<PAGE>
[logo] MFS(SM) Semiannual Report
INSTITUTIONAL ADVISORS, INC. December 31, 1997
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MFS(R) INSTITUTIONAL EMERGING EQUITIES FUND
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[graphic omitted]
<PAGE>
MFS(R) INSTITUTIONAL EMERGING EQUITIES FUND
<TABLE>
<S> <C>
TRUSTEES INVESTMENT ADVISER
Nelson J. Darling, Jr. Massachusetts Financial Services Company
Trustee, Eastern Enterprises 500 Boylston Street
(diversified holding company) Boston, MA 02116-3741
William R. Gutow DISTRIBUTOR
Vice Chairman, MFS Fund Distributors, Inc.
Capitol Entertainment Management Company 500 Boylston Street
(Blockbuster Video franchise) Boston, MA 02116-3741
PORTFOLIO MANAGERS INVESTOR SERVICE
John W. Ballen* MFS Service Center, Inc.
Brian E. Stack* P.O. Box 1400
Boston, MA 02107-9906
TREASURER
W. Thomas London* For additional information,
contact your financial adviser.
ASSISTANT TREASURERS
Mark E. Bradley* CUSTODIAN
Ellen Moynihan* State Street Bank and Trust Company
James O. Yost*
WORLD WIDE WEB
SECRETARY www.mfs.com
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
</TABLE>
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[Dalbar For the fourth year in a row, MFS earned a #1 ranking in the DALBAR,
Logo] Inc. Broker/Dealer Survey, Main Office Operations Service Quality
Category. The firm achieved a 3.42 overall score on a scale of 1 to 4
in the 1997 survey. A total of 111 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
11 categories, including "knowledge of operations contact," "keeping
you informed," and "ease of doing business" with the firm.
- -------------------------------------------------------------------------------
*Affiliated with the Investment Adviser
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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<PAGE>
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MFS Mourns Chairman's Passing
It is with deep regret that we inform you of the death on February 2,
1998, of A. Keith Brodkin, Chairman and Chief Executive Officer of MFS
Investment Management(SM). Mr. Brodkin joined MFS in 1970 and made
enormous contributions to the organization, including helping to build
the firm's investment staff, which will continue to manage all of the
MFS investment portfolios. His leadership, friendship, and wise counsel
will be sorely missed.
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LETTER TO SHAREHOLDERS
Dear Shareholders:
Thanks to a sustained period of relative stability and moderate growth, the U.S.
economy has produced thousands of new jobs, inflation has remained under
control, and the investment climate has -- for the most part -- been favorable.
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. The rapid pace of growth seen in the first
quarter slowed to an annual rate of 3.3% in the second quarter and 3.5% in the
third. We believe this economic momentum will carry well into the first quarter
of 1998 as a result of lower interest rates and continuing growth in the money
supply. While U.S. economic growth continues to be impressive, events in the
Pacific Rim will somewhat offset that and, therefore, markets are likely to
continue to focus on Federal Reserve Board activity.
The extreme volatility seen in the U.S. equity market in the fall was, we
believe, the consequence of overvaluations that had been evident for some
months. As a result, the stock market has been vulnerable to some type of
correction and has been impacted in the near term by chaotic market conditions
in the Pacific Rim. In the face of all this, however, the equity market
continues to exhibit surprising strength, much of it the result of continued
gains in corporate earnings, a trend that could be an important indicator of the
market's future direction. Certainly the situation throughout Asia bears close
scrutiny because it appears to be clearly deflationary and raises the prospect
of trade wars developing throughout the area. We are not convinced that U.S.
markets have escaped totally from October's volatility. Thus, not only is the
near-term outlook for profits being adjusted for the Asian crisis, we also
believe equity valuations have risen to a point where a cautious investment
approach seems warranted, with a need for particular attention to be paid to the
effect of Pacific Rim volatility on the earnings of U.S. companies.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
President, MFS Investment Management
January 12, 1998
<PAGE>
PORTFOLIO MANAGERS' OVERVIEW
Dear Shareholders: In a period of relative weakness for small-capitalization
growth stocks, the Fund provided a total return of 6.62% (including the
reinvestment of any distributions) for the six months ended December 31, 1997.
While the Russell 2000 Total Return Index (the Russell 2000) posted an 11.04%
return for the period, the Russell 2000 Growth Subindex returned 7.34%. This
lagged the Russell 2000 Value Subindex, which gained 14.79% on the strength of
strong gains in interest-sensitive components such as financial services and
utilities. The Russell 2000 is an unmanaged index comprised of 2,000 of the
smallest U.S.-domiciled company common stocks (on the basis of capitalization)
that are traded in the United States on the New York Stock Exchange, the
American Stock Exchange, and NASDAQ.
Against this backdrop, the Fund's performance benefited from strong gains in a
diverse set of holdings. Contributors included alternative telecommunications
provider Intermedia Communications, broadcaster American Radio Systems, medical
equipment manufacturer Steris Corp., and mutual fund processor DST Systems.
Shares in Hispanic broadcaster Heftel Broadcasting appreciated sharply, as did
the stock of software vendor Compuware.
At the same time, disappointing results from both drug developer KOS
Pharmaceuticals, which experienced a slower-than-expected new product launch,
and Xionics Document Management hindered performance during the period.
Portfolio additions over the period included Learning Tree International, a
leader in information technology training and education, and Aspect
Telecommunications, a vendor of telecommunications call-center software.
Looking ahead, we are optimistic about the prospects for improved relative
performance for smaller companies. As investors place increased emphasis on
domestically based, unit-driven earnings growth, we believe they will find
renewed interest in smaller-growth companies.
We continue to seek and emphasize companies that we regard as well managed and
attractively valued relative to their ability to drive long-term unit and
earnings growth well above that of the broad economy. Accordingly, we have
retained our overweighted positions in the technology, health care, and business
and consumer services sectors. Technology companies are the key enablers of the
economy's ongoing productivity revolution, and it is our expectation that the
most innovative and best managed among them should continue to post
exceptionally healthy growth. We continue to identify and own health care
services companies that help businesses and government entities contain the
daunting threat of accelerating medical costs. Finally, we believe our business
and consumer services holdings should benefit not only from their above-average
revenue and earnings predictability, but also from their ability to exploit
technological advances that both broaden their customer appeal and lower their
costs of doing business.
Respectfully,
/s/ John W. Ballen /s/ Brian E. Stack
John W. Ballen Brian E. Stack
Portfolio Manager Portfolio Manager
PORTFOLIO MANAGERS' PROFILES
John W. Ballen began his career at MFS in 1984 as an industry specialist and was
promoted to Investment Officer in 1986, Vice President -- Investments in 1987,
Director of Research in 1988, Senior Vice President in 1990, Director of Equity
Portfolio Management in 1993, Chief Equity Officer in 1995, and Executive Vice
President in 1997. A graduate of Harvard College, the University of New South
Wales, and the Stanford University Graduate School of Business Administration,
he has managed MFS Institutional Emerging Equities Fund since 1993.
Brian E. Stack joined the MFS Research Department in 1993 as Vice President --
Investments. 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 and
has managed 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 which may have the potential to become
major enterprises.
Commencement of investment operations: June 16, 1993
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, 1997 (net
asset value change including reinvested distributions)
6 Months 1 Year Life of Fund*
- ----------------------------------------------------------------------------
Cumulative Total Return +6.62% +22.95% +205.58%
- ----------------------------------------------------------------------------
Average Annual Total Return -- +22.95% + 27.86%
- ----------------------------------------------------------------------------
*For the period from the commencement of the Fund's investment operations, June
16, 1993, through December 31, 1997.
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 (Unaudited) - December 31, 1997
Stocks - 95.0%
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Issuer Shares Value
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U.S. Stocks - 95.0%
Advertising - 0.3%
Snyder Communications, Inc.* 37,392 $ 1,364,808
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Airlines - 0.6%
Atlas Air, Inc.* 107,100 $ 2,570,400
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Biotechnology - 1.5%
IDEXX Laboratories, Inc.* 399,600 $ 6,368,625
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Building - 1.2%
Newport News Shipbuilding, Inc. 204,800 $ 5,209,600
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Business Machines - 2.4%
Affiliated Computer Services, Inc., "A"* 388,534 $ 10,223,301
- ------------------------------------------------------------------------------
Business Services - 17.2%
AccuStaff, Inc.* 199,012 $ 4,577,276
AFC Cable Systems, Inc.* 58,800 1,749,300
BISYS Group, Inc.* 165,300 5,496,225
Catalina Marketing Corp.* 55,600 2,571,500
Ceridian Corp.* 31,600 1,447,675
Claremont Technology Group, Inc.* 65,200 1,206,200
Dendrite International, Inc.* 99,238 1,922,736
DST Systems, Inc.* 169,000 7,214,187
Fine Host Corp.* 99,800 748,500
Fiserv, Inc.* 112,700 5,536,387
Franklin Covey Co.* 39,465 868,230
Galileo International, Inc. 61,100 1,687,888
Global Directmail Corp.* 191,300 3,311,881
Interim Services, Inc.* 262,504 6,792,291
International Network Services* 64,800 1,498,500
Learning Tree International, Inc.* 137,100 3,958,762
May & Speh, Inc.* 188,700 2,547,450
Mecon, Inc.* 77,400 551,475
National Processing, Inc.* 142,700 1,409,163
NOVA Corp.* 34,400 860,000
PMT Services, Inc.* 216,700 3,006,712
SPS Transaction Services, Inc.* 99,400 2,242,713
Superior Consultant, Inc.* 33,000 990,000
Superior Services, Inc.* 53,800 1,553,475
Technology Solutions Co.* 137,125 3,616,672
TeleSpectrum Worldwide, Inc.* 103,500 375,188
Teletech Holdings, Inc.* 101,000 1,148,875
Transaction System Architects, Inc., "A"* 103,800 3,944,400
U.S.A. Floral Products Inc.* 2,500 39,375
Walsh International, Inc.* 96,400 1,012,200
-------------
$ 73,885,236
- ------------------------------------------------------------------------------
Computer Software - Personal Computers - 0.1%
Microprose, Inc.* 128,100 $ 280,219
- ------------------------------------------------------------------------------
Computer Software - Systems - 15.5%
American Business Information, Inc., "A"* 123,300 $ 1,294,650
American Business Information, Inc., "B"* 112,400 1,152,100
Aspen Technology, Inc.* 92,700 3,174,975
Black Box Corp.* 43,500 1,538,812
Cadence Design Systems, Inc.* 419,750 10,283,875
Catalyst International, Inc.* 66,100 268,531
Clarify, Inc.* 118,700 1,379,887
Compuware Corp.* 178,400 5,708,800
Comverse Technology, Inc.* 13,000 507,000
Fair, Isaac & Co., Inc. 53,500 1,782,219
Harbinger Corp.* 59,500 1,673,437
HNC Software, Inc.* 13,800 593,400
IKOS Systems, Inc.* 102,400 627,200
Intelligroup, Inc.* 28,000 535,500
JDA Software Group, Inc.* 13,600 476,000
Metromail Corp.* 48,100 859,788
Peerless Systems Corp.* 95,900 1,234,713
Rational Software Corp.* 55,700 633,588
RWD Technologies, Inc.* 12,800 230,400
SCB Computer Technology, Inc.* 30,000 491,250
Scopus Technology* 59,300 711,600
Security Dynamics Technologies, Inc.* 62,900 2,248,675
Simulation Sciences, Inc.* 117,400 1,878,400
Sterling Software, Inc.* 164,500 6,744,500
Summit Design, Inc.* 172,900 1,793,837
SunGard Data Systems, Inc.* 241,880 7,498,280
Synopsys, Inc.* 193,411 6,914,443
USCS International, Inc.* 130,800 2,223,600
Vantive Corp.* 72,300 1,825,575
Xionics Document Technologies, Inc.* 147,800 563,488
-------------
$ 66,848,523
- ------------------------------------------------------------------------------
Consumer Goods and Services - 2.7%
Alternative Resources Corp.* 170,300 3,927,544
Blyth Industries, Inc.* 124,000 3,712,250
Meta Group, Inc.* 93,900 2,065,800
U.S. Rentals, Inc.* 75,300 1,769,550
United Rentals, Inc.* 3,300 63,731
-------------
$ 11,538,875
- ------------------------------------------------------------------------------
Containers - 0.8%
AptarGroup, Inc. 28,800 $ 1,598,400
Stone Container Corp. 180,300 1,881,881
-------------
$ 3,480,281
- ------------------------------------------------------------------------------
Electrical Equipment - 0.8%
Barnett, Inc.* 16,800 $ 369,600
Belden, Inc. 67,000 2,361,750
QLogic Corp.* 22,900 675,550
-------------
$ 3,406,900
- ------------------------------------------------------------------------------
Electronics - 6.0%
Actel Corp.* 89,100 $ 1,124,888
Analog Devices, Inc.* 172,666 4,780,690
BMC Industries, Inc. 95,400 1,538,325
Burr Brown* 101,750 3,268,719
DuPont Photomasks, Inc.* 49,100 1,712,362
International Rectifier Corp.* 152,400 1,800,225
Microchip Technology, Inc.* 49,100 1,473,000
Photronic, Inc.* 156,600 3,797,550
PMC-Sierra Inc.* 151,900 4,708,900
Triquint Semiconductor Inc.* 47,200 955,800
Ultratech Stepper, Inc.* 39,000 775,125
-------------
$ 25,935,584
- ------------------------------------------------------------------------------
Entertainment - 6.9%
American Radio Systems Corp., "A"* 126,800 $ 6,760,025
Clear Channel Communications, Inc.* 39,500 3,137,781
Gemstar International Group Ltd.* 153,600 3,744,000
Harrah's Entertainment, Inc.* 128,200 2,419,775
Hearst-Argyle Television, Inc.* 25,700 764,575
Heftel Broadcasting Corp.* 44,000 2,057,000
Jacor Communications, Inc.* 79,300 4,212,813
LIN Television Corp.* 122,900 6,698,050
-------------
$ 29,794,019
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Financial Institutions - 2.1%
Advanta Corp., "B" 33,200 $ 842,450
BA Merchants Services, Inc.* 71,700 1,272,675
CIT Group, Inc., "A"* 12,000 387,000
Conning Corp.* 43,200 723,600
Franklin Resources, Inc. 12,050 1,047,597
Paymentech, Inc.* 89,200 1,315,700
Student Loan Corp. 64,800 3,199,500
TCF Financial Corp. 12,800 434,400
-------------
$ 9,222,922
- ------------------------------------------------------------------------------
Food and Beverage Products - 1.3%
Beringer Wine Estates Holdings, Inc., "B"* 2,100 $ 79,800
Mondavi (Robert) Corp.* 27,400 1,335,750
Suiza Foods Corp.* 32,300 1,923,869
Tootsie Roll Industries, Inc. 35,500 2,218,750
-------------
$ 5,558,169
- ------------------------------------------------------------------------------
Insurance - 1.1%
Compdent Corp.* 86,400 $ 1,752,300
Executive Risk, Inc. 33,200 2,317,775
Paula Financial* 800 18,400
PennCorp Financial Group, Inc. 22,600 806,537
-------------
$ 4,895,012
- ------------------------------------------------------------------------------
Machinery - 0.5%
Manitowoc, Inc. 60,300 $ 1,959,750
- ------------------------------------------------------------------------------
Medical and Health Products - 1.0%
Megabios Corp.* 30,000 $ 427,500
NCS Healthcare, Inc.* 102,300 2,698,162
Transition Systems, Inc.* 44,200 977,925
-------------
$ 4,103,587
- ------------------------------------------------------------------------------
Medical and Health Technology and Services - 10.7%
Advanced Health Corp.* 69,100 $ 1,096,963
AmeriSource Health Corp., "A"* 106,500 6,203,625
Apache Medical Systems, Inc.* 58,200 74,569
Concentra Managed Care, Inc.* 109,545 3,697,144
Genesis Health Ventures, Inc.* 24,699 651,436
HCIA, Inc.* 143,800 1,707,625
HEALTHSOUTH Corp.* 106,778 2,963,090
Hologic, Inc.* 148,800 3,078,300
IDX Systems Corp.* 80,900 2,993,300
Mariner Health Group, Inc.* 49,500 804,375
National Research Corp.* 500 3,313
Orthodontic Centers of America, Inc.* 51,600 857,850
Pediatric Services America, Inc.* 96,000 1,836,000
Physician Sales and Service, Inc.* 115,700 2,487,550
Quorum Health Group, Inc.* 158,500 4,140,812
Renal Treatment Centers, Inc.* 123,900 4,475,887
Schein (Henry), Inc.* 13,900 486,500
Steris Corp.* 107,300 5,177,225
Total Renal Care Holdings, Inc.* 112,099 3,082,722
-------------
$ 45,818,286
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Metals and Minerals - 0.2%
Titanium Metals Corp.* 29,000 $ 837,375
- ------------------------------------------------------------------------------
Oil Services - 1.6%
Dril-Quip, Inc.* 17,200 $ 604,150
Global Industries, Inc.* 184,300 3,133,100
National Oilwell, Inc.* 29,000 991,437
Weatherford Enterra, Inc.* 52,200 2,283,750
-------------
$ 7,012,437
- ------------------------------------------------------------------------------
Oils - 0.2%
Newfield Exploration Co.* 35,500 $ 827,594
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Pharmaceuticals - 0.3%
Kos Pharmaceuticals, Inc.* 92,600 $ 1,429,512
- ------------------------------------------------------------------------------
Printing and Publishing - 0.8%
Applied Graphics Technologies, Inc.* 37,300 $ 1,986,225
Harte-Hanks Communications, Inc. 37,200 1,381,050
-------------
$ 3,367,275
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Real Estate
Trammell Crow Co.* 2,300 $ 59,225
- ------------------------------------------------------------------------------
Real Estate Investment Trusts - 0.3%
Kilroy Realty Corp. 42,900 $ 1,233,375
- ------------------------------------------------------------------------------
Restaurants and Lodging - 5.9%
Applebee's International, Inc. 108,600 $ 1,961,588
Buffets, Inc.* 213,221 1,998,947
Capstar Hotel Co.* 93,800 3,218,512
Four Seasons Hotels, Inc. 800 25,300
Friendly Ice Cream Corp.* 19,000 220,875
Interstate Hotels Co.* 109,800 3,849,862
Outback Steakhouse, Inc.* 85,400 2,455,250
Prime Hospitality Corp.* 175,500 3,575,812
Promus Hotel Corp.* 22,700 953,400
ShoLodge, Inc.* 71,366 1,124,015
Sonic Corp.* 49,500 1,392,188
Suburban Lodges of America, Inc.* 57,100 760,144
Taco Cabana, Inc.* 64,800 307,800
Wyndham Hotel Corp.* 91,800 3,706,425
-------------
$ 25,550,118
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Special Products and Services - 1.1%
Audio Book Club, Inc.* 900 $ 4,387
Central Parking Corp. 41,525 1,881,602
Equity Corp. International* 113,950 2,635,094
-------------
$ 4,521,083
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Stores - 6.6%
AnnTaylor Stores Corp.* 94,200 $ 1,259,925
BJ's Wholesale Club, Inc.* 17,400 545,925
Corporate Express, Inc.* 199,000 2,562,125
General Nutrition Cos., Inc.* 31,300 1,064,200
Gymboree Corp.* 105,700 2,893,538
Mazel Stores, Inc.* 93,900 1,361,550
Micro Warehouse, Inc.* 71,900 1,002,106
Petco Animal Supplies, Inc.* 116,600 2,798,400
PETsMART, Inc.* 156,400 1,133,900
Regis Corp. 95,100 2,389,388
Rite Aid Corp. 87,885 5,157,751
U.S. Office Products Co.* 123,650 2,426,631
Viking Office Products, Inc.* 169,400 3,695,037
-------------
$ 28,290,476
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Supermarkets - 1.0%
Meyer (Fred), Inc.* 118,760 $ 4,319,895
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Telecommunications - 4.3%
Aspect Telecommunications Corp.* 257,900 $ 5,383,662
Brooks Fiber Properties, Inc.* 22,900 1,259,500
Cable Design Technologies Corp.* 52,200 2,029,275
Hypercom Corp.* 13,100 185,038
Intermedia Communications, Inc.* 73,300 4,452,975
Nextlink Communications, Inc., "A"* 80,000 1,705,000
Proxim, Inc.* 67,200 760,200
Transaction Network Services, Inc.* 147,200 2,539,200
VDI Media* 37,800 363,825
-------------
$ 18,678,675
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Transportation
Carey International, Inc.* 4,200 $ 63,525
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Total U.S. Stocks $ 408,654,662
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Foreign Stocks
Ireland
Warner Chilcott PLC, ADR (Medical and Health
Products)* 6,600 $ 81,675
- ------------------------------------------------------------------------------
Total Stocks (Identified Cost, $368,205,616) $ 408,736,337
- ------------------------------------------------------------------------------
Short-Term Obligations - 4.6%
- ------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted Value
- ------------------------------------------------------------------------------
American Express Credit Corp., due 1/02/98 $5,600 $ 5,598,982
Federal Home Loan Mortgage Corp., due 1/14/98 9,625 9,605,849
Ford Motor Credit Corp., due 1/02/98 4,600 4,599,137
- ------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 19,803,968
- ------------------------------------------------------------------------------
Total Investments (Identified Cost, $388,009,584) $ 428,540,305
Other Assets, Less Liabilities - 0.4% 1,627,071
- ------------------------------------------------------------------------------
Net Assets - 100.0% $ 430,167,376
- ------------------------------------------------------------------------------
*Non-income producing security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- --------------------------------------------------------------------------
December 31, 1997
- --------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $388,009,584) $428,540,305
Cash 38,514
Receivable for Fund shares sold 626,065
Receivable for investments sold 2,607,246
Dividends and interest receivable 47,374
Receivable from investment adviser 162,531
Other assets 3,538
------------
Total assets $432,025,573
------------
Liabilities:
Payable for investments purchased $ 1,792,564
Payable to affiliates -
Management fee 8,746
Administrative fee 151
Shareholder servicing agent fee 87
Accrued expenses and other liabilities 56,649
------------
Total liabilities $ 1,858,197
------------
Net assets $430,167,376
============
Net assets consist of:
Paid-in capital $380,678,667
Unrealized appreciation on investments 40,530,721
Accumulated undistributed net realized gain on investments 9,768,820
Accumulated net investment loss (810,832)
------------
Total $430,167,376
============
Shares of beneficial interest outstanding 21,712,652
==========
Net asset value, offering price, and redemption price per
share (net assets of $430,167,376 / 21,712,652 shares of
beneficial interest outstanding) $19.91
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations (Unaudited)
- ------------------------------------------------------------------------------
Six Months Ended December 31, 1997
- ------------------------------------------------------------------------------
Net investment income:
Income -
Interest income $ 501,116
Dividend income 232,580
Foreign taxes withheld (1,731)
-----------
Total income $ 731,965
-----------
Expenses -
Management fee $ 1,542,797
Administrative fee 27,262
Trustees' compensation 2,500
Shareholder servicing agent fee 15,440
Custodian fee 66,667
Auditing fees 27,255
Legal fees 4,744
Amortization of organization expense 840
Miscellaneous 27,353
-----------
Total expenses $ 1,714,858
Fees paid indirectly (9,530)
Preliminary reduction of expenses by investment advisor (162,531)
-----------
Net expenses $ 1,542,797
-----------
Net investment loss $ (810,832)
-----------
Realized and unrealized gain on investments:
Realized gain (identified cost basis) on investment transactions $42,806,813
Change in unrealized depreciation on investments (18,199,541)
-----------
Net realized and unrealized gain on investments $24,607,272
-----------
Increase in net assets from operations $23,796,440
===========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------
Six Months Ended
December 31, 1997 Year Ended
(Unaudited) June 30, 1997
- -------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment loss $ (810,832) $ (661,361)
Net realized gain on investments 42,806,813 35,985,298
Net unrealized gain (loss) on investments (18,199,541) 23,702,376
------------ ------------
Increase in net assets from operations $ 23,796,440 $ 59,026,313
------------ ------------
Distributions declared to shareholders from
net realized gain on investments $(55,887,218) $(44,043,097)
------------ ------------
Net increase in net assets from Fund share
transactions $ 78,621,426 $109,291,545
------------ ------------
Total increase in net assets $ 46,530,648 $124,274,761
Net assets:
At beginning of period 383,636,728 259,361,967
------------ ------------
At end of period (including accumulated
net investment loss of $810,832 and
$0, respectively) $430,167,376 $383,636,728
============ ============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended June 30,
December 31, 1997 ---------------------------------------------------------- Period Ended
(Unaudited) 1997 1996 1995 1994 June 30, 1993*
- -----------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C> <C>
Net asset value - beginning
of period $21.45 $21.17 $16.42 $11.75 $10.17 $10.00
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income (loss)(S) $(0.04) $(0.04) $(0.04) $(0.03) $(0.03) $ 0.01
Net realized and unrealized
gain on investments 1.36 3.42 6.55 5.04 1.82*** 0.16
------ ------ ------ ------ ------ ------
Total from investment
operations $ 1.32 $ 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 (2.96) (3.10) (1.76) (0.34) (0.21) --
------ ------ ------ ------ ------ ------
Total distributions
declared to shareholders $(2.96) $(3.10) $(1.76) $(0.34) $(0.21) $ --
------ ------ ------ ------ ------ ------
Net asset value - end of period $19.81 $21.45 $21.17 $16.42 $11.75 $10.17
====== ====== ====== ====== ====== ======
Total return 6.62%++ 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% 0.75% 0.78% 0.90%+
Net investment income (loss) (0.39)%+ (0.22)% (0.22)% (0.19)% (0.27)% 2.24%+
Portfolio turnover 53% 96% 97% 86% 94% 0%
Average commission rate### $ 0.0575 $ 0.0575 $ -- $ -- $ -- $ --
Net assets at end of period
(000 omitted) $430,167 $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 agreed to pay the expenses of the Fund, exclusive of management fee. To the extent actual
expenses were over these limitations, the net investment income (loss) per share and the ratios would have been:
Net investment income (loss) $(0.05) $(0.06) $(0.06) $(0.07) $(0.11) $ --
Ratios (to average net assets):
Expenses## 0.83%+ 0.84% 0.87% 0.98% 1.54% 2.50%+
Net investment income (loss) (0.47)%+ (0.31)% (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 reported at market value using last sale
prices. Unlisted equity securities or listed equity securities for which last
sale prices are not available are reported at market value using 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
discount is 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.
(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 adviser has voluntarily agreed
to pay expenses of the Fund excluding management fees. This is reflected as a
preliminary 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,
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 at the following annual percentages of the Fund's
average daily net assets provided that the administrative fee is not assessed on
Fund assets that exceed $3 billion:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
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, MFS Fund Distributors, Inc. (MFD), and
MFS Service Center, Inc. (MFSC).
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the average daily net assets at an effective annual rate of
0.0075%.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$214,777,666 and $203,255,642, 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 $388,009,584
------------
Gross unrealized appreciation $ 63,701,282
Gross unrealized depreciation (23,170,561)
------------
Net unrealized appreciation $ 40,530,721
============
(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 December 31, 1997 Year Ended June 30, 1997
---------------------------------- ----------------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 3,180,818 $ 73,529,967 5,591,839 $110,894,997
Shares issued to shareholders in
reinvestment of distributions 2,819,881 54,141,729 2,309,406 42,400,694
Shares reacquired (2,170,840) (49,050,270) (2,272,650) (44,004,146)
---------- ------------- ---------- ------------
Net increase 3,829,859 $ 78,621,426 5,628,595 $109,291,545
========== ============= ========== ============
</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 six months ended December 31, 1997, was $1,225.
--------------------------------------------
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)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
IEE-3 2/98 .5M
