<PAGE>
[LOGO] M F S(SM) Annual Report
INSTITUTIONAL ADVISORS, INC. for Year Ended
June 30, 1997
MFS(R) INSTITUTIONAL EMERGING EQUITIES FUND
[Graphic omitted]
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<TABLE>
<CAPTION>
MFS(R) INSTITUTIONAL EMERGING EQUITIES FUND
<S> <C>
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 Management Company INVESTOR SERVICE
(Blockbuster Video franchise) MFS Service Center, Inc.
P.O. Box 2281
PORTFOLIO MANAGERS Boston, MA 02107-9906
John W. Ballen*
Brian E. Stack* For additional information,
contact your financial adviser.
TREASURER
W. Thomas London* CUSTODIAN
State Street Bank and Trust Company
ASSISTANT TREASURERS
Mark E. Bradley* AUDITORS
Ellen Moynihan* Deloitte & Touche LLP
James O. Yost*
WORLD WIDE WEB
SECRETARY www.mfs.com
Stephen E. Cavan*
[DALBAR For the third year in a row,
ASSISTANT SECRETARY LOGO] MFS earned a #1 ranking in the
James R. Bordewick, Jr.* DALBAR, Inc. Broker/Dealer Survey,
Main Office Operations Service Quality
Category. The firm achieved a 3.48
overall score on a scale of 1 to 4 in
the 1996 survey. A total of 110 firms
responded, offering input on the quality
of service they received from 29 mutual
fund companies nationwide. The survey
contained questions about service quality
in 15 categories, including "knowledge of
phone service contacts," "accuracy of
transaction processing," and "overall
ease of doing business with the firm."
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Shareholders:
An unprecedented combination of generally positive factors has helped the U.S.
economy enjoy a sustained period of relative stability and moderate growth in
which thousands of new jobs have been created every month, inflation remains
under control, and the investment climate -- at least until now -- has been
favorable. For example, the increased use of technology and other productivity
enhancements, as well as corporate restructuring and global competition, is
improving companies' balance sheets and helping control inflation. Meanwhile,
borrowing by corporations and governments continues to decline, while consumer
confidence is increasing, although consumer debt levels are still uncomfortably
high. While some lenders are beginning to tighten standards to address this
problem, consumer debt and personal bankruptcies continue to rise. Because of
this, plus slight declines in other indicators such as average hourly wages and
the corporate purchasing-managers index, we do not expect the rapid pace of
growth seen in the first quarter of 1997 to continue. While second-quarter
growth has slowed dramatically, we do expect the second half of the year to pick
up once again with real (inflation-adjusted) growth centering around 2 1/2%.
We have been surprised by the strength of the U.S. equity market in the
first half of 1997. Much of this is the result of continuing gains in corporate
earnings. Even as the current recovery enters its seventh year, more and more
U.S. companies have been exceeding MFS analysts' earnings estimates. In the
first quarter of 1997, for example, two-thirds of all companies met or exceeded
MFS analysts' expectations, a trend that could be an important indicator of the
U.S. equity market's future direction. However, while the near-term outlook for
profits is generally favorable, we believe equity valuations have risen to a
point where a cautious investment approach seems warranted.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
/s/ A. Keith Brodkin
A. Keith Brodkin
Chairman and President
July 14, 1997
<PAGE>
PORTFOLIO MANAGERS' OVERVIEW
Dear Shareholders:
For the 12 months ended June 30, 1997, the Fund provided a total return of
18.49% (including the reinvestment of distributions), compared to a 16.23% gain
for the Russell 2000 Total Return Index (the Russell 2000), an unmanaged index
comprised of 2,000 of the smallest U.S.-domiciled company common stocks traded
on the New York Stock Exchange, the American Stock Exchange, and NASDAQ.
The past year saw a continued pattern of relative underperformance for the
small-capitalization growth stocks. Moreover, the performance of the Russell
2000 masked a pronounced divergence in performance between the Russell 2000
Growth Index, which gained just 4.52%, and the Russell 2000 Value Index, which
was up 28.15%. This differential was entirely a reflection of the sharp first-
quarter market correction, which sent the Growth Index down 12.20% compared to a
modest 0.23% loss for the Value Index. On an encouraging note, the Growth Index
surged 17.40% in the second quarter of the year, well ahead of the 15.10% return
posted for the Value Index.
In this turbulent environment, the Fund's outperformance was paced by strong
returns from its holdings in the technology, health care, lodging, media, and
business/consumer services sectors. Within technology, leading contributors
included semiconductor companies such as PMC-Sierra and Burr- Brown and software
providers such as HCIA and Compuware. In the health care sector, Vivra, a
leading kidney dialysis provider, was acquired by Gambro AG. Several of our
lodging holdings experienced sharp gains, including Wyndham Hotels, which was
acquired by Patriot American Hospitality, and Capstar Hotels. Finally, radio
consolidators Jacor and American Radio surged, as did several major
services-sector holdings, including USCS International, Interim Services, and
Affiliated Computer Services.
Looking forward, we continue to emphasize companies and industries that we
regard as attractively valued relative to their ability to drive unit and
earnings growth well above that of the broad economy. Accordingly, we have
retained overweighted positions in technology, health care services, and
business/consumer services. We regard our technology holdings to be among the
key enablers of the productivity gains underlying the lengthy and ongoing
economic expansion. We expect our health care holdings to benefit from their
ability to help major corporations and government entities contain spiraling
medical costs. Finally, we believe our services holdings should continue to
benefit not only from above-average earnings predictability, but also from the
capacity to translate the latest technological advances into lower operating
costs and improved profit margins.
Respectfully,
/s/ John W. Ballen /s/ Brian E. Stack
John W. Ballen Brian E. Stack
Portfolio Manager Portfolio Manager
<PAGE>
PORTFOLIO MANAGERS' PROFILES
John W. 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. He became
Director of Equity Portfolio Management in 1993 and Chief Equity Officer in
1995. A graduate of Harvard College, the University of New South Wales, and
Stanford University's Graduate School of Business Administration, Mr. Ballen has
been 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 of 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 1996.
OBJECTIVE AND POLICIES
The 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 of small and medium-sized companies
that are early in their life cycle but that may have the potential to become
major enterprises. Shares of the Fund are purchased at net asset value. The
minimum initial investment is generally $3 million.
Commencement of investment operations: June 16, 1993.
TAX FORM SUMMARY
In January 1998, shareholders will be mailed a Tax Form Summary reporting the
federal tax status of all distributions paid during the calendar year 1997.
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS
The Fund has designated $24,970,144 as a long-term capital gain. For the year
ended June 30, 1997, the amount of distributions from income eligible for the
70% dividends-received deduction for corporations came to 3.35%.
PERFORMANCE SUMMARY
The information below illustrates the historical performance of MFS
Institutional Emerging Equities Fund shares in comparison to various market
indicators. Benchmark comparisons are unmanaged and do not reflect any fees or
expenses. It is not possible to invest directly in an index.
GROWTH OF A HYPOTHETICAL $3,000,000 INVESTMENT
(For the period July 1, 1993, through June 30, 1997)
MFS Institutional Russell Consumer Price
Emerging Equities Fund S&P500% 2000 Index-U.S.
- -------------------------------------------------------------------------------
"7/93" 3.00 3.00 3.00 3.00
"6/94" 3.52 3.04 3.13 3.08
"6/95" 5.05 3.84 3.76 3.17
"6/95" 7.14 4.83 4.66 3.25
"6/97" 8.46 6.51 5.42 3.32
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
1 Year 3 Years Life of Fund+
<S> <C> <C> <C>
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MFS Institutional Emerging Equities Fund +18.49% +33.87% +29.77%
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Russell 2000 Index* +16.23% +20.05% +15.93%
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Standard & Poor's 500 Composite Index* +34.48% +28.86% +21.37%
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Price Index** + 2.14% + 2.63% + 2.60%
- ------------------------------------------------------------------------------------------------------------------------------------
+For the period from the commencement of the Fund's investment operations, June
16, 1993, through June 30, 1997.
*Source: CDA/Wiesenberger.
**The Consumer Price Index is published by the U.S. Bureau of Labor Statistics
and measures the cost of living (inflation).
</TABLE>
All results are historical and assume the reinvestment of dividends and capital
gains. Investment return and principal value will fluctuate, and shares, when
redeemed, may be worth more or less than their original cost. Past performance
is no guarantee of future results.
Fund results reflect any applicable expense subsidies and waivers, without which
the performance results would have been less favorable. Subsidies and waivers
may be rescinded at any time. See the prospectus for details.
<PAGE>
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PORTFOLIO OF INVESTMENTS - June 30, 1997
Stocks - 97.1%
- ----------------------------------------------------------------------------------------------
Issuer Shares Value
<S> <C> <C>
- ----------------------------------------------------------------------------------------------
U.S. Stocks - 96.1%
Airlines - 0.5%
Atlas Air, Inc.* 50,000 $ 1,725,000
- ----------------------------------------------------------------------------------------------
Building - 0.4%
Newport News Shipbuilding, Inc. 83,800 $ 1,628,863
- ----------------------------------------------------------------------------------------------
Business Services - 16.6%
AccuStaff, Inc.* 181,982 $ 4,310,699
ADT Ltd.* 183,100 6,042,300
Affiliated Computer Services, Inc., "A"* 275,200 7,705,600
American List Corp. 29,800 897,725
BA Merchants Services, Inc.* 60,500 1,153,281
BISYS Group, Inc.* 78,600 3,281,550
Catalina Marketing Corp.* 49,600 2,387,000
Ceridian Corp.* 21,300 899,925
Claremont Technology Group, Inc.* 95,800 2,275,250
Computer Sciences Corp.* 19,500 1,406,437
Dendrite International, Inc.* 78,338 1,292,577
DST Systems, Inc.* 103,500 3,447,844
Fine Host Corp.* 60,700 1,912,050
First USA Paymentech, Inc.* 12,500 361,719
Fiserv, Inc.* 92,400 4,123,350
Franklin Covey Co.* 40,165 1,016,677
Global Directmail Corp.* 54,400 1,417,800
Interim Services, Inc.* 128,000 5,696,000
May and Speh, Inc.* 143,700 1,939,950
Mecon, Inc.* 48,700 152,188
MoneyGram Payment Systems, Inc.* 54,200 853,650
National Processing, Inc.* 131,600 1,348,900
Pierce Leahy Corp. 2,600 46,800
PMT Services, Inc.* 152,600 2,327,150
Rural/Metro Corp.* 14,100 409,341
SPS Transaction Services, Inc.* 95,400 1,764,900
Staff Leasing, Inc.* 3,300 61,875
Superior Consultant, Inc.* 32,500 1,198,437
Technology Solutions Co.* 85,300 3,369,350
Walsh International, Inc.* 88,300 739,512
------------
$ 63,839,837
- ----------------------------------------------------------------------------------------------
Computer Software - Personal Computers - 2.6%
America Online, Inc.* 27,000 $ 1,501,875
Apex PC Solutions, Inc.* 51,300 1,013,175
Clarify, Inc.* 143,800 1,626,737
HNC Software, Inc.* 38,100 1,452,562
Intuit, Inc.* 30,900 708,769
Spectrum Holobyte, Inc.* 126,500 616,688
Symantec Corp.* 65,800 1,283,100
Transaction System Architects, Inc.* 50,200 1,731,900
------------
$ 9,934,806
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Computer Software - Systems - 14.6%
Acxiom Corp.* 34,900 $ 715,450
Adobe Systems, Inc. 54,800 1,921,425
American Business Information, Inc.* 107,600 2,340,300
BDM International, Inc.* 85,000 1,955,000
Black Box Corp.* 48,700 1,960,175
Cadence Design Systems, Inc.* 367,250 12,302,875
Catalyst International, Inc.* 94,500 366,188
Cognos, Inc.* 53,800 1,674,525
Compuware Corp.* 116,300 5,553,325
Control Data Systems, Inc.* 165,200 2,457,350
HPR, Inc.* 18,100 334,850
Information Resources, Inc.* 37,400 528,275
Intelligroup, Inc.* 24,000 231,000
JDA Software Group, Inc.* 24,400 832,650
LHS Group, Inc.* 3,100 135,819
Metromail Corp.* 65,400 1,618,650
Peerless Systems Corp.* 30,600 420,750
Pure Atria Corp.* 69,100 976,037
Renaissance Solutions, Inc.* 3,000 111,000
RWD Technologies, Inc.* 1,100 18,975
SCB Computer Technology, Inc.* 18,600 437,100
Simulation Sciences, Inc.* 73,500 1,120,875
Sterling Software, Inc.* 140,300 4,384,375
Sybase, Inc.* 80,700 1,200,412
Synopsys, Inc.* 144,082 5,295,013
System Software Associates, Inc.* 13,300 101,413
USCS International, Inc.* 155,200 5,082,800
Vantive Corp.* 15,800 446,350
Xionics Document Technologies* 106,500 1,570,875
------------
$ 56,093,832
- ----------------------------------------------------------------------------------------------
Consumer Goods and Services - 2.1%
Alternative Resources Corp.* 145,200 $ 2,958,450
Ballantyne of Omaha, Inc.* 4,500 81,000
Blyth Industries, Inc.* 55,350 1,868,062
Meta Group, Inc.* 55,300 1,202,775
U.S. Rentals, Inc.* 70,300 1,779,469
------------
$ 7,889,756
- ----------------------------------------------------------------------------------------------
Containers - 0.6%
Stone Container Corp. 167,600 $ 2,398,775
- ----------------------------------------------------------------------------------------------
Electrical Equipment - 1.4%
AFC Cable Systems, Inc.* 37,500 $ 1,012,500
Barnett, Inc.* 16,300 399,350
Belden, Inc. 52,100 1,774,656
Kulicke & Soffa Industries, Inc.* 71,800 2,331,257
------------
$ 5,517,763
- ----------------------------------------------------------------------------------------------
Electronics - 6.3%
Actel Corp.* 125,200 $ 2,136,225
Analog Devices, Inc.* 201,400 5,349,687
Burr Brown* 81,900 2,825,550
du Pont Photomasks, Inc.* 20,200 1,090,800
Gemstar Group Ltd.* 53,100 975,713
Lattice Semiconductor Corp.* 9,900 559,350
Microchip Technology, Inc.* 57,750 1,718,062
Photronic, Inc.* 31,000 1,480,250
PMC-Sierra, Inc.* 155,800 4,089,750
Triquint Semiconductor, Inc.* 11,000 378,125
Ultratech Stepper, Inc.* 117,200 2,680,950
VLSI Technology, Inc.* 44,300 1,046,588
------------
$ 24,331,050
- ----------------------------------------------------------------------------------------------
Entertainment - 5.3%
American Radio Systems Corp., "A"* 95,020 $ 3,788,922
Clear Channel Communications, Inc.* 61,600 3,788,400
Emmis Broadcasting Corp., "A"* 19,200 837,600
Harrah's Entertainment, Inc.* 143,000 2,609,750
Heftel Broadcasting Corp.* 15,800 872,950
Jacor Communications, Inc., "A"* 95,600 3,656,700
LIN Television Corp.* 105,400 4,650,775
------------
$ 20,205,097
- ----------------------------------------------------------------------------------------------
Financial Institutions - 3.1%
Advanta Corp., "B" 28,600 $ 1,020,663
Franklin Resources, Inc. 97,750 7,092,984
Student Loan Corp. 60,400 2,563,225
TCF Financial Corp. 22,700 1,120,812
------------
$ 11,797,684
- ----------------------------------------------------------------------------------------------
Food and Beverage Products - 0.5%
Suiza Foods Corp.* 46,000 $ 1,886,000
- ----------------------------------------------------------------------------------------------
Insurance - 3.7%
Compdent Corp.* 100,200 $ 2,110,462
Equitable of Iowa Cos. 101,500 5,684,000
FPA Medical Management, Inc.* 78,800 1,866,575
Hartford Life, Inc.* 20,600 772,500
PennCorp Financial Group, Inc. 46,600 1,794,100
Reliastar Financial Corp. 7,100 519,188
Security - Connecticut Corp. 29,700 1,635,356
------------
$ 14,382,181
- ----------------------------------------------------------------------------------------------
Machinery - 1.3%
AGCO Corp. 67,500 $ 2,425,781
Greenfield Industries, Inc. 84,600 2,284,200
Special Devices, Inc.* 9,500 149,625
------------
$ 4,859,606
- ----------------------------------------------------------------------------------------------
Manufacturing - 0.3%
AptarGroup, Inc. 24,500 $ 1,108,625
- ----------------------------------------------------------------------------------------------
Medical and Health Products - 1.3%
Phycor, Inc.* 31,100 $ 1,071,006
Rexall Sundown, Inc.* 29,100 1,134,900
Steris Corp.* 58,500 2,186,438
Transition Systems, Inc.* 36,700 667,481
------------
$ 5,059,825
- ----------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 11.2%
AmeriSource Health Corp., "A"* 85,600 $ 4,269,300
Apache Medical Systems, Inc.* 55,700 424,713
CRA Managed Care, Inc.* 36,200 1,889,187
Genesis Health Ventures, Inc.* 47,050 1,587,937
HCIA, Inc.* 129,800 4,348,300
Health Management Associates, Inc., "A"* 114,100 3,251,850
Healthsouth Corp.* 89,600 2,234,400
Hologic, Inc.* 82,000 2,183,250
Horizon CMS Healthcare Corp.* 200,500 4,022,531
IDEXX Labs, Inc.* 300,800 3,741,200
IDX Systems Corp.* 58,500 2,018,250
Integrated Living Communities, Inc.* 73,000 839,500
Mariner Health Group, Inc.* 22,400 345,800
Orthodontic Centers America, Inc.* 44,500 809,344
Pediatric Services America, Inc.* 91,700 1,845,462
Physician Support Systems, Inc. 1,800 22,050
Premier Research Worldwide Ltd.* 11,700 127,238
Quorum Health Group, Inc.* 52,000 1,859,000
Regency Health Services, Inc.* 73,500 1,130,062
Renal Treatment Centers, Inc.* 95,800 2,574,625
Safeguard Health Enterprises, Inc.* 14,100 149,813
Schein (Henry), Inc.* 22,700 709,375
St. Jude Medical, Inc.* 25,600 998,400
Total Renal Care Holdings, Inc.* 27,400 1,101,138
Trigon Healthcare, Inc.* 19,000 460,750
------------
$ 42,943,475
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Metals and Minerals - 0.8%
Global Industries, Inc.* 99,100 $ 2,314,914
Titanium Metals Corp.* 23,300 736,863
------------
$ 3,051,777
- ----------------------------------------------------------------------------------------------
Oil Services - 1.0%
Domain Energy Corp.* 60,900 $ 822,150
Hanover Compressor 1,700 33,150
National Oilwell, Inc.* 19,600 1,127,000
Santa Fe International Corp.* 5,400 183,600
Weatherford Enterra, Inc.* 43,200 1,663,200
------------
$ 3,829,100
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Pharmaceuticals - 0.3%
Kos Pharmaceuticals, Inc.* 39,800 $ 1,104,450
- ----------------------------------------------------------------------------------------------
Printing and Publishing - 0.5%
Harte-Hanks Communications, Inc. 39,700 $ 1,171,150
Pulitzer Publishing Co. 13,500 715,500
------------
$ 1,886,650
- ----------------------------------------------------------------------------------------------
Railroads - 0.7%
Wisconsin Central Transportation Corp.* 76,000 $ 2,831,000
- ----------------------------------------------------------------------------------------------
Real Estate Investment Trusts - 0.1%
Kilroy Realty Corp.* 12,000 $ 303,000
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Restaurants and Lodging - 6.9%
Applebee's International, Inc.* 101,900 $ 2,725,825
Buffets, Inc.* 182,147 1,536,865
Capstar Hotel Co.* 83,300 2,665,600
Doubletree Corp.* 52,900 2,175,513
HFS, Inc.* 40,207 2,332,006
Outback Steakhouse, Inc.* 54,300 1,313,381
Papa John's International, Inc.* 12,700 466,725
Prime Hospitality Corp.* 159,900 3,158,025
Promus Hotel Corp.* 95,550 3,702,563
ShoLodge, Inc.* 60,266 892,690
Signature Resorts, Inc.* 24,100 832,956
Sonic Corp.* 58,800 1,293,600
Taco Cabana, Inc.* 57,100 228,400
Wyndham Hotel Corp.* 93,600 3,053,700
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$ 26,377,849
- ----------------------------------------------------------------------------------------------
Special Products and Services - 0.7%
Central Parking Corp. 21,150 $ 736,284
Equity Corp. International* 86,100 2,082,544
------------
$ 2,818,828
- ----------------------------------------------------------------------------------------------
Stores - 8.2%
Ann Taylor Stores Corp.* 96,300 $ 1,877,850
BT Office Products International, Inc.* 54,600 409,500
Corporate Express, Inc.* 163,500 2,360,531
Dollar General Corp. 40,300 1,511,250
General Nutrition Cos., Inc.* 110,600 3,096,800
Gymboree Corp.* 87,700 2,104,800
Hollywood Entertainment Corp.* 6,500 148,688
Mazel Stores, Inc.* 79,300 1,387,750
Micro Warehouse, Inc.* 67,500 1,155,937
Petco Animal Supplies, Inc.* 84,900 2,547,000
PETsMART, Inc.* 130,300 1,498,450
Regis Corp. 3,700 87,413
Rite Aid Corp. 113,090 5,640,364
Smith's Food and Drug Centers, Inc., "B"* 29,300 1,571,212
Talbots, Inc. 37,100 1,261,400
U.S. Office Products Co.* 74,900 2,289,131
Viking Office Products, Inc.* 129,500 2,460,500
------------
$ 31,408,576
- ----------------------------------------------------------------------------------------------
Telecommunications - 4.5%
APAC Teleservices, Inc.* 37,800 $ 734,738
Aspect Telecommunications Corp.* 122,800 2,732,300
Cable Design Technologies Corp.* 90,800 2,672,925
CoreComm, Inc.* 41,400 714,150
Glenayre Technologies, Inc.* 73,700 1,206,837
Heritage Media Corp.* 306,000 5,775,750
Intermedia Communications, Inc.* 9,100 294,613
Proxim, Inc.* 48,700 1,180,975
TeleSpectrum Worldwide, Inc.* 13,300 93,516
Transaction Network Services, Inc.* 89,700 1,267,012
VDI Media* 38,900 437,625
------------
$ 17,110,441
- ----------------------------------------------------------------------------------------------
Transportation
Carey International, Inc.* 8,100 $ 123,525
- ----------------------------------------------------------------------------------------------
Utilities - Telephone - 0.6%
Brooks Fiber Properties, Inc.* 72,200 $ 2,436,750
- ----------------------------------------------------------------------------------------------
Total U.S. Stocks $368,884,121
- ----------------------------------------------------------------------------------------------
Foreign Stocks - 1.0%
United Kingdom
Danka Business Systems, ADR (Business Services) 91,300 $ 3,731,888
- ----------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $313,885,747) $372,616,009
- ----------------------------------------------------------------------------------------------
Short-Term Obligations - 3.8%
- ----------------------------------------------------------------------------------------------
Principal Amount
(000 Omitted)
- ----------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.,
due 07/09/97 - 7/15/97 $5,435 $ 5,425,874
Federal National Mortgage Assn., due 07/11/97 3,000 2,995,492
General Electric Co., due 07/01/97 6,100 6,100,000
- ----------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 14,521,366
- ----------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $328,407,113) $387,137,375
Other Assets, Less Liabilities - (0.9)% (3,500,647)
- ----------------------------------------------------------------------------------------------
Net Assets - 100.0% $383,636,728
- ----------------------------------------------------------------------------------------------
*Non-income producing security.
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
June 30, 1997
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $328,407,113) $387,137,375
Cash 725,352
Receivable for Fund shares sold 440,440
Receivable for investments sold 3,663,888
Dividends and interest receivable 46,633
Receivable from investment adviser 272,053
Deferred organization expenses 840
Other assets 2,699
------------
Total assets $392,289,280
------------
Liabilities:
Payable for investments purchased $ 5,983,432
Payable for Fund shares reacquired 2,582,064
Payable to affiliates -
Management fee 23,351
Administrative fee 443
Maintenance fee 221
Accrued expenses and other liabilities 63,041
------------
Total liabilities $ 8,652,552
------------
Net assets $383,636,728
============
Net assets consist of:
Paid-in capital $302,057,241
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 58,730,262
Accumulated undistributed net realized gain on investments 22,849,225
------------
Total $383,636,728
============
Shares of beneficial interest outstanding 17,882,793
==========
Net asset value, offering price, and redemption price per
share (net assets of $383,636,728 / 17,882,793 shares of
beneficial interest outstanding) $21.45
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- --------------------------------------------------------------------------------
Year Ended June 30, 1997
- --------------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 1,187,447
Dividend 443,927
Foreign taxes withheld (3,252)
-----------
Total investment income $ 1,628,122
-----------
Expenses -
Management fee $ 2,289,483
Trustees' compensation 5,000
Administrative fee 15,556
Shareholder servicing agent fee 23,039
Custodian fee 133,951
Auditing fee 35,195
Printing 20,459
Legal fee 5,330
Amortization of organization expenses 1,562
Miscellaneous 47,147
-----------
Total expenses $ 2,576,722
Fees paid indirectly (15,186)
Reduction of expenses by investment adviser (272,053)
-----------
Net expenses $ 2,289,483
-----------
Net investment loss $ (661,361)
-----------
Realized and unrealized gain on investments:
Realized gain (identified cost basis) on
investment transactions $35,985,298
Change in unrealized appreciation on investments 23,702,376
-----------
Net realized and unrealized gain on investments $59,687,674
-----------
Increase in net assets from operations $59,026,313
===========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Year Ended June 30, 1997 1996
- ------------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
<S> <C> <C>
Net investment loss $ (661,361) $ (406,688)
Net realized gain on investments 35,985,298 40,014,721
Net unrealized gain on investments 23,702,376 19,192,449
------------ ------------
Increase in net assets from operations $ 59,026,313 $ 58,800,482
------------ ------------
Distributions declared to shareholders
from net realized gain on investments $(44,043,097) $(14,424,189)
------------ ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $110,894,997 $106,165,196
Net asset value of shares issued to shareholders in
reinvestment of distributions 42,400,694 14,196,197
Cost of shares reacquired (44,004,146) (12,395,002)
------------ ------------
Increase in net assets from Fund share transactions $109,291,545 $107,966,391
------------ ------------
Total increase in net assets $124,274,761 $152,342,684
Net assets:
At beginning of period 259,361,967 107,019,283
------------ ------------
At end of period (including accumulated net investment
loss of $0 and $0, respectively) $383,636,728 $259,361,967
============ ============
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended June 30, Period Ended
----------------------------------------------------------------- June 30,
1997 1996 1995 1994 1993*
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $21.17 $16.42 $11.75 $10.17 $10.00
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income (loss)(S) $(0.04) $(0.04) $(0.03) $(0.03) $ 0.01
Net realized and unrealized gain on
investments and foreign currency
transactions 3.42 6.55 5.04 1.82*** 0.16
------ ------ ------ ------ ------
Total from investment operations $ 3.38 $ 6.51 $ 5.01 $ 1.79 $ 0.17
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- $ -- $ -- $(0.00)** $ --
From net realized gain on investments
and foreign currency transactions (3.10) (1.76) (0.34) (0.21) --
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(3.10) $(1.76) $(0.34) $(0.21) $ --
------ ------ ------ ------ ------
Net asset value - end of period $21.45 $21.17 $16.42 $11.75 $10.17
====== ====== ====== ====== ======
Total return 18.49% 41.37% 43.21% 17.50% 1.70%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 0.75% 0.75% 0.75% 0.78% 0.90%+
Net investment income (loss) (0.22)% (0.22)% (0.19)% (0.27)% 2.24%+
Portfolio turnover 96% 97% 86% 94% 0%
Average commission rate### $ 0.0575 $ -- $ -- $ -- $ --
Net assets at end of period (000 omitted) $383,637 $259,362 $107,019 $27,559 $3,052
*For the period from the commencement of the Fund's investment
operations, June 16, 1993, through June 30, 1993.
**For the year ended June 30, 1994, the per share distribution from
net investment income was $0.00175.
***The per share data are 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 are 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.
###Average commission rate is calculated for funds with fiscal years
beginning on or after September 1, 1995.
(S)The investment adviser voluntarily waived a portion of its
management fee and/or paid expenses of the Fund for the periods
indicated. If the fees had been incurred by the Fund, the net
investment income (loss) per share and the ratios would have been:
Net investment income (loss) $(0.06) $(0.06) $(0.07) $(0.11) $ 0.00
Ratios (to average net assets):
Expenses## 0.84% 0.87% 0.98% 1.54% 2.50%+
Net investment income (loss) (0.31)% (0.34)% (0.42)% (1.02)% 0.64%+
See notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Institutional Emerging Equities Fund (the Fund) is a diversified series of
MFS Institutional Trust (the Trust). The Trust is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company.
(2) Significant Accounting Policies
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. Securities for which there are no such quotations or valuations
are valued at fair value as determined in good faith by or at the direction of
the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates of
such transactions. Gains and losses attributable to foreign currency exchange
rates on sales of securities are recorded for financial statement purposes as
net realized gains and losses on investments. Gains and losses attributable to
foreign exchange rate movements on income and expenses are recorded for
financial statement purposes as foreign currency transaction gains and losses.
That portion of both realized and unrealized gains and losses on investments
that result from fluctuations in foreign currency exchange rate is not
separately disclosed.
Deferred Organization Expenses - Costs incurred by the Fund in connection with
its organization have been deferred and are being amortized on a straight-line
basis over a five-year period beginning on the date of commencement of Fund
operations.
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. Dividends
received in cash are recorded on the ex-dividend date. 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 custody fee is calculated as a percentage of
the Fund's average daily net assets. The fee is reduced according to an
arrangement, which measures the value of cash deposited with the custodian bank
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.
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, 1997, $661,361 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 effective annual rate of
0.75% of average daily net assets. The investment advisor has voluntarily agreed
to 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. This is reflected as a reduction
of expenses in the Statement of Operations.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive remuneration
for their services to the Fund from MFS. Certain officers and Trustees of the
Fund are officers or directors of MFS and MFS Service Center, Inc. (MFSC).
Administrator - Effective March 1, 1997, the Fund has an administrative services
agreement with MFS to provide the Fund with certain financial, legal,
compliance, shareholder communications, and other administrative services. As a
partial reimbursement for the cost of providing these services, the Fund pays
MFS an administrative fee up to 0.015% per annum of the Fund's average daily net
assets, provided that the administrative fee is not assessed on Fund assets that
exceed $3 billion.
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
0.0075%.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations aggregated
$349,573,983 and $274,240,926, 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 $331,069,566
============
Gross unrealized appreciation $ 67,372,087
Gross unrealized depreciation (11,304,278)
------------
Net unrealized appreciation $ 56,067,809
============
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year Ended June 30, 1997 Year Ended June 30, 1996
----------------------------- ------------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Shares sold 5,591,839 $110,894,997 5,588,149 $106,165,196
Shares issued to shareholders in
reinvestment of distributions 2,309,406 42,400,694 784,320 14,196,197
Shares reacquired (2,272,650) (44,004,146) (635,040) (12,395,002)
--------- ------------ --------- ------------
Net increase 5,628,595 $109,291,545 5,737,429 $107,966,391
========= ============ ========= ============
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in a $400 million unsecured line
of credit provided by a syndication of banks under a line of credit agreement.
Borrowings may be made to temporarily finance the repurchase of Fund shares.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the bank's base rate. In addition, a commitment fee, based on the average daily
unused portion of the line of credit, is allocated among the participating funds
at the end of each quarter. The commitment fee allocated to the Fund for the
year ended June 30, 1997, was $709.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees 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 as of
June 30, 1997, the related statement of operations for the year then ended, the
statement of changes in net assets for the years ended June 30, 1997 and 1996,
and the financial highlights for each of the years in the five-year period ended
June 30, 1997. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with 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, 1997 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, 1997, 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 1, 1997
-----------------------------------------------
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>
(c)1997 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MEE-2 8/97 300
