<PAGE>
[logo] Semiannual Report
INSTITUTIONAL ADVISORS, INC. December 31, 1996
MFS(R) INSTITUTIONAL EMERGING EQUITIES FUND
[graphic omitted]
<PAGE>
MFS(R) INSTITUTIONAL EMERGING EQUITIES FUND
<TABLE>
<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 SHAREHOLDER SERVICE CENTER
(Blockbuster Video Franchise) MFS Service Center, Inc.
P.O. Box 1400
PORTFOLIO MANAGERS Boston, MA 02107-9906
John W. Ballen*
Brian E. Stack* For additional information,
call toll-free: 1-800-637-2262
TREASURER
W. Thomas London* CUSTODIAN
State Street Bank and Trust Company
ASSISTANT TREASURER
James O. Yost* WORLD WIDE WEB
www.mfs.com
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
For the six months ended December 31, 1996, the Fund posted a total return of
2.75% (including the reinvestment of distributions), compared to a 5.56% gain
for the Russell 2000 Total Return Index (an unmanaged index comprised of 2,000
of the smallest U.S.-domiciled company common stocks traded on the New York
Stock Exchange, the American Stock Exchange, and NASDAQ). The Standard & Poor's
500 Composite Index (the S&P 500), a popular unmanaged index of common stock
performance, posted a 11.68% return over the same period. A discussion of these
results may be found in the Portfolio Performance and Strategy section of this
letter.
Economic Outlook
After more than six years of expansion, the U.S. economy appears headed toward
another year of at least moderate growth in 1997, although a few signs point to
the possibility of a modest rise in inflation during the year. On the positive
side, the pattern of moderate growth and inflation set over the past few years
now seems fairly well entrenched in the economy and, short of a major
international or domestic crisis, appears to have enough momentum to remain on
track for some time. Also, recent gains in such important sectors as housing,
automobiles, industrial production, and exports indicate a fair amount of
underlying strength in the economy. However, some reason for caution can be seen
in the continuing high level of consumer debt and the attendant rise in personal
bankruptcies, as well as in the modestly disappointing levels of holiday sales.
Also, the ongoing tightness in labor markets, and price increases in such
important sectors as energy, could add some inflationary pressures to the
economy. Given these somewhat conflicting indicators, we expect real
(inflation-adjusted) growth to revolve around 2% in 1997, which would represent
a modest decline from 1996.
Stock Market
We continue to urge U.S. equity investors to lower their expectations for 1997
and to point out that the impressive gains of the past two years are not
sustainable. Just as the slowdown in corporate earnings growth and increases in
interest rates in 1996 raised some near-term concerns, further interest rate
increases and an acceleration of inflation could negatively affect the stock
market in 1997. However, to the extent that some slowdown in earnings means that
the economy is not overheating, this may be beneficial for the equity market in
the long run. Also, we believe 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 reasonably positive about the long-term viability
of the equity market.
Portfolio Performance and Strategy
The six month period ended December 31, 1996 was one of pronounced relative
weakness for small capitalization growth stocks. While the overall Russell 2000
posted a 5.56% return for the period, the Russell 2000 Growth Stock component
actually fell 0.59%. This lagged the 11.56% return of the Russell 2000 Value
Stock component, which surged on the strength of sharp gains in Real Estate
Investment Trusts (REITs), energy, and financial service stocks.
Within this context, the Fund's performance benefited from strong gains from
its technology, medical services, lodging, and business/consumer services
holdings. The strength in technology was sparked by strong earnings gains at
semiconductor and software companies, including BMC Software, HCIA Inc., Analog
Devices, and Microchip. The medical services sector, while generally out of
favor with investors throughout 1996, benefited from strong gains from Owen
Healthcare (acquired by Cardinal Health) and from Health Management Associates.
The lodging sector is enjoying attractive supply/demand fundamentals and was a
strong performer throughout the year, led by Renaissance Health Group (acquired
by Doubletree) and Wyndham Hotels. Within the services sector, ADT Ltd. (a home
security firm) surged after it received a buyout offer from Western Resources,
and Fine Host (which provides contract food services and entertainment and sport
venues) nearly doubled in price from its June initial public offering price.
Over the same period, however, performance was clearly impeded by the
relative underweighting of value-oriented sectors such as REITs, energy, and
financial. Additionally, shares in Gymboree, a retailer of children's apparel,
fell after the company posted an earnings disappointment. We believe that
Gymboree retains one of the strongest franchises in retailing and we continue to
hold the stock in anticipation of a return to healthy earnings growth in 1997.
Looking forward, we continue to emphasize companies and industries that we
believe are attractively valued relative to their ability to drive unit and
earnings growth well above that of the broad economy. For these reasons, we
retain an overweighted position in technology, medical services, and business/
consumer services. We regard technology companies as the key enablers of the
productivity gains which underlie the lengthy and ongoing economic expansion. We
anticipate that our medical services holdings should benefit from their ability
to help corporations and governmental entities contain spiraling growth in
medical costs, growth which may pose the single biggest long-term threat to
price levels and U.S. competitiveness. Finally, our services holdings should
benefit not only from their above-average earnings predictability, but also
their ability to appropriate the latest advances in technology to lower their
operating costs and improve their margins.
We appreciate your support and welcome any questions or comments you may
have.
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
January 15, 1997
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. In 1993, he
became Director of Equity Portfolio Management. He has been the Portfolio
Manager of MFS Institutional Emerging Equities Fund since 1993.
Brian E. 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.
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-size companies
that are early in their life cycle but which may have the potential to become
major enterprises.
<PAGE>
PERFORMANCE SUMMARY
Because mutual funds like MFS Institutional Emerging Equities Fund are designed
for investors with long-term goals, we have provided cumulative results as well
as the average annual total returns for the applicable time periods. The minimum
initial investment is generally $3 million. Shares of the Fund are purchased at
net asset value.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
AS OF DECEMBER 31, 1996
(net asset value change including reinvested distributions)
Life of
6 Months 1 Year 3 Years Fund*
- -----------------------------------------------------------------------------
Cumulative Total Return +2.75% +19.52% +96.16% +148.61%
- -----------------------------------------------------------------------------
Average Annual Total Return -- +19.52% +25.18% + 29.29%
- -----------------------------------------------------------------------------
*For the period from the commencement of investment operations from June 16,
1993 to December 31, 1996.
All results represent past performance and are not an indication of future
results. Investment return and principal value will fluctuate, and shares, when
redeemed, may be worth more or less than their original cost.
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>
PORTFOLIO OF INVESTMENTS (UNAUDITED) - December 31, 1996
Stocks - 96.2%
- -------------------------------------------------------------------------------
Issuer Shares Value
- -------------------------------------------------------------------------------
U.S. Stocks - 93.9%
Agricultural Products - 0.5%
AGCO Corp. 49,000 $ 1,402,625
- -----------------------------------------------------------------------------
Apparel and Textiles - 0.5%
Nine West Group, Inc.* 30,700 $ 1,423,713
- -----------------------------------------------------------------------------
Building - 0.3%
Newport News Shipbuilding Inc. 69,400 $ 1,041,000
- -----------------------------------------------------------------------------
Business Services - 15.2%
AccuStaff, Inc.* 70,882 $ 1,497,382
ADT Ltd.* 199,600 4,565,850
Affiliated Computer Services, Inc., "A"* 188,700 5,613,825
American List Corp. 27,300 829,238
Bisys Group, Inc. 49,700 1,842,006
Ceridian Corp.* 77,800 3,150,900
Claremont Technology Group, Inc. 41,300 1,084,125
Computer Sciences Corp.* 29,500 2,422,687
CUC International, Inc.* 36,850 875,187
Dendrite International, Inc. 10,838 89,414
DST Systems, Inc.* 34,900 1,094,987
Employee Solutions, Inc.* 107,800 2,209,900
Equity Corp. International* 39,100 782,000
Fine Host Corp. 60,200 1,158,850
Fiserv, Inc. 95,700 3,516,975
Franklin Quest Co. 67,865 1,425,165
Interim Services, Inc. 106,500 3,780,750
Mecon, Inc. 81,500 539,938
Meta Group, Inc. 21,200 572,400
Moneygram Payment Systems Inc. 129,300 1,713,225
National Processing, Inc. 22,900 366,400
PMT Services, Inc. 41,200 721,000
Rural/Metro Corp. 19,200 691,200
SPS Transaction Services, Inc. 105,400 1,607,350
Superior Consultant, Inc. 20,900 517,275
Technology Solutions Co.* 83,000 3,444,500
Walsh International, Inc. 60,900 532,875
------------
$ 46,645,404
- -----------------------------------------------------------------------------
Cellular Telephones - 0.3%
Cellular Communications of Puerto Rico* 38,500 $ 760,375
- -----------------------------------------------------------------------------
Chemicals - 0.4%
Hanna (M.A.) Co. 53,850 $ 1,177,969
- -----------------------------------------------------------------------------
Computer Software - Personal Computers - 2.5%
Electronic Arts, Inc.* 66,400 $ 1,987,850
Epic Design Technology, Inc. 28,300 707,500
HCIA, Inc. 107,400 3,705,300
Symantec Corp.* 95,600 1,386,200
------------
$ 7,786,850
- -----------------------------------------------------------------------------
Computer Software - Systems - 14.0%
Adobe Systems, Inc. 99,400 $ 3,715,075
American Business Information, Inc. 87,400 1,944,650
Bdm International, Inc. 15,300 830,025
BMC Software, Inc.* 138,900 5,746,987
Cadence Design Systems, Inc.* 300,850 11,958,787
Catalyst International Inc. 81,700 377,863
Compuware Corp.* 65,200 3,268,150
Control Data Systems, Inc. 166,700 3,667,400
Information Resources Inc. 27,700 387,800
Metromail Corp. 34,700 633,275
Scb Computer Technology, Inc. 17,200 313,900
Softquad International, Inc.* 36,200 117,650
Sterling Software, Inc. 80,100 2,533,162
Sybase, Inc.* 124,600 2,079,262
Synopsys, Inc.* 61,800 2,858,250
System Software Associates, Inc. 152,100 1,616,063
USCS International, Inc.* 23,500 396,563
Xionics Document Technologies* 49,000 612,500
------------
$ 43,057,362
- -----------------------------------------------------------------------------
Consumer Goods and Services - 0.9%
Alternative Resources Corp. 69,500 $ 1,207,562
Blyth Inds, Inc. 31,200 1,423,500
Swisher International Group Inc. 9,100 144,463
------------
$ 2,775,525
- -----------------------------------------------------------------------------
Electrical Equipment - 0.6%
Barnett, Inc. 14,000 $ 381,500
Belden Inc. 39,000 1,443,000
------------
$ 1,824,500
- -----------------------------------------------------------------------------
Electronics - 5.6%
Actel Corp. 61,100 $ 1,451,125
Altera Corp.* 14,500 1,053,969
Analog Devices, Inc.* 101,400 3,434,925
Atmel Corp.* 14,600 483,625
Burr Brown 59,100 1,536,600
DuPont Photomasks, Inc. 16,600 753,225
Lattice Semiconductor Corp. 6,900 317,400
Linear Technology Corp. 13,100 574,762
LSI Logic Corp.* 124,500 3,330,375
Microchip Technology, Inc.* 20,800 1,058,200
VLSI Technology, Inc.* 43,900 1,048,112
Xilinx, Inc.* 54,700 2,013,644
------------
$ 17,055,962
- -----------------------------------------------------------------------------
Entertainment - 5.1%
American Radio Systems Corp., "A"* 57,100 $ 1,555,975
Chancellor Broadcast Corp., "A"* 3,540 84,075
Clear Channel Communications, Inc.* 75,800 2,738,275
EZ Communications, Inc., "A" 3,800 139,175
Harrah's Entertainment, Inc.* 120,800 2,400,900
Heftel Broadcasting Corp. 24,600 774,900
Jacor Communications, Inc., "A"* 69,400 1,899,825
LIN Television Corp.* 62,600 2,644,850
Midway Games Inc. 31,800 643,950
Mirage Resorts, Inc.* 71,400 1,544,025
Renaissance Communications Corp. 26,100 933,075
Rio Hotel & Casino Inc. 16,100 235,462
Sinclair Broadcast Group, Inc. 6,200 161,200
------------
$ 15,755,687
- -----------------------------------------------------------------------------
Financial Institutions - 5.8%
Advanta Corp., "B" 31,500 $ 1,287,562
Ba Merchants Services Inc. 34,700 620,263
Franklin ReSources, Inc. 143,900 9,839,162
Phh Corporation 31,400 1,350,200
Student Loan Corp. 75,800 2,823,550
United Companies Financial Corp. 73,800 1,964,925
------------
$ 17,885,662
- -----------------------------------------------------------------------------
Insurance - 2.9%
Compdent Corp. 61,700 $ 2,174,925
Equitable of Iowa Cos. 118,400 5,431,600
PennCorp Financial Group, Inc. 35,500 1,278,000
------------
$ 8,884,525
- -----------------------------------------------------------------------------
Machinery - 0.3%
Greenfield Industries Inc. 21,800 $ 667,625
Special Devices Inc. 6,500 115,375
------------
$ 783,000
- -----------------------------------------------------------------------------
Medical and Health Products - 0.3%
Mentor Corp. 8,900 $ 262,550
Physician Sales and Service, Inc. 18,400 264,500
Uromed Corp. 42,700 416,325
------------
$ 943,375
- -----------------------------------------------------------------------------
Medical and Health Technology and Services - 14.4%
AmeriSource Health Corp. 39,700 $ 1,915,525
Coventry Corp.* 55,000 509,609
CRA Managed Care, Inc. 9,335 420,075
Foundation Health Corp. 80,900 2,568,575
Genesis Health Ventures, Inc.* 47,150 1,467,544
Health Management Associates, Inc., "A"* 179,600 4,041,000
HEALTHSOUTH Corp.* 188,300 7,273,087
Integrated Living Communities, Inc. 67,600 388,700
Lincare Holdings, Inc.* 50,300 2,062,300
Orthodontic Centers America, Inc. 8,800 140,800
Owen Healthcare, Inc. 189,700 5,027,050
Pacificare Health Systems, Inc., "A"* 41,700 3,388,125
Pacificare Health Systems, Inc., "B"* 31,800 2,710,950
Pediatric Services America, Inc. 77,000 1,491,875
Regency Health Services, Inc. 59,600 573,650
Riscorp, Inc., "A" 74,665 270,661
Safeguard Health Enterprises, Inc.* 34,600 605,500
St. Jude Medical, Inc.* 91,600 3,904,450
Ultratech Stepper, Inc. 42,900 1,018,875
Vivra, Inc.* 162,100 4,478,013
------------
$ 44,256,364
- -----------------------------------------------------------------------------
Metals and Minerals
Titanium Metals Corp.* 3,300 $ 108,488
- -----------------------------------------------------------------------------
Oil Services - 0.5%
Barrett Resouces Corp.* 28,200 $ 1,202,025
National Oilwell Inc. 11,100 341,325
------------
$ 1,543,350
- -----------------------------------------------------------------------------
Pollution Control - 1.3%
USA Waste Services, Inc.* 120,140 $ 3,829,463
- -----------------------------------------------------------------------------
Printing and Publishing - 1.5%
Harte-Hanks Communications, Inc. 43,700 $ 1,212,675
Pulitzer Publishing Co. 72,900 3,380,738
------------
$ 4,593,413
- -----------------------------------------------------------------------------
Railroads - 0.3%
Wisconsin Central Transportation Corp.* 23,300 $ 923,263
- -----------------------------------------------------------------------------
Restaurants and Lodging - 6.7%
Apple South, Inc. 31,425 $ 424,238
Applebee's International, Inc. 75,100 2,065,250
Buffets, Inc. 150,747 1,375,566
HFS, Inc.* 69,900 4,176,523
Outback Steakhouse, Inc.* 57,500 1,538,125
Prime Hospitality Corp. 99,900 1,610,888
Promus Hotel Corp.* 93,450 2,768,456
Renaissance Hotel Group N.V.* 81,800 1,922,300
ShoLodge, Inc. 60,266 813,591
Sonic Corp. 57,500 1,466,250
Taco Cabana, Inc. 48,600 358,425
Wyndham Hotel Corp. 88,300 2,174,387
------------
$ 20,693,999
- -----------------------------------------------------------------------------
Special Products and Services - 0.2%
Central Parking Corp. 18,150 $ 608,025
- -----------------------------------------------------------------------------
Stores - 7.1%
Ann Taylor Stores Corp.* 51,700 $ 904,750
BT Office Products International, Inc. 70,600 626,575
Discount Auto Parts, Inc. 26,300 614,763
Dollar General Corp. 81,000 2,592,000
Doubletree Corp. 17,100 769,500
General Nutrition Cos., Inc.* 200,100 3,376,687
Global Directmail Corp. 23,200 1,012,100
Gymboree Corp.* 123,700 2,829,638
Micro Warehouse, Inc.* 49,100 576,925
Office Depot, Inc.* 160,740 2,853,135
Officemax, Inc.* 153,223 1,627,994
Petco Animal Supplies Inc. 2,700 56,025
Rite Aid Corp. 81,290 3,221,116
Talbots, Inc. 29,400 841,575
------------
$ 21,902,783
- -----------------------------------------------------------------------------
Technology - 0.2%
Spectrum Holobyte, Inc.* 80,000 $ 600,000
- -----------------------------------------------------------------------------
Telecommunications - 6.3%
Cable Design Technologies Corp.* 34,300 $ 1,067,587
Cabletron Systems, Inc.* 218,300 7,258,475
Glenayre Technologies, Inc.* 177,600 3,829,500
Heritage Media Corp. 263,100 2,959,875
Proxim Inc. 27,400 630,200
Rogers Cantel Mobile Co., "B"* 116,600 2,259,125
Transaction Network Services, Inc. 119,000 1,368,500
------------
$ 19,373,262
- -----------------------------------------------------------------------------
Transportation - 0.2%
Transaction System Architects, Inc.* 20,600 $ 684,950
- -----------------------------------------------------------------------------
Total U.S. Stocks $288,320,894
- -----------------------------------------------------------------------------
Foreign Stocks - 2.3%
Canada - 1.4%
Loewen Group, Inc. (Business Services) 9,600 $ 375,600
Loewen Group, Inc. (Business Services)## 37,300 1,456,287
Cognos Inc. (Computer Software - Systems) 88,600 2,491,875
------------
$ 4,323,762
- -----------------------------------------------------------------------------
United Kingdom - 0.9%
Danka Business Systems, ADR (Business Services) 74,100 $ 2,621,287
- -----------------------------------------------------------------------------
Total Foreign Stocks $ 6,945,049
- -----------------------------------------------------------------------------
Total Stocks (Identified Cost, $266,541,967) $295,265,943
- -----------------------------------------------------------------------------
Short-Term Obligations - 4.0%
- -----------------------------------------------------------------------------
Principal Amount
(000 Omitted)
- -----------------------------------------------------------------------------
Federal Home Loan Bank, due 1/02/97 $ 450 $ 449,934
Federal Home Loan Bank, due 1/16/97 5,370 5,357,918
Federal Home Loan Mortgage Corp., due 1/17/97 4,500 4,489,240
Federal Home Loan Mortgage Corp., due 1/30/97 1,000 995,658
Federal National Mortgage Assn., due 1/13/97 1,000 998,230
- -----------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost and Value $ 12,290,980
- -----------------------------------------------------------------------------
Total Investments (Identified Cost, $278,832,947) $307,556,923
Other Assets, Less Liabilities - (0.2)% (933,028)
- -----------------------------------------------------------------------------
Net Assets - 100.0% $306,623,895
- -----------------------------------------------------------------------------
*Non-income producing security.
##SEC Rule 144A restriction.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- ------------------------------------------------------------------------------
December 31, 1996
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $278,832,947) $307,556,923
Cash 225,768
Receivable for investments sold 2,379,377
Receivable for Fund shares sold 209,441
Dividends receivable 39,436
Receivable from investment adviser 110,940
Deferred organization expenses 1,621
Other assets 1,770
------------
Total assets $310,525,276
------------
Liabilities:
Payable for investments purchased $ 3,646,947
Payable for Fund shares reacquired 194,791
Payable to affiliate for management fee 16,967
Accrued expenses and other liabilities 42,676
------------
Total liabilities $ 3,901,381
------------
Net assets $306,623,895
============
Net assets consist of:
Paid-in capital $274,835,773
Unrealized appreciation on investments 28,723,976
Accumulated undistributed net realized gain on investments 3,376,630
Accumulated net investment loss (312,484)
------------
Total $306,623,895
============
Shares of beneficial interest outstanding 16,484,985
==========
Net asset value, redemption price, and offering price per
share (net assets of $306,623,895 / 16,484,985 shares
of beneficial interest outstanding) $18.60
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations (Unaudited)
- -----------------------------------------------------------------------------
Six Months Ended December 31, 1996
- ------------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 579,778
Dividends 177,373
Foreign taxes withheld (1,256)
-----------
Total investment income $ 755,895
-----------
Expenses -
Management fee $ 1,068,377
Trustees' compensation 1,300
Shareholder servicing agent fee 10,671
Custodian fee 65,693
Auditing fees 13,875
Legal fees 2,527
Amortization of organization expenses 781
Miscellaneous 23,620
-----------
Total expenses $ 1,186,844
Fees paid indirectly (7,525)
Preliminary reduction of expenses by investment adviser (110,940)
-----------
Net expenses $ 1,068,379
-----------
Net investment loss $ (312,484)
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (identified cost basis) on investment
transactions $15,851,342
Change in unrealized appreciation on investments (6,303,910)
-----------
Net realized and unrealized gain on investments $ 9,547,432
-----------
Increase in net assets from operations $ 9,234,948
===========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
- -----------------------------------------------------------------------------
Six Months Ended
December 31, 1996 Year Ended
(Unaudited) June 30, 1996
- -----------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment loss $ (312,484) $ (406,688)
Net realized gain on investments 15,851,342 40,014,721
Net unrealized gain (loss) on
investments (6,303,910) 19,192,449
------------- -------------
Increase in net assets from
operations $ 9,234,948 $ 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 $ 56,644,865 $ 106,165,196
Net asset value of shares issued to
shareholders in reinvestment of
distributions 42,400,725 14,196,197
Cost of shares reacquired (16,975,513) (12,395,002)
------------- -------------
Increase in net assets from Fund
share transactions $ 82,070,077 $ 107,966,391
------------- -------------
Total increase in net assets $ 47,261,928 $ 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 $312,484 and
$0 respectively). $ 306,623,895 $ 259,361,967
============= =============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- --------------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended June 30,
December 31, 1996 -----------------------------------------------------------------
(Unaudited) 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) $(0.02) $(0.04) $(0.03) $(0.03) $ 0.01
Net realized and unrealized gain
on investments 0.55 6.55 5.04 1.82*** 0.16
------ ------ ------ ------ ------
Total from
investment operations $ 0.53 $ 6.51 $ 5.01 $ 1.79 $ 0.17
------ ------ ------ ------ ------
Less distributions
declared to shareholders -
From net investment income $ -- $ -- $ -- $ --** $ --
From net realized gain
on investments (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 $18.60 $21.17 $16.42 $11.75 $10.17
====== ====== ====== ====== ======
Total return 2.75%++ 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 39% 97% 86% 94% 0%
Average commission rate### $0.0573 $ -- $ -- $ -- $ --
Net assets at end of
period (000 omitted) $306,624 $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.
### Average commission rate is calculated for funds with fiscal years beginning on or after September 1, 1995.
(S) The investment adviser has voluntarily agreed to maintain the expenses of the Fund at not more than 0.75% of average daily net
assets. To the extent that actual expenses were over these limitations, the net investment income per share and ratios would
have been:
Net investment income (loss) $(0.03) $(0.06) $(0.07) $(0.11) $ --
Ratios (to average net assets):
Expenses## 0.83%+ 0.87% 0.98% 1.54% 2.50%+
Net investment income (loss) (0.30)%+ (0.34)% (0.42)% (1.02)% 0.64%+
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(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.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments, income and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates of
such transactions. Gains and losses attributable to foreign currency exchange
rates on sales of securities are recorded for financial statement purposes as
net realized gains and losses on investments. Gains and losses attributable to
foreign exchange rate movements on income and expenses are recorded for
financial statement purposes as foreign currency transaction gains and losses.
That portion of both realized and unrealized gains and losses on investments
that result from fluctuations in foreign currency exchange rates is not
separately disclosed.
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. 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.
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.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75% of
average daily net assets. The investment adviser did not impose a portion of its
fee, which is reflected as a preliminary reduction of expenses in the Statement
of Operations. 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 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 U.S. government securities,
purchased option transactions and short-term obligations, aggregated
$150,290,893 and $102,471,874 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 $278,832,947
============
Gross unrealized appreciation $ 48,012,431
Gross unrealized depreciation (19,288,455)
------------
Net unrealized appreciation $ 28,723,976
============
(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>
Six Months Ended Year Ended
December 31, 1996 June 30, 1996
-------------------------------- ---------------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,752,573 $ 56,644,865 5,588,149 $106,165,196
Shares issued to shareholders in
reinvestment of distributions 2,309,408 42,400,725 784,320 14,196,197
Shares reacquired (831,194) (16,975,513) (635,040) (12,395,002)
--------- ------------ --------- ------------
Net increase (decrease) 4,230,787 $ 82,070,077 5,737,429 $107,966,391
========= ============ ========= ============
</TABLE>
(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
December 31, 1996 was $1,672.
------------------------------------
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>
MEE-2/97/300