<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>
MFS(R) INSTITUTIONAL EMERGING EQUITIES FUND
TRUSTEES TREASURER
A. Keith Brodkin* W. Thomas London*
Chairman and President
ASSISTANT TREASURER
Nelson J. Darling, Jr. James O. Yost*
Trustee, Eastern Enterprises
(diversified holding company) SECRETARY
Stephen E. Cavan*
William R. Gutow
Vice Chairman, ASSISTANT SECRETARY
Capitol Entertainment James R. Bordewick, Jr.*
(Blockbuster Video Franchise)
SHAREHOLDER SERVICE CENTER
INVESTMENT ADVISER MFS Service Center, Inc.
Massachusetts Financial Services Company P.O. Box 2281
500 Boylston Street Boston, MA 02107-9906
Boston, MA 02116-3741
For general information,
DISTRIBUTOR call toll free: 1-800-637-2262
MFS Fund Distributors, Inc.
500 Boylston Street CUSTODIAN
Boston, MA 02116-3741 State Street Bank and Trust Company
PORTFOLIO MANAGERS AUDITORS
John W. Ballen Deloitte & Touche LLP
Brian E. Stack*
*Affiliated with the Investment Adviser
<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 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)
MFS EMERGING S&P 500
EQUITIES RUSSELL COMPOSITE
YEAR FUND 2000 INDEX INDEX CPI
- ---- ------------ ---------- --------- ---
1993 5000.00 5000.00 5000.00 5000.00
1993 5845.60 5437.50 5129.00 5024.00
1993 6229.80 5578.00 5247.50 5049.50
1994 6294.80 5429.50 5049.00 5097.00
1994 5874.80 5217.00 5070.00 5124.50
1994 6869.70 5579.50 5317.50 5173.00
1994 7112.00 5476.50 5316.50 5183.50
1995 7814.00 5729.00 5833.50 5242.50
1995 8413.40 6266.50 6389.50 5280.50
1995 9930.10 6885.00 6897.00 5304.50
1995 10224.7 7034.50 7312.00 5315.00
1996 11028.6 7393.50 7704.50 5391.50
1996 11894.2 7763.00 8049.50 5426.00
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.
