<PAGE>
Annual Report
[Logo] MFS(SM) for Year Ended
INSTITUTIONAL ADVISORS, INC. June 30, 1997
MFS(R) INSTITUTIONAL INTERNATIONAL EQUITY FUND
[Graphic Omitted]
<PAGE>
MFS(R) INSTITUTIONAL INTERNATI0NAL EQUITY FUND
<TABLE>
<CAPTION>
TRUSTEES INVESTMENT ADVISER
<S> <C>
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 MANAGER Boston, MA 02107-9906
David Mannheim*
For general information,
TREASURER contact your financial adviser.
W. Thomas London*
CUSTODIAN
ASSISTANT TREASURERS State Street Bank and Trust Company
Mark E. Bradley*
Ellen Moynihan* AUDITORS
James O. Yost* Deloitte & Touche LLP
SECRETARY WORLD WIDE WEB
Stephen E. Cavan* www.mfs.com
ASSISTANT SECRETARY [DALBAR For the third year in a row,
James R. Bordewick, Jr.* LOGO] MFS earned a #1 ranking in the
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%.
Internationally, increased liquidity has continued to support equity markets
this year, while disinflationary forces have continued despite somewhat stronger
world economic growth. While the strength of the U.S. dollar versus the Japanese
yen earlier this year resulted in stronger performance for Japanese exporters,
the value-added tax seems to have slowed the overall Japanese economy. In
Europe, meanwhile, uncertainty over European monetary union continues, although
stocks of some European companies have benefited from restructuring and the use
of technology to increase productivity. Perhaps the brightest international
story has been the performance of the emerging markets, all of which have seen
rapidly expanding economies and higher earnings, thanks in part to significant
shifts in their economic policies.
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 MANAGER'S OVERVIEW
Dear Shareholders:
For the 12 months ended June 30, 1997, the Fund provided a total return of
22.97% (including the reinvestment of distributions). This compares to a 12.84%
return for the Morgan Stanley Capital International (MSCI) Europe, Australia,
Far East (EAFE) Index, a broad, unmanaged index of non-U.S.
equities.
For the year, most of the world's equity markets showed strong gains, with
the MSCI EAFE Index increasing in local currency terms by 19.64%. Europe led the
charge, with the MSCI Europe Index up 39.52%, led by gains in Spain (+72%),
Finland (+73%), Sweden (+61%), and the Netherlands (+59%). Meanwhile, markets in
the Far East continued to lag, with the MSCI Pacific (excluding Japan) Index up
14.46%, and Japan actually down 4.78%. The emerging markets, in aggregate, also
lagged, with the IFC Emerging Markets Composite Index up 11.31%. (The IFC
Emerging Markets Composite Index is an unmanaged, market-capitalization-weighted
index of the most active stocks of emerging markets, as defined by the World
Bank.) However, the Latin American subindex, which gained 43%, significantly
outperformed the Asian subindex, which declined 3%.
Overall, currency movements had an adverse impact on the Fund's performance,
with the U.S. dollar appreciating against most foreign currencies during the
year. For example, the dollar gained 15% against the German mark, 17% against
the Swiss franc, and 4% against the Japanese yen. Of the world's major
currencies, only the British pound strengthened versus the dollar, gaining 7%.
While the Fund's performance was influenced by these trends in equity and
currency markets, we continue to believe that stock selection drives long-term
performance. We stick to our bottom-up approach to stock selection,
concentrating on high-quality companies that we believe have superior growth
prospects and are trading at attractive valuations. Illustrating the importance
of individual stock selection, over the past year the Fund benefited from the
strong performance of a number of our large holdings, including PowerGen, which
gained 59%; Takeda Chemical (+68%); Novartis (+72%); adidas (+54%); and Acerinox
(+113%). Several smaller holdings were also significant contributors, including
Liu Chong Hing Bank, which advanced 103%, and Wing Hang Bank, which was up 90%.
The Fund currently has 81 holdings in 27 countries, with broad geographic
weightings as follows: 53% in Europe, 40% in Asia/Pacific, and 7% in the
Americas. The two biggest country exposures remain the United Kingdom at 22% of
assets and Japan at 21%. While our exposure to these two markets has increased
roughly 4% each over the past six months, the Fund's combined 43% weighting is
less than that of the MSCI EAFE Index of 51%. The increased exposure is due to
the strong performance of existing holdings like PowerGen and Takeda Chemical,
as well as new purchases such as Tomkins, Sony, and Fuji Photo.
The Fund's heaviest industry concentrations are in industries in which we
expect companies to generate sustained growth regardless of the state of the
global economy. For example, we have increased the Fund's exposure to
technology, which now stands at 10% of equity assets and in which we own
companies like Sony, Canon, and TDK in Japan. The Fund also has a large exposure
to telecommunications, broadcasting, and health care. At 16% of the Fund,
financial services is one of our largest industry exposures, but it is also the
area of greatest underweighting relative to the MSCI EAFE Index. This is due to
no exposure to Japanese financials. Although industry fundamentals seem to be
improving, we believe valuations remain expensive relative to comparable global
companies. In addition, we have limited exposure to heavy cyclical industries
like paper, commodity chemicals, and metals.
Finally, while we do not expect a repeat of the 20+% returns that have been
seen in most equity markets over the past 12 months, we believe that the
environment for equities remains very favorable. The outlook for inflation
continues to be benign globally, which should result in interest rates staying
near current levels. This, in turn, should support today's equity market
valuation levels. In addition, our outlook for corporate earnings growth remains
strong in all of the major markets of the world.
Respectfully,
/s/ David Mannheim
David Mannheim
Portfolio Manager
<PAGE>
PORTFOLIO MANAGER'S PROFILE
David Mannheim began his career at MFS in 1988 as a research specialist and was
promoted to Assistant Vice President - Investments in 1991, Vice President -
Investments in 1992, and Senior Vice President in 1997. In 1995, he was named
portfolio manager of MFS Institutional International Equity Fund. Mr. Mannheim
is a graduate of Amherst College and of Massachusetts Institute of Technology's
Sloan School of Management.
OBJECTIVE AND POLICIES
The Fund's objective is to provide long-term growth of capital. The Fund
invests, under normal market conditions, at least 65% of its total assets in
equity securities of companies whose principal activities are located outside
the United States. Shares of the Fund are purchased at net asset value. The
minimum initial investment is generally $3 million.
Commencement of investment operations: January 31, 1996.
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.
FOREIGN TAX CREDIT
The Fund is estimated to have derived approximately 38% of its ordinary income
from dividends paid by foreign companies, and to have paid foreign taxes
equivalent to approximately 4.7% of its ordinary income.
PERFORMANCE SUMMARY
The information below illustrates the historical performance of MFS
Institutional International Equity 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 February 1, 1996, through June 30, 1997)
MFS Institutional
International Consumer Price
MSCI EAFE Equity Fund Index - U.S.
--------- ----------- ------------
2/96 3000.00 3000.00 3000.00
6/96 3120.00 3290.00 3050.00
12/96 3170.00 3534.00 3080.00
6/97 3530.00 4043.00 3110.00
AVERAGE ANNUAL TOTAL RETURNS AS OF JUNE 30, 1997
1 Year Life of Fund+
- ---------------------------------------------------------------------------
MFS Institutional International Equity Fund +22.97% +23.45%
- ---------------------------------------------------------------------------
MSCI EAFE Index* +12.84% +12.13%
- ---------------------------------------------------------------------------
Consumer Price Index** + 2.14% + 2.60%
- ---------------------------------------------------------------------------
+For the period from the commencement of the Fund's investment
operations, January 31, 1996, through June 30, 1997.
*Source: CDA/Wiesenberger.
**The Consumer Price Index measures the cost of living (inflation) and is
published by the U.S. Bureau of Labor Statistics.
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>
PORTFOLIO OF INVESTMENTS - June 30, 1997
Stocks - 97.6%
- -------------------------------------------------------------------------------
Issuer Shares Value
- -------------------------------------------------------------------------------
Foreign Stocks - 97.6%
Australia - 3.8%
Q.B.E. Insurance Group Ltd. (Insurance) 38,426 $ 232,185
Seven Network Ltd. (Broadcasting) 41,100 178,683
-----------
$ 410,868
- -------------------------------------------------------------------------------
Canada - 3.3%
Canadian National Railway Co. (Railroads) 7,000 $ 306,250
Coca Cola Beverages Canada (Beverages)* 3,400 48,765
-----------
$ 355,015
- -------------------------------------------------------------------------------
Chile - 1.7%
Chilectra S.A., ADR (Utilities -
Electric) 6,200 $ 185,225
- -------------------------------------------------------------------------------
Czech Republic - 0.1%
Tabak (Consumer Products) 45 $ 10,558
- -------------------------------------------------------------------------------
Finland - 2.0%
Huhtamaki Oy Group (Consumer Products) 1,850 $ 79,691
TT Tieto Oy (Computer Software - Systems) 1,500 130,095
-----------
$ 209,786
- -------------------------------------------------------------------------------
France - 4.2%
TOTAL S.A., "B" (Oils) 1,120 $ 113,239
TV Francaise (Entertainment) 1,400 125,106
Union des Assurances Federales S.A.
(Insurance) 1,770 208,182
-----------
$ 446,527
- -------------------------------------------------------------------------------
Germany - 3.5%
Adidas AG (Apparel) 1,450 $ 160,465
Henkel KgaA (Chemicals) 2,200 124,885
Volkswagen AG (Automotive) 115 88,162
-----------
$ 373,512
- -------------------------------------------------------------------------------
Greece - 1.2%
Hellenic Telecommunication Organization
S.A. (Telecommunications) 3,400 $ 79,853
Papastratos Cigarettes S.A. (Consumer
Goods and Services) 2,650 49,356
-----------
$ 129,209
- -------------------------------------------------------------------------------
Hong Kong - 7.9%
Asia Satellite Telecommunications Corp.
ADR (Telecommunications) 3,700 $ 111,463
Asia Satellite Telecommunications
Holdings Ltd. (Telecommunications) 14,000 42,920
Hong Kong & Shanghai Hotels Ltd. (Lodgings) 41,000 65,361
Li & Fung Ltd. (Wholesale) 78,000 87,595
Liu Chong Hing Bank Ltd. (Banks and
Credit Companies) 66,000 173,796
Peregrine Investment Holdings (Finance) 41,000 84,413
Wing Hang Bank Ltd. (Banks and Credit Companies) 30,200 182,440
Hong Kong Electric Holdings Ltd.
(Utilities - Electric) 23,000 92,629
-----------
$ 840,617
- -------------------------------------------------------------------------------
India - 0.9%
Videsh Sanchar Nigam Ltd., GDR
(Telecommunications)*## 4,500 $ 93,150
- -------------------------------------------------------------------------------
Indonesia - 1.5%
PT Indosat, ADR (Utilities - Electric) 2,900 $ 86,819
PT Indosat (Utilities - Electric) 5,500 16,459
Semen Gresik (Building Materials) 27,000 60,531
-----------
$ 163,809
- -------------------------------------------------------------------------------
Italy - 1.2%
INA (Instituto Nazionale delle
Assicurazioni) (Insurance) 23,000 $ 35,078
Telecom Italia S.p.A., Saving Shares
(Telecommunications) 50,700 90,760
-----------
$ 125,838
- -------------------------------------------------------------------------------
Japan - 20.4%
Bridgestone Corp. (Tire and Rubber) 5,000 $ 116,147
Canon, Inc. (Office Equipment) 9,000 245,219
DDI Corp. (Telecommunications) 37 273,356
Eisai Co., Ltd. (Pharmaceuticals) 6,000 113,702
Fuji Photo Film Co. (Photographic
Products) 3,000 120,775
Kinki Coca-Cola Bottling Co. (Beverages) 4,000 54,842
Kirin Beverage Corp. (Beverages) 7,000 122,260
Nitto Denko Corp. (Industrials) 10,000 194,743
Osaka Sanso Kogyo Ltd. (Chemicals) 22,000 64,745
Rohm Co. (Electronics) 1,000 103,048
Sony Corp. ADR (Electronics) 550 48,400
Sony Corp. (Electronics) 2,000 174,483
Takeda Chemical Industries
(Pharmaceuticals) 8,000 224,959
TDK Corp. (Special Products and Services) 2,000 146,887
Ushio, Inc. (Electronics) 14,000 173,609
-----------
$ 2,177,175
- -------------------------------------------------------------------------------
Malaysia - 1.7%
New Straits Times Press Berhad (Printing
and Publishing) 8,500 $ 49,851
UMW Holdings Berhad (Autos) 27,000 127,323
-----------
$ 177,174
- -------------------------------------------------------------------------------
Netherlands - 5.0%
Ahrend Groep N.V. (Furniture and Home
Appliances)* 2,098 $ 141,649
Akzo Nobel (Chemicals) 1,300 178,191
IHC Caland NV (Machinery)* 507 27,720
Royal Dutch Petroleum (Oils)* 3,520 184,744
-----------
$ 532,304
- -------------------------------------------------------------------------------
Peru - 0.8%
Telefonica del Peru SA, ADR (Telecommunications) 3,400 $ 89,037
- -------------------------------------------------------------------------------
Philippines - 0.3%
Alsons Cement Corp. (Building Materials)## 205,250 $ 30,768
- -------------------------------------------------------------------------------
Poland - 0.1%
Bank Handlowy Warszawie (Banks and Credit
Companies)*+ 700 $ 8,064
- -------------------------------------------------------------------------------
Portugal - 3.3%
Banco Espirito Santo e Comercial de
Lisboa S.A. (Banks and Credit Cos.) 4,000 $ 90,711
Banco Totta E Acores (Banks and Credit Cos.)## 9,000 150,477
Elec De Portugal (Utilities - Electric)* 1,400 25,708
Telecel - Comunicacaoes Pessoais S.A.
(Cellular Telephones)* 1,000 83,002
-----------
$ 349,898
- -------------------------------------------------------------------------------
Singapore - 2.0%
Hong Leong Finance Ltd. (Finance)+ 21,000 $ 59,656
Mandarin Oriental International, Ltd.
(Restaurants and Lodgings)* 77,384 100,599
Singapore Finance (Financial Institutions) 40,000 57,375
-----------
$ 217,630
- -------------------------------------------------------------------------------
South Korea - 0.7%
Korea Electric Power Corp. (Utilities -
Electric) 1,500 $ 44,864
Korea Mobile Telecommunications
(Telecommunications) 41 30,453
-----------
$ 75,317
- -------------------------------------------------------------------------------
Spain - 2.9%
Acerinox S.A. (Iron and Steel) 850 $ 159,314
Repsol S.A. (Oils) 3,520 148,867
-----------
$ 308,181
- -------------------------------------------------------------------------------
Sweden - 3.8%
Astra Ab (Pharmaceuticals) 12,666 $ 223,981
Sparbanken Sverige AB (Banks and Credit Cos.) 8,400 187,175
-----------
$ 411,156
- -------------------------------------------------------------------------------
Switzerland - 2.4%
Ciba Specialty AG (Chemicals)* 692 $ 63,995
Novartis AG (Pharmaceuticals) 120 191,862
-----------
$ 255,857
- -------------------------------------------------------------------------------
United Kingdom - 21.9%
ASDA Group PLC (Supermarkets) 128,000 $ 264,047
Avis Europe PLC (Auto Rental)* 36,500 82,581
British Aerospace PLC (Aerospace and
Defense)* 12,100 269,032
British Petroleum PLC (Oils)* 14,139 175,706
Capital Radio PLC (Broadcasting) 1,700 15,215
Carlton Communicatons PLC (Broadcasting) 15,600 131,967
Corporate Services Group (Business
Services) 10,900 33,909
Grand Metropolitan PLC (Food and Beverage
Products)* 26,000 250,006
Jarvis Hotels PLC (Restaurants and
Lodging)+ 32,000 73,997
Kwik-Fit Holdings PLC (Retail) 28,800 128,882
Lloyds TSB Group PLC (Banks and Credit
Cos.)* 15,063 154,613
PowerGen PLC (Utilities - Electric)* 38,500 457,307
Storehouse PLC (Retail)* 43,291 135,576
Tomkins PLC (Diversified Operations)* 39,500 170,852
-----------
$ 2,343,690
- -------------------------------------------------------------------------------
Venezuela - 1.0%
Compania Anonima Nacional Telefonos de
Venezuela, ADR (Telecommunications)* 2,600 $ 112,125
- -------------------------------------------------------------------------------
Total Foreign Stocks $10,432,490
- -------------------------------------------------------------------------------
Total Stocks (Identified Cost, $9,292,558) $10,432,490
- -------------------------------------------------------------------------------
Warrants
- -------------------------------------------------------------------------------
Peregrine Investment Holdings (Finance)*
(Identified Cost, $149) 1,200 $ 526
- -------------------------------------------------------------------------------
Rights
- -------------------------------------------------------------------------------
Ote Greek Telecom (Telecommunications)*
(Identified Cost, $0) 3,400 $ 0
- -------------------------------------------------------------------------------
Short-Term Obligations - 2.7%
- -------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -------------------------------------------------------------------------------
Federal National Mortgage Assn., due 7/
09/97, at Amortized Cost $ 290 $ 289,649
- -------------------------------------------------------------------------------
Total Investments (Identified Cost, $9,582,356) $10,722,665
Other Assets, Less Liabilities - (0.3)% (34,243)
- -------------------------------------------------------------------------------
Net Assets - 100.0% $10,688,422
- -------------------------------------------------------------------------------
*Non-income producing security.
##SEC Rule 144A restriction.
+Restricted Security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
June 30, 1997
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $9,582,356) $10,722,665
Cash 5,185
Foreign currency, at value (identified cost, $15,681) 15,627
Receivable for investments sold 8,061
Dividends receivable 33,520
Receivable from investment adviser 69,786
Deferred organization expenses 5,011
Other assets 26
-----------
Total assets $10,859,881
-----------
Liabilities:
Payable for investments purchased $ 144,677
Payable to affiliate for management fee 660
Accrued expenses and other liabilities 26,122
-----------
Total liabilities $ 171,459
-----------
Net assets $10,688,422
===========
Net assets consist of:
Paid-in capital $ 9,244,211
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 1,140,622
Accumulated undistributed net realized gain on investments
and foreign currency transactions 234,734
Accumulated undistributed net investment income 68,855
-----------
Total $10,688,422
===========
Shares of beneficial interest outstanding 819,468
=======
Net asset value, offering price, and redemption value per
share (net assets of $10,688,422 / 819,468 shares of
beneficial nterest outstanding) $13.04
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- --------------------------------------------------------------------------------
Year Ended June 30, 1997
- --------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 121,691
Interest 13,696
Foreign taxes withheld (14,824)
----------
Total investment income $ 120,563
----------
Expenses -
Management fee $ 31,898
Trustees' compensation 5,000
Shareholder servicing agent fee 314
Administrative fee 27
Auditing fee 20,991
Custodian fee 15,121
Amortization of organization expenses 1,396
Printing 2,473
Legal fee 217
Registration fee 7,487
Miscellaneous 360
----------
Total expenses $ 85,284
Fees paid indirectly (687)
Reduction of expenses by investment adviser (48,446)
----------
Net expenses $ 36,151
----------
Net investment income $ 84,412
----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 271,353
Foreign currency transactions (4,213)
----------
Net realized gain on investments and foreign
currency transactions $ 267,140
----------
Change in unrealized appreciation (depreciation) -
Investments $ 977,450
Translation of assets and liabilities in foreign
currencies 322
----------
Net unrealized gain on investments and foreign
currency translation $ 977,772
----------
Net realized and unrealized gain on investments
and foreign currency $1,244,912
----------
Increase in net assets from operations $1,329,324
==========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ---------------------------------------------------------------------------------------------------
Year Ended Period Ended
June 30, 1997 June 30, 1996*
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment income $ 84,412 $ 22,994
Net realized gain on investments and foreign currency
translation 267,140 23,484
Net unrealized gain on investments and foreign currency
translation 977,772 162,850
----------- ----------
Increase in net assets from operations $ 1,329,324 $ 209,328
----------- ----------
Distributions declared to shareholders -
From net investment income $ (32,941) $ --
From net realized gain on investments and foreign
currency transactions (61,500) --
----------- ----------
Total distributions declared to shareholders $ (94,441) --
----------- ----------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 7,068,597 $2,288,526
Net asset value of shares issued to shareholders in
reinvestment of distributions 94,441 --
Cost of shares reacquired (207,363) --
----------- ----------
Increase in net assets from Fund share transactions $ 6,955,675 $2,288,526
----------- ----------
Total increase in net assets $ 8,190,558 $2,497,854
Net assets:
At beginning of period 2,497,864 10
----------- ----------
At end of period (including accumulated undistributed
net investment income of $68,855 and $21,825,
respectively) $10,688,422 $2,497,864
=========== ==========
*For the period from the commencement of the Fund's investment operations,
January 31, 1996, through June 30, 1996.
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights
- --------------------------------------------------------------------------------
Year Ended Period Ended
June 30, 1997 June 30, 1996*
- --------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.96 $10.00
------ ------
Income from investment operations# -
Net investment income(S) $ 0.23 $ 0.13
Net realized and unrealized gain on
investments 2.23 0.83
------ ------
Total from investment operations $ 2.46 $ 0.96
------ ------
Less distributions declared to shareholders -
From net investment income $(0.13) --
From net realized gain on investments and
foreign currency transactions (0.25) --
------ -----
Total distributions declared to
shareholders $(0.38) --
------ ------
Net asset value - end of period $13.04 $10.96
====== ======
Total return 22.97% 9.60%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 0.85% 0.94%+
Net investment income 1.98% 2.46%+
Portfolio turnover 76% 19%
Average commission rate $0.0211 $0.0182
Net assets at end of period (000 omitted) $10,688 $2,498
* For the period from the commencement of the Fund's investment
operations, January 31, 1996, through June 30, 1996.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees
paid indirectly.
(S) The investment advisor voluntarily agreed to maintain the expenses of the
Fund at no more than 0.85% of average daily net assets effective May 3,
1996. During the period January 31, 1996, to May 2, 1996, the adviser agreed
to maintain the expenses at not more than 0.95%. To the extent actual
expenses over these limitations, the net investment loss per share and
ratios would have been:
Net investment income (loss) $ 0.10 $(0.08)
Ratios (to average net assets):
Expenses## 2.01% 4.91%
Net investment gain (loss) 0.85% (1.51)%
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Institutional International Equity Fund (the Fund) is a diversified series
of MFS Institutional Trust (the Trust). The Trust is organized as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as an open-end management investment company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Investment
in foreign securities are vulnerable to the effects of changes in the relative
values of the local currency and the U.S. dollar and to the effects of changes
in each country's legal, political, and economic environment.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are reported at market value using last sale
prices. Unlisted equity securities for which last sale prices are not available
are reported at market value using last quoted bid prices. Investments in
foreign securities are vulnerable to the effects of changes in the relative
values of the local currency and U.S. dollar and to the effects of changes in
each country's legal, political, and economic environment. Short-term
obligations, which mature in 60 days or less, are valued at amortized cost,
which approximates 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 premiums and
original issue discounts 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. Dividends 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 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, $4,441 was reclassified to
accumulated undistributed net investment income from accumulated net realized
gain on investments due to differences between book and tax accounting currency
transactions. This change had no effect on the net assets or net asset value per
share.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75% of
average daily net assets. The investment adviser has voluntarily agreed to pay
expenses of the Fund in order to maintain expenses at no more than 0.85% of the
Fund's average daily net assets. This is reflected as a reduction of expenses in
the Statement of Operations.
Administrator - Effective March 1, 1997, the Fund has an administrative services
agreement with MFS to provide the Fund with certain financial, legal, and other
administrative services. As a partial reimbursement for the cost of providing
these services, the Fund pays MFS and administrative fee of up to 0.015% annum
of the Fund's average daily net assets, provided that the administrative fee is
not assessed on Fund assets that exceed $3 billion.
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 fund's 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 $9,886,937
and $3,172,140, 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 $9,583,373
==========
Gross unrealized appreciation $1,307,485
Gross unrealized depreciation (168,193)
----------
Net unrealized appreciation $1,139,292
==========
(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 Period Ended June 30, 1996*
----------------------------- ---------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Shares sold 601,125 $7,068,597 227,904 $2,288,526
Shares issued to shareholders in
reinvestment of
distributions 8,372 94,441 -- --
Shares reacquired (17,934) (207,363) -- --
------- ---------- ------- ----------
Net increase 591,563 $6,955,675 227,904 $2,288,526
======= ========== ======= ==========
*For the period from the commencement of investment operations, January 31,
1996, through June 30, 1996.
</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 $10.
(7) Restricted Securities
The Fund may invest not more than 15% of its net assets in securities which are
subject to legal or contractual restrictions on resale. At June 30, 1997, the
Fund owned the following restricted securities (constituting 1.33% of net
assets) which may not be publicly sold without registration under the Securities
Act of 1933 (the 1933 Act). The Fund does not have the right to demand that such
securities be registered. The value of these securities is determined by
valuations supplied by a pricing service or brokers or, if not available, in
good faith by or at the direction of the Trustees.
<TABLE>
<CAPTION>
Date of Share/Par
Description Acquisition Amount Cost Value
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Jarvis Hotels PLC 6/21/96 - 5/20/97 32,000 $ 85,507 $ 73,997
Bank Handlowy Warsawie 6/18/97 700 2,339 8,064
Hong Leong Finance Ltd. 4/04/97 - 6/09/97 21,000 68,905 59,656
-------- --------
$156,751 $141,717
======== ========
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders of MFS Institutional International Equity Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Institutional International Equity Fund as
of June 30, 1997, the related statement of operations for the year then ended,
and the statement of changes in net assets and the financial highlights for the
year ended June 30, 1997 and the period from January 31, 1996 (commencement of
investment operations) to June 30, 1996. 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
International Equity 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
<PAGE>
--------------------------------------------
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
IIE-2 8/97
