institutional Research
Fund; filed herewith.
18 Not Applicable.
<PAGE>
Power of Attorney dated August 12, 1994. (5)
(1) Incorporated by reference to Post-Effective Amendment No. 7 to the
Registrant's Registration Statement on Form N-1A filed with the SEC via
EDGAR on May 18, 1995.
(2) Incorporated by reference to Post-Effective Amendment No. 8 to the
Registrant's Registration Statement on Form N-1A filed with the SEC via
EDGAR on September 15, 1995.
(3) Incorporated by reference to MFS Municipal Series Trust (File Nos. 2-92915
and 811-4096) Post-Effective Amendment No. 26 filed with the SEC via EDGAR
on February 22, 1995.
(4) Incorporated by reference to MFS Municipal Series Trust (File Nos. 2-92915
and 811-4096) Post-Effective Amendment No. 28 filed with the SEC via EDGAR
on July 28, 1995.
(5) Incorporated by reference to Post-Effective Amendment No. 9 filed with the
SEC via EDGAR on October 27, 1995.
(6) Incorporated by reference to Post-Effective Amendment No. 28 on Form N-2
for MFS Municipal Income Trust (File No. 811-4841), filed with the SEC via
EDGAR on February 28, 1995.
(7) Incorporated by reference to Post-Effective Amendment No. 10 to the
Registrant's Registration Statement on Form N-1A filed with the SEC via
EDGAR on February 8, 1996.
(8) Incorporated by reference to Post-Effective Amendment No. 11 to the
Registrant's Registration Statement on Form N-1A filed with the SEC via
EDGAR on April 26, 1996.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
MFS INSTITUTIONAL EMERGING EQUITIES FUND
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Shares of Beneficial Interest 37
(without par value) (as of September 30,1996)
MFS INSTITUTIONAL WORLDWIDE FIXED INCOME FUND
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Shares of Beneficial Interest 15
(without par value) (as of September 30,1996)
MFS INSTITUTIONAL EMERGING MARKETS INCOME FUND
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Shares of Beneficial Interest 4
(without par value) (as of September 30,1996)
MFS INSTITUTIONAL CORE PLUS FIXED INCOME FUND
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Shares of Beneficial Interest 3
(without par value) (as of September 30,1996)
MFS INSTITUTIONAL RESEARCH FUND
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Shares of Beneficial Interest 4
(without par value) (as of September 30,1996)
MFS INSTITUTIONAL MID-CAP GROWTH EQUITY FUND
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Shares of Beneficial Interest 5
(without par value) (as of September 30,1996)
MFS INSTITUTIONAL INTERNATIONAL EQUITY FUND
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Shares of Beneficial Interest 5
(without par value) (as of September 30,1996)
ITEM 27. INDEMNIFICATION
Article V of the Registrant's Declaration of Trust provides that the
Registrant will indemnify its Trustees and officers against liabilities and
expenses incurred in connection with litigation in which they may be involved
because of their offices with the Trust, unless as to liabilities to the
Registrant or its shareholders, it is finally adjudicated that they engaged in
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in their offices, or with respect to any matter unless it is
adjudicated that they did not act in good faith in the reasonable belief that
their actions were in the best interest of the Registrant. In the case of a
settlement, such indemnification will not be provided unless it has been
determined in accordance with the Declaration of Trust that such officers or
Trustees have not engaged in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in their offices.
The Trustees and officers of the Registrant and the personnel of the
Registrant's investment adviser are insured under an errors and omissions
liability insurance policy. The Registrant and its officers are also insured
under the fidelity bond required by Rule 17g-1 under the Investment Company Act
of 1940, as amended.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
MFS serves as investment adviser to the following open-end Funds
comprising the MFS Family of Funds: Massachusetts Investors Trust, Massachusetts
Investors Growth Stock Fund, MFS Growth Opportunities Fund, MFS Government
Securities Fund, MFS Government Limited Maturity Fund, MFS Series Trust I (which
has eight series: MFS Managed Sectors Fund, MFS Cash Reserve Fund, MFS World
Asset Allocation Fund, MFS Aggressive Growth Fund, MFS Research Growth and
Income Fund, MFS Core Growth Fund, MFS Equity Income Fund and MFS Special
Opportunities Fund), MFS Series Trust II (which has four series: MFS Emerging
Growth Fund, MFS Capital Growth Fund, MFS Intermediate Income Fund and MFS Gold
& Natural Resources Fund), MFS Series Trust III (which has two series: MFS High
Income Fund and MFS Municipal High Income Fund), MFS Series Trust IV (which has
four series: MFS Money Market Fund, MFS Government Money Market Fund, MFS
Municipal Bond Fund and MFS OTC Fund), MFS Series Trust V (which has two series:
MFS Total Return Fund and MFS Research Fund), MFS Series Trust VI (which has
three series: MFS World Total Return Fund, MFS Utilities Fund and MFS World
Equity Fund), MFS Series Trust VII (which has two series: MFS World Governments
Fund and MFS Value Fund), MFS Series Trust VIII (which has two series: MFS
Strategic Income Fund and MFS World Growth Fund), MFS Series Trust IX (which has
three series: MFS Bond Fund, MFS Limited Maturity Fund and MFS Municipal Limited
Maturity Fund), MFS Series Trust X (which has four series: MFS Government
Mortgage Fund, MFS/Foreign & Colonial Emerging Markets Equity Fund, MFS/Foreign
& Colonial International Growth Fund and MFS/Foreign & Colonial International
Growth and Income Fund), and MFS Municipal Series Trust (which has 16 series:
MFS Alabama Municipal Bond Fund, MFS Arkansas Municipal Bond Fund, MFS
California Municipal Bond Fund, MFS Florida Municipal Bond Fund, MFS Georgia
Municipal Bond Fund, MFS Maryland Municipal Bond Fund, MFS Massachusetts
Municipal Bond Fund, MFS Mississippi Municipal Bond Fund, MFS New York Municipal
Bond Fund, MFS North Carolina Municipal Bond Fund, MFS Pennsylvania Municipal
Bond Fund, MFS South Carolina Municipal Bond Fund, MFS Tennessee Municipal Bond
Fund, MFS Virginia Municipal Bond Fund, MFS West Virginia Municipal Bond Fund
and MFS Municipal Income Fund) (the "MFS Funds"). The principal business address
of each of the aforementioned Funds is 500 Boylston Street, Boston,
Massachusetts 02116.
MFS also serves as investment adviser of the following no-load,
open-end Funds: MFS Institutional Trust ("MFSIT") (which has seven series), MFS
Variable Insurance Trust ("MVI") (which has twelve series) and MFS Union
Standard Trust ("UST") (which has two series). The principal business address of
each of the aforementioned Funds is 500 Boylston Street, Boston, Massachusetts
02116.
In addition, MFS serves as investment adviser to the following
closed-end Funds: MFS Municipal Income Trust, MFS Multimarket Income Trust, MFS
Government Markets Income Trust, MFS Intermediate Income Trust, MFS Charter
Income Trust and MFS Special Value Trust (the "MFS Closed-End Funds"). The
principal business address of each of the aforementioned Funds is 500 Boylston
Street, Boston, Massachusetts 02116.
Lastly, MFS serves as investment adviser to MFS/Sun Life Series
Trust ("MFS/SL"), Sun Growth Variable Annuity Funds, Inc. ("SGVAF"), Money
Market Variable Account, High Yield Variable Account, Capital Appreciation
Variable Account, Government Securities Variable Account, World Governments
Variable Account, Total Return Variable Account and Managed Sectors Variable
Account. The principal business address of each is One Sun Life Executive Park,
Wellesley Hills, Massachusetts 02181.
MFS International Ltd. ("MIL"), a limited liability company
organized under the laws of the Republic of Ireland and a subsidiary of MFS,
whose principal business address is 41-45 St. Stephen's Green, Dublin 2,
Ireland, serves as investment adviser to and distributor for MFS International
Fund (which has five portfolios: MFS International Funds-U.S. Equity Fund, MFS
International Funds-U.S. Emerging Growth Fund, MFS International Funds-Global
Governments Fund, MFS International Funds - U.S. Dollar Reserve Fund and MFS
International Funds-Charter Income Fund) (the "MIL Funds"). The MIL Funds are
organized in Luxembourg and qualify as an undertaking for collective investments
in transferable securities (UCITS). The principal business address of the MIL
Funds is 47, Boulevard Royal, L-2449 Luxembourg.
MIL also serves as investment adviser to and distributor for MFS
Meridian U.S. Government Bond Fund, MFS Meridian Charter Income Fund, MFS
Meridian Global Government Fund, MFS Meridian U.S. Emerging Growth Fund, MFS
Meridian Global Equity Fund, MFS Meridian Limited Maturity Fund, MFS Meridian
World Growth Fund, MFS Meridian Money Market Fund, MFS Meridian World Total
Return Fund, MFS Meridian U.S. Equity Fund and MFS Meridian Research Fund
(collectively the "MFS Meridian Funds"). Each of the MFS Meridian Funds is
organized as an exempt company under the laws of the Cayman Islands. The
principal business address of each of the MFS Meridian Funds is P.O. Box 309,
Grand Cayman, Cayman Islands, British West Indies.
MFS International (U.K.) Ltd. ("MIL-UK"), a private limited company
registered with the Registrar of Companies for England and Wales whose current
address is 4 John Carpenter Street, London, England ED4Y 0NH, is involved
primarily in marketing and investment research activities with respect to
private clients and the MIL Funds and the MFS Meridian Funds.
MFS Fund Distributors, Inc. ("MFD"), a wholly owned subsidiary of
MFS, serves as distributor for the MFS Funds, MVI, UST and MFSIT.
Clarendon Insurance Agency, Inc. ("CIAI"), a wholly owned subsidiary
of MFS, serves as distributor for certain life insurance and annuity contracts
issued by Sun Life Assurance Company of Canada (U.S.).
MFS Service Center, Inc. ("MFSC"), a wholly owned subsidiary of MFS,
serves as shareholder servicing agent to the MFS Funds, the MFS Closed-End
Funds, MFSIT, MVI and UST.
MFS Asset Management, Inc. ("AMI"), a wholly owned subsidiary of
MFS, provides investment advice to substantial private clients.
MFS Retirement Services, Inc. ("RSI"), a wholly owned subsidiary of
MFS, markets MFS products to retirement plans and provides administrative and
record keeping services for retirement plans.
MFS
The Directors of MFS are A. Keith Brodkin, Jeffrey L. Shames, Arnold
D. Scott, Donald A. Stewart and John D. McNeil. Mr. Brodkin is the Chairman, Mr.
Shames is the President, Mr. Scott is a Senior Executive Vice President and
Secretary, Bruce C. Avery, William S. Harris, William W. Scott, Jr., and
Patricia A. Zlotin are Executive Vice Presidents, Stephen E. Cavan is a Senior
Vice President, General Counsel and an Assistant Secretary, Joseph W. Dello
Russo is a Senior Vice President, Chief Financial Officer and Treasurer, Robert
T. Burns is a Vice President, Associate General Counsel and an Assistant
Secretary of MFS, and Thomas B. Hastings is a Vice President and Assistant
Treasurer of MFS.
MASSACHUSETTS INVESTORS TRUST
MASSACHUSETTS INVESTORS GROWTH STOCK FUND
MFS GROWTH OPPORTUNITIES FUND
MFS GOVERNMENT SECURITIES FUND
MFS SERIES TRUST I
MFS SERIES TRUST V
MFS SERIES TRUST VI
MFS SERIES TRUST X
MFS GOVERNMENT LIMITED MATURITY FUND
A. Keith Brodkin is the Chairman and President, Stephen E. Cavan is
the Secretary, W. Thomas London is the Treasurer, James O. Yost, Vice President
of MFS, is the Assistant Treasurer, James R. Bordewick, Jr., Vice President and
Associate General Counsel of MFS, is the Assistant Secretary.
MFS SERIES TRUST II
A. Keith Brodkin is the Chairman and President, Leslie J. Nanberg,
Senior Vice President of MFS, is a Vice President, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer, and James R. Bordewick, Jr., is the Assistant Secretary.
MFS GOVERNMENT MARKETS INCOME TRUST
MFS INTERMEDIATE INCOME TRUST
A. Keith Brodkin is the Chairman and President, Leslie J. Nanberg,
Senior Vice President of MFS, is a Vice President, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer, and James R. Bordewick, Jr., is the Assistant Secretary.
MFS SERIES TRUST III
A. Keith Brodkin is the Chairman and President, James T. Swanson,
Robert J. Manning, Cynthia M. Brown and Joan S. Batchelder, Senior Vice
Presidents of MFS, Bernard Scozzafava, Vice President of MFS, and Matthew
Fontaine, Assistant Vice President of MFS, are Vice Presidents, Sheila
Burns-Magnan and Daniel E. McManus, Assistant Vice Presidents of MFS, are
Assistant Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London
is the Treasurer, James O. Yost is the Assistant Treasurer, and James R.
Bordewick, Jr., is the Assistant Secretary.
MFS SERIES TRUST IV
MFS SERIES TRUST IX
A. Keith Brodkin is the Chairman and President, Robert A. Dennis and
Geoffrey L. Kurinsky, Senior Vice Presidents of MFS, are Vice Presidents,
Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O.
Yost is the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant
Secretary.
MFS SERIES TRUST VII
A. Keith Brodkin is the Chairman and President, Leslie J. Nanberg
and Stephen C. Bryant, Senior Vice Presidents of MFS, are Vice Presidents,
Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O.
Yost is the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant
Secretary.
MFS SERIES TRUST VIII
A. Keith Brodkin is the Chairman and President, Jeffrey L. Shames,
Leslie J. Nanberg, Patricia A. Zlotin, James T. Swanson and John D. Laupheimer,
Jr., Vice President of MFS, are Vice Presidents, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS MUNICIPAL SERIES TRUST
A. Keith Brodkin is the Chairman and President, Cynthia M. Brown and
Robert A. Dennis are Vice Presidents, David B. Smith, Geoffrey L. Schechter and
David R. King, Vice Presidents of MFS, are Vice Presidents, Daniel E. McManus,
Assistant Vice President of MFS, is an Assistant Vice President, Stephen E.
Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost is the
Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS VARIABLE INSURANCE TRUST
MFS UNION STANDARD TRUST
MFS INSTITUTIONAL TRUST
A. Keith Brodkin is the Chairman and President, Stephen E. Cavan is
the Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS MUNICIPAL INCOME TRUST
A. Keith Brodkin is the Chairman and President, Cynthia M. Brown and
Robert J. Manning are Vice Presidents, Stephen E. Cavan is the Secretary, W.
Thomas London is the Treasurer, James O. Yost, is the Assistant Treasurer and
James R. Bordewick, Jr., is the Assistant Secretary.
MFS MULTIMARKET INCOME TRUST
MFS CHARTER INCOME TRUST
A. Keith Brodkin is the Chairman and President, Leslie J. Nanberg
and James T. Swanson are Vice Presidents, Stephen E. Cavan is the Secretary, W.
Thomas London is the Treasurer, James O. Yost, Vice President of MFS, is the
Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS SPECIAL VALUE TRUST
A. Keith Brodkin is the Chairman and President, Jeffrey L. Shames
and Robert J. Manning are Vice Presidents, Stephen E. Cavan is the Secretary, W.
Thomas London is the Treasurer, and James O. Yost, is the Assistant Treasurer
and James R. Bordewick, Jr., is the Assistant Secretary.
SGVAF
W. Thomas London is the Treasurer.
MIL
A. Keith Brodkin is a Director and the Chairman, Arnold D. Scott and
Jeffrey L. Shames are Directors, Ziad Malek, Senior Vice President of MFS, is
the President, Thomas J. Cashman, Jr., a Senior Vice President of MFS, is a
Senior Vice President, Stephen E. Cavan is a Director, Senior Vice President and
the Clerk, James R. Bordewick, Jr. is a Director, Vice President and an
Assistant Clerk, Robert T. Burns is an Assistant Clerk, Joseph W. Dello Russo is
the Treasurer and Thomas B. Hastings is the Assistant Treasurer.
MIL-UK
A. Keith Brodkin is a Director and the Chairman, Arnold D. Scott,
Jeffrey L. Shames, and James R. Bordewick, Jr., are Directors, Stephen E. Cavan
is a Director and the Secretary, Ziad Malek is the President, James E. Russell
is the Treasurer, and Robert T. Burns is the Assistant Secretary.
MIL FUNDS
A. Keith Brodkin is the Chairman, President and a Director, Richard
B. Bailey, John A. Brindle, Richard W. S. Baker and William F. Waters are
Directors, Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer,
James O. Yost is the Assistant Treasurer and James R. Bordewick, Jr., is the
Assistant Secretary, and Ziad Malek is a Senior Vice President.
MFS MERIDIAN FUNDS
A. Keith Brodkin is the Chairman, President and a Director, Richard
B. Bailey, John A. Brindle, Richard W. S. Baker, Arnold D. Scott, Jeffrey L.
Shames and William F. Waters are Directors, Stephen E. Cavan is the Secretary,
W. Thomas London is the Treasurer, James R. Bordewick, Jr., is the Assistant
Secretary, James O. Yost is the Assistant Treasurer, and Ziad Malek is a Senior
Vice President.
MFD
A. Keith Brodkin is the Chairman and a Director, Arnold D. Scott and
Jeffrey L. Shames are Directors, William W. Scott, Jr., an Executive Vice
President of MFS, is the President, Stephen E. Cavan is the Secretary, Robert T.
Burns is the Assistant Secretary, Joseph W. Dello Russo is the Treasurer, and
Thomas B. Hastings is the Assistant Treasurer.
CIAI
A. Keith Brodkin is the Chairman and a Director, Arnold D. Scott and
Jeffrey L. Shames are Directors, Cynthia Orcott is President, Bruce C. Avery is
the Vice President, Joseph W. Dello Russo is the Treasurer, Thomas B. Hastings
is the Assistant Treasurer, Stephen E. Cavan is the Secretary, and Robert T.
Burns is the Assistant Secretary.
MFSC
A. Keith Brodkin is the Chairman and a Director, Arnold D. Scott and
Jeffrey L. Shames are Directors, Joseph A. Recomendes, a Senior Vice President
of MFS, is Vice Chairman and a Director, Janet A. Clifford is the Executive Vice
President, Joseph W. Dello Russo is the Treasurer, Thomas B. Hastings is the
Assistant Treasurer, Stephen E. Cavan is the Secretary, and Robert T. Burns is
the Assistant Secretary.
AMI
A. Keith Brodkin is the Chairman and a Director, Jeffrey L. Shames,
and Arnold D. Scott are Directors, Thomas J. Cashman, Jr., is the President and
a Director, Leslie J. Nanberg is a Senior Vice President, a Managing Director
and a Director, George F. Bennett, Carol A. Corley, John A. Gee, Brianne Grady
and Kevin R. Parke are Senior Vice Presidents and Managing Directors, Joseph W.
Dello Russo is the Treasurer, Thomas B. Hastings is the Assistant Treasurer and
Robert T. Burns is the Secretary.
RSI
William W. Scott, Jr. and Bruce C. Avery are Directors, Arnold D.
Scott is the Chairman and a Director, Joseph W. Dello Russo is the Treasurer,
Thomas B. Hastings is the Assistant Treasurer, Stephen E. Cavan is the
Secretary, Robert T. Burns is the Assistant Secretary and Sharon A. Brovelli and
Martin E. Beaulieu are Senior Vice Presidents.
In addition, the following persons, Directors or officers of MFS,
have the affiliations indicated:
A. Keith Brodkin Director, Sun Life Assurance Company of
Canada (U.S.), One Sun Life Executive
Park, Wellesley Hills, Massachusetts
Director, Sun Life Insurance and Annuity
Company of New York, 67 Broad Street,
New York, New York
Donald A. Stewart President and a Director, Sun Life
Assurance Company of Canada, Sun Life
Centre, 150 King Street West, Toronto,
Ontario, Canada (Mr. Stewart is also an
officer and/or Director of various
subsidiaries and affiliates of Sun
Life)
John D. McNeil Chairman, Sun Life Assurance Company of
Canada, Sun Life Centre, 150 King
Street West, Toronto, Ontario, Canada
(Mr. McNeil is also an officer and/or
Director of various subsidiaries and
affiliates of Sun Life)
Joseph W. Dello Russo Director of Mutual Fund Operations, The
Boston Company, Exchange Place, Boston,
Massachusetts (until August, 1994)
ITEM 29. DISTRIBUTORS
(a) Reference is hereby made to Item 28 above.
(b) Reference is hereby made to Item 28 above; the principal business
address of each of these persons is 500 Boylston Street, Boston, Massachusetts
02116.
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The Registrant's corporate documents are kept by the Registrant at
its offices. Portfolio brokerage orders, other purchase orders, reasons for
brokerage allocation and lists of persons authorized to transact business for
the Registrant are kept by Massachusetts Financial Services Company at 500
Boylston Street, Boston, Massachusetts 02116. Shareholder account records are
kept by MFS Service Center, Inc. at 500 Boylston Street, Boston, Massachusetts
02116. Transaction journals, receipts for the acceptance and delivery of
securities and cash, ledgers and trial balances are kept by State Street Bank
and Trust Company at State Street South, 5-West, North Quincy, Massachusetts
02171.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) Not applicable.
(b) The Registrant undertakes to file a post-effective amendment to
this registration statement, in order to file financial statements for the MFS
Institutional Core Plus Fixed Income Fund, which need not be certified, within
four to six months from the effective date of Post-Effective Amendment No. 8
filed with the SEC on September 15, 1995 or within four to six months of the
commencement of investment operations of the Fund.
(c) Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of its latest annual report to shareholders upon
request and without charge.
(d) Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the provisions set forth in Item 27 of
this Part C, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the Securities being Registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Boston and
The Commonwealth of Massachusetts on the 24th day of October, 1996.
MFS INSTITUTIONAL TRUST
By: /s/ JAMES R. BORDEWICK, JR.
------------------------------
Name: James R. Bordewick, Jr.
Title: Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to its Registration Statement has been signed below by
the following persons in the capacities indicated on October 24, 1996.
SIGNATURE TITLE
A. KEITH BRODKIN* Chairman, President (Principal
- ----------------------------- Executive Officer) and Trustee
A. Keith Brodkin
W. THOMAS LONDON* Treasurer (Principal Financial Officer
- ----------------------------- and Principal Accounting Officer)
W. Thomas London
WILLIAM R. GUTOW* Trustee
- -----------------------------
William R. Gutow
NELSON J. DARLING, JR.* Trustee
- -----------------------------
Nelson J. Darling, Jr.
*By: /s/ JAMES R. BORDEWICK, JR.
----------------------------
Name: James R. Bordewick, Jr.
as Attorney-in-fact
*Executed by James R. Bordewick, Jr. on
behalf of those indicated pursuant to a
Power of Attorney dated August 12, 1994,
filed with Post-Effective Amendment
No. 9 on October 27, 1995.
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
11 Consent of Deloitte & Touche LLP.
17 Financial Data Schedules for MFS Institutional
Emerging Equities Fund, MFS Institutional
Worldwide Fixed Income Fund, MFS Institutional
Emerging Markets Income Fund, MFS Institutional
International Equity Fund, MFS Institutional
Mid-Cap Growth Equity Fund and MFS
Institutional Research Fund.
<PAGE>
EXHIBIT NO. 99.11
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective
Amendment No. 13 to Registration Statement No. 33-37615 of MFS Institutional
Trust, on behalf of MFS Institutional Emerging Equities Fund, MFS Institutional
Worldwide Fixed Income Fund, MFS Institutional Emerging Markets Income Fund, MFS
Institutional International Equity Fund, MFS Institutional Mid-Cap Growth Equity
Fund, MFS Institutional Research Fund and MFS Institutional Core Plus Fixed
Income Fund, of our reports each dated August 2, 1996 appearing in the annual
reports to shareholders for the year ended June 30, 1996, and to the references
to us under the headings "Condensed Financial Information" in the Prospectus and
"Independent Auditors and Financial Statements" in the Statement of Additional
Information, which are part of such Registration Statement.
Deloitte & Touche
Boston, Massachusetts
October 25, 1996
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