<PAGE>
[Logo] M F S(SM) Annual Report
INSTITUTIONAL ADVISORS, INC for Year Ended
June 30, 1998
- --------------------------------------------------------------------------------
MFS(R) INSTITUTIONAL MID CAP GROWTH FUND
(FORMERLY MFS(R) INSTITUTIONAL MID CAP GROWTH EQUITY FUND)
- --------------------------------------------------------------------------------
[Graphic Omitted]
<PAGE>
MFS(R) INSTITUTIONAL MID CAP GROWTH FUND
(FORMERLY MFS(R) INSTITUTIONAL MID CAP GROWTH EQUITY FUND)
TRUSTEES INVESTMENT ADVISER
Jeffrey L. Shames* Massachusetts Financial Services
Chairman, Chief Executive Officer, and Company
Director, MFS(R) Investment 500 Boylston Street
Management(SM) Boston, MA 02116-3741
Nelson J. Darling, Jr. DISTRIBUTOR
Professional Trustee MFS Fund Distributors, Inc.
500 Boylston Street
William R. Gutow Boston, MA 02116-3741
Vice Chairman,
Capitol Entertainment Management INVESTOR SERVICE
Company; MFS Service Center, Inc.
Real Estate Consultant P.O. Box 2281
Boston, MA 02107-9906
PORTFOLIO MANAGER
John W. Ballen* For additional information,
Mark Regan* contact your financial adviser.
CHAIRMAN AND PRESIDENT CUSTODIAN
Jeffrey L. Shames* State Street Bank and Trust Company
TREASURER AUDITORS
W. Thomas London* Deloitte & Touche LLP
ASSISTANT TREASURERS WORLD WIDE WEB
Mark E. Bradley* www.mfs.com
Ellen Moynihan*
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
- --------------------------------------------------------------------------------
For the fourth year in a row, MFS earned a #1 ranking
in the DALBAR, 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
[Dalbar logo] 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
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Shareholders:
With the U.S. stock market well into its fourth year of record-breaking
advances, it is necessary to take a cautious outlook. By most commonly
accepted measures, equity valuations appear to have risen to a point at which
the stock market has become more vulnerable to changes in the investment
environment such as rising inflation and interest rates or a slowing economy.
As a result, while we continue to hold a favorable long-term outlook for the
equity markets, we also believe that a significant market correction is
possible and that such a correction would be a healthy near-term event.
Currently, equity investors seem to be primarily focused on interest rates,
which have been relatively stable for several months as inflation has remained
low. In an environment of low interest rates, stocks become more attractive
than most fixed-income investments, while low inflation helps control
companies' costs, such as for raw materials, wages, and benefits. The near-
term outlook for a continuation of this environment appears relatively
favorable. However, this year has seen a marked slowdown in corporate
earnings. This means that as equity prices continue to rise, price-to-earnings
(P/E) ratios, or the amount an investor pays for a stock in relation to the
company's earnings per share, also go up. A year ago, the average P/E ratio
for stocks in the unmanaged Standard & Poor's 500 Composite Index stood at
approximately 22; this summer, the average P/E ratio was 32% higher, at about
29. In some cases, such as with some of the newer companies associated with
the Internet, P/E ratios have soared to levels that are unlikely to be
sustained.
As long as interest rates remain low and the economy continues to grow, it is
possible that some of these valuations can be supported. We expect corporate
earnings to grow 4% to 6% this year. However, just as no one can predict
market cycles, so too no one can predict economic cycles -- except to say that
these cycles do exist and that an economic slowdown at some point is
inevitable.
Internationally, the economic turmoil in Asia continues to be a concern to us,
and we believe the United States has yet to see the full impact of this
crisis. There have been brief periods when some Asian economies appeared to
improve, but the situation remains quite dynamic and could turn worse before
getting better. While the crisis has affected all countries in Asia, Japan was
a major factor behind the turmoil as excesses in its banking and real estate
sectors have led to severe currency problems. In the long run, Japan will be
the engine that drives the region's eventual recovery, thus it warrants closer
investor scrutiny. At the same time, the Asian turmoil has had the beneficial
effect of moderating U.S. growth and keeping inflation in check, which has
helped establish a favorable interest-rate environment.
Countering the situation in Asia has been the greater-than-expected strength
of European economies. As Europe moves toward economic union, these countries
have benefited from a convergence of interest rates to lower levels, a rapid
expansion of manufacturing and service businesses, and an increasingly strong
consumer sector. This has helped American exporters offset some of their Asian
losses, while providing numerous investment opportunities in developed and
emerging European markets.
Given the uncertainty arising from these conflicting developments, we believe
it is prudent to remind investors of the need to take a long-term view and to
diversify their investments across a range of asset classes. This includes
portfolios that focus on bonds and international investments as well as on the
U.S. stock market. The likelihood of an eventual market correction also makes
it important for us to use original, bottom-up research to find companies that
we think can keep growing or gain market share in the face of the occasional
downturn. To help achieve this, and to provide the broadest possible coverage
of industry sectors and individual companies, MFS continues to increase its
number of full-time research analysts. These analysts thoroughly investigate
each company's earnings potential and position in its industry as well as the
overall prospects for that industry.
MFS also uses active portfolio management on the fixed-income side, taking
advantage of our extensive research and credit analysis to help reduce the
potential for price declines and enhance the opportunity for appreciation.
Every year, both fixed-income and equity managers meet with thousands of
credit issuers and companies. They also attend many presentations, closely
follow sources of industry research, and keep track of competitors.
We believe that applying this discipline of thorough, bottom-up research to both
the equity and fixed-income markets is the best way to provide favorable
long-term performance for our shareholders -- regardless of changes in the
overall market environment.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS(R) Investment Management(SM)
July 13, 1998
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
Dear Shareholders:
For the twelve months ended June 30, 1998, the Fund provided a total return of
29.15% (including the reinvestment of distributions). This compares to a
24.02% return for the Russell Mid-Cap Growth Index (the Russell Index), which
measures the performance of the 800 smallest companies in the Russell 1000
Index. The Standard & Poor's 500 Composite Index (the S&P 500), a popular,
unmanaged index of common stock total return performance, posted a 30.16%
return over the same period.
Through the first half of 1998, the market continued its now familiar theme of
favoring larger-capitalization stocks at the expense of mid-cap growth-
oriented companies. In the second quarter of 1998, for example, the market
exhibited a widely disparate performance in terms of capitalization and
investment styles.
The U.S. equity market retreated in the second quarter of 1998, pulling back
from the astonishing levels reached in the first quarter. The S&P 500 gained
3.3% in the second quarter, compared to a lofty advance of 14.0% in the first
quarter. The Asian situation continued to cast a general pall on the market as
investors realized that the region's economic and political troubles were not
improving, and, in fact, were worsening. Fears of a widespread bank or
corporate failure in Japan also pervaded the market in the second quarter, as
investment dollars flowed into U.S. bonds and large-capitalization equities in
a flight to quality and liquidity. Amid the Asian woes, fears of a Federal
Reserve Board interest-rate hike dissipated. Despite the first quarter's
strong 5.4% economic growth, there is general consensus among economists of
slower growth for the rest of the year.
A sharp, across-the-board correction in technology stocks that began in the
fourth quarter of 1997 continued into the early stages of the second quarter
of 1998. We had reduced our holdings in technology in mid- to late-1997.
Partly as a result of that reduction, the Fund's technology weighting has been
reduced from a high of over 38% of assets to approximately 25%. However,
recent performance has been impacted by declines in Edify, Natural
Microsystems, Security Dynamics, and Teradyne.
In the health care sector, the Fund was hurt by weak performance from Cytyc,
Concentra Managed Care, and PSS World Medical.
Our oil services holdings suffered from weakening demand in Asia due to the
continuing economic turmoil in the region, which resulted in dramatically
lower energy prices. We continue to believe, however, that we own the right
companies in this sector, such as the oil services stocks Diamond Offshore and
Cooper Cameron. Based on their strong balance sheets and management talent, we
believe stocks in this sector will recover and may be aided by a more normal
winter season than we saw last year. We view this as an opportunistic time to
add to these positions.
On the positive side, our two largest holdings, Gemstar, which manufactures
navigation systems for the consumer electronics market, and Ascend, a wide
area data networking company, have posted outstanding gains for the year thus
far. Also in 1998, we have added a new position in Computer Learning Centers,
an educational services company, which posted a very strong gain in the second
quarter of 1998. We added to our holdings in Synopsys, a provider of
electronic design automation tools, which also performed well in the second
quarter based on strong earnings. These four holdings resulted in a more than
4% gain to the portfolio during the second quarter of 1998.
The portfolio again took profits from buyouts of several companies. Viking
Office Products was purchased by Office Depot, Mariner Health was purchased by
Paragon Health, and Giant Foods was purchased by a French company during the
second quarter of 1998.
We have added recently to a number of out-of-favor stocks that we think offer
great growth potential but are not currently providing the near-term earnings
momentum in vogue with many investors. Specifically, we added to Cytyc, Edify
and Sipex.
Our outlook for the balance of 1998 and early 1999 is mixed. The recent
divergence in the performances of the S&P 500 and the small- and mid-cap
markets suggests tremendous opportunities in the mid-cap arena. While there is
no guarantee that this gap will close soon, we are heartened by the recent
return to favor of some growth-oriented stocks.
Asia remains a major concern, and its potential impact on a number of
industries has resulted in modifications of several major positions.
Specifically, the semiconductor equipment area faces serious challenges over
the next few quarters as the Asian economies adjust their exchange and
interest rates. However, we feel we have positioned the portfolio to minimize
the direct impact of Asia's troubles on the Fund.
We see tremendous value in many of our smaller-capitalization holdings, as
well as favorable growth rates. As always, we modify our investment weightings
based on valuations and confidence in the individual businesses we look at. We
continue to expect positive returns, especially given the currently low
interest-rate environment.
Respectfully,
/s/ John W. Ballen /s/ Mark Regan
John W. Ballen Mark Regan
Portfolio Manager Portfolio Manager
The opinions expressed in this report are those of the portfolio managers and
are only through the end of the period of the report as stated on the cover.
The managers' views are subject to change at any time based on market and
other conditions, and no forecasts can be guaranteed.
<PAGE>
PORTFOLIO MANAGERS' PROFILES
John W. Ballen was named President and Chief Investment Officer of MFS(R)
Investment Management(SM) effective August 1, 1998. He is a member of the
Board of Directors of MFS(R) Investment Management(SM), as well as portfolio
manager of MFS(R) Emerging Growth Fund, MFS(R) World Growth Fund, MFS(R) World
Asset Allocation(SM) Fund, MFS(R) Institutional Mid Cap Growth Fund, MFS(R)
Institutional Emerging Equities Fund, MFS(R) Emerging Growth Series, part of
MFS(R) Variable Insurance Trust(SM), and the Emerging Growth Series, World
Asset Allocation(SM) Series and World Growth Series offered through MFS(R)/Sun
Life annuity products. Mr. Ballen joined the MFS Research Department in 1984
as an industry specialist. He was named 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, Executive Vice President in 1997, and a member of the
Board in 1998. Mr. Ballen is a graduate of Harvard College and earned a Master
of Commerce degree from the University of New South Wales in Australia and a
Master of Business Administration degree from Stanford University.
Mark Regan is a Vice President of MFS(R) Investment Management(SM) and
portfolio manager of MFS(R) Mid Cap Growth Fund and MFS(R) Institutional Mid
Cap Growth Fund. He joined MFS in 1989 as a Research Analyst. He was named an
Investment Officer in 1990; an Assistant Vice President -- Investments in
1991; a Vice President -- Investments in 1992 and a portfolio manager in 1993.
Mr. Regan is a graduate of Cornell University and the Sloan School of
Management at the Massachusetts Institute of Technology.
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. Please read it carefully before investing
or sending money.
<PAGE>
FUND FACTS
Note: The Fund changed its name from MFS(R) Institutional Mid Cap Growth
Equity Fund to MFS Institutional Mid Cap Growth Fund effective November 1,
1997.
Objective: Seeks 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
with market capitalizations within the range of
approximately $500 million to $5 billion.
Commencement of
investment operations: December 28, 1995
Size: $48.9 million net assets as of June 30, 1998
PERFORMANCE SUMMARY
The information below illustrates the historical performance of the Fund 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. The minimum initial investment is generally $3 million. Shares of
the Fund are purchased at net asset value.
GROWTH OF A HYPOTHETICAL $3,000,000 INVESTMENT
(For the period from January 1, 1996, through June 30, 1998)
MFS
Institutional S&P 500 Russell Consumer
Mid-Cap Growth Composite Mid-Cap Price Index
Fund Index Growth Index - U.S.
- ---------------------------------------------------------------------------
1/96 $3,000,000 $3,000,000 $3,000,000 $3,000,000
6/96 3,336,000 3,303,000 3,524,000 3,064,000
6/97 4,159,000 4,449,000 4,319,000 3,135,000
6/98 4,868,362 5,790,590 4,831,265 3,189,824
AVERAGE ANNUAL TOTAL RETURNS THROUGH JUNE 30, 1998
1 Year 10 Years/Life
- -------------------------------------------------------------------------------
MFS Institutional Mid Cap Growth Fund* +29.15% +21.30%
- -------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index# +30.16% +30.15%
- -------------------------------------------------------------------------------
Russell Mid-Cap Growth Index## +24.02% +21.00%
- -------------------------------------------------------------------------------
Consumer Price Index#+ + 1.75% + 2.49%
- -------------------------------------------------------------------------------
* "Life" refers to the period from the commencement of the Fund's investment
operations, December 28, 1995, through June 30, 1998.
# Source: CDA/Wiesenberger. "Life" refers to the period from January 1, 1996,
through June 30, 1998.
## Source: AIM. "Life" refers to the period from January 1, 1996, through June
30, 1998.
+ The Consumer Price Index is published by the U.S. Bureau of Labor Statistics
and measures the cost of living (inflation).
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. Performance results
reflect any applicable expense subsidies and waivers, without which the
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, 1998
Stocks - 93.0%
- ------------------------------------------------------------------------------
Issuer Shares Value
- ------------------------------------------------------------------------------
U.S. Stocks - 91.2%
Advertising
Young & Rubicam, Inc.* 200 $ 6,400
- ------------------------------------------------------------------------------
Banks and Credit Companies - 2.5%
Compass Bancshares, Inc. 9,500 $ 428,687
First Security Corp. 13,100 280,422
Regions Financial Corp. 3,600 147,825
Washington Mutual, Inc. 8,400 364,875
-----------
$ 1,221,809
- ------------------------------------------------------------------------------
Biotechnology - 0.3%
IDEXX Laboratories, Inc.* 5,400 $ 134,325
- ------------------------------------------------------------------------------
Business Machines - 1.0%
Affiliated Computer Services, Inc., "A"* 12,800 $ 492,800
- ------------------------------------------------------------------------------
Business Services - 11.0%
Answerthink Consulting Group, Inc.* 100 $ 2,150
BISYS Group, Inc.* 6,200 254,200
Computer Learning Centers, Inc.* 41,300 1,027,337
Computer Sciences Corp. 13,100 838,400
DST Systems, Inc.* 8,300 464,800
Fiserv, Inc.* 18,425 782,487
Learning Tree International, Inc.* 34,500 694,312
Paymentech, Inc.* 23,600 485,275
Professional Detailing, Inc.* 100 2,488
SPS Transaction Services, Inc.* 6,000 188,250
Technology Solutions Co.* 20,650 654,347
-----------
$ 5,394,046
- ------------------------------------------------------------------------------
Chemicals - 2.9%
Cambrex Corp. 16,000 $ 420,000
Sigma-Aldrich Corp. 28,400 997,550
-----------
$ 1,417,550
- ------------------------------------------------------------------------------
Computer Software - Personal Computers - 1.6%
Autodesk, Inc. 13,900 $ 536,887
Intuit, Inc.* 3,500 214,375
MicroProse, Inc.* 8,340 37,009
Verio, Inc.* 200 4,975
-----------
$ 793,246
- ------------------------------------------------------------------------------
Computer Software - Services
International Integration, Inc.* 100 $ 1,725
- ------------------------------------------------------------------------------
Computer Software - Systems - 11.2%
BMC Software, Inc.* 12,300 $ 638,831
Cadence Design Systems, Inc.* 18,820 588,125
Compuware Corp.* 4,200 214,725
Comverse Technology, Inc.* 8,400 435,750
Discreet Logic, Inc.* 47,100 547,538
Edify Corp.* 89,200 903,150
Oracle Corp.* 24,062 591,023
Rational Software Corp.* 6,800 103,700
Security Dynamics Technologies, Inc.* 16,700 308,950
Synopsys, Inc.* 24,862 1,137,436
-----------
$ 5,469,228
- ------------------------------------------------------------------------------
Consumer Goods and Services - 1.7%
Lo Jack Co.* 31,200 $ 388,050
Sportsline USA, Inc.* 5,400 197,438
Tyco International Ltd. 4,260 268,380
-----------
$ 853,868
- ------------------------------------------------------------------------------
Electrical Equipment - 3.3%
Cable Design Technologies Corp.* 78,850 $ 1,626,281
- ------------------------------------------------------------------------------
Electronics - 4.4%
Analog Devices, Inc.* 6,900 $ 169,481
KLA-Tencor Corp.* 4,300 119,056
Sipex Corp.* 50,800 1,092,200
Teradyne, Inc.* 28,000 749,000
-----------
$ 2,129,737
- ------------------------------------------------------------------------------
Energy - 0.3%
BJ Services Co.* 4,500 $ 130,781
- ------------------------------------------------------------------------------
Entertainment - 8.0%
Citadel Communications Corp. 400 $ 6,400
Cox Radio, Inc., "A"* 4,700 203,275
Gemstar International Group Ltd.* 60,661 2,270,996
Heftel Broadcasting Corp., "A"* 16,600 742,850
Jacor Communications, Inc.* 3,300 194,700
Mediaone Group, Inc.* 11,900 522,856
-----------
$ 3,941,077
- ------------------------------------------------------------------------------
Financial Institutions - 2.2%
ARM Financial Group, Inc., "A" 1,700 $ 37,613
Finova Group, Inc. 9,600 543,600
Union Planters Corp. 8,100 476,381
-----------
$ 1,057,594
- ------------------------------------------------------------------------------
Financial Services - 0.5%
Enhance Financial Services Group, Inc. 7,200 $ 243,000
- ------------------------------------------------------------------------------
Food and Beverage Products - 1.3%
Beverly Enterprises, Inc.* 7,800 $ 107,738
McCormick & Co., Inc. 10,800 385,762
Tootsie Roll Industries, Inc. 1,766 135,541
-----------
$ 629,041
- ------------------------------------------------------------------------------
Industrial - 0.5%
Mutual Risk Management Ltd. 6,200 $ 225,913
- ------------------------------------------------------------------------------
Insurance - 1.7%
ESG Re Ltd. 12,900 $ 278,962
Healthcare Recoveries, Inc.* 11,900 235,025
Life Re Corp. 1,500 124,313
Mid Ocean Ltd. 2,700 211,950
-----------
$ 850,250
- ------------------------------------------------------------------------------
Medical and Health Products - 1.3%
Biomet, Inc. 4,100 $ 135,556
Cytoclonal Pharmaceuticals, Inc.* 3,200 22,400
Datascope Corp.* 1,100 29,219
King Pharmaceuticals, Inc.* 1,400 19,600
Mentor Corp. 3,800 92,150
PSS World Medical, Inc.* 18,400 269,100
UroMed Corp.* 13,800 76,763
-----------
$ 644,788
- ------------------------------------------------------------------------------
Medical and Health Technology and Services - 9.5%
Concentra Managed Care, Inc.* 61,536 $ 1,599,936
Cytyc Corp.* 91,800 1,497,487
HCIA, Inc.* 14,600 187,975
HealthSouth Corp.* 14,940 398,711
MedPartners, Inc.* 12,100 96,800
Mid Atlantic Medical Services, Inc.* 25,900 297,850
Total Renal Care Holdings, Inc.* 15,143 522,434
Transition Systems, Inc.* 6,600 70,125
-----------
$ 4,671,318
- ------------------------------------------------------------------------------
Oil Services - 3.6%
Cooper Cameron Corp.* 8,800 $ 448,800
Diamond Offshore Drilling, Inc. 7,500 300,000
Global Industries, Inc.* 14,600 246,375
National Oilwell, Inc.* 3,000 80,438
Noble Drilling Corp.* 18,800 452,375
Transocean Offshore, Inc. 4,800 213,600
-----------
$ 1,741,588
- ------------------------------------------------------------------------------
Oils - 2.5%
Apache Corp. 7,100 $ 223,650
Houston Exploration Co.* 9,200 211,025
Newfield Exploration Co.* 31,200 776,100
-----------
$ 1,210,775
- ------------------------------------------------------------------------------
Printing and Publishing - 1.5%
Scholastic Corp.* 11,300 $ 450,587
Scripps (E.W.) Howard, Inc. 4,700 257,619
-----------
$ 708,206
- ------------------------------------------------------------------------------
Railroads - 1.3%
Kansas City Southern Industries, Inc. 13,000 $ 645,125
- ------------------------------------------------------------------------------
Restaurants and Lodging - 0.8%
Choice Hotels, Inc.* 2,750 $ 37,297
Promus Hotel Corp.* 9,600 369,600
-----------
$ 406,897
- ------------------------------------------------------------------------------
Stores - 5.1%
BJ's Wholesale Club, Inc.* 32,100 $ 1,304,062
Rite Aid Corp. 27,600 1,036,725
Viking Office Products, Inc.* 4,100 128,638
-----------
$ 2,469,425
- ------------------------------------------------------------------------------
Supermarkets - 1.6%
Meyer (Fred), Inc.* 18,360 $ 780,300
- ------------------------------------------------------------------------------
Telecommunications - 9.6%
Aerial Communications, Inc.* 50,500 $ 315,625
Ascend Communications, Inc.* 37,410 1,854,133
Aspect Telecommunications Corp.* 17,600 481,800
Cellular Communications International* 1,500 74,813
Com21, Inc.* 100 2,125
Corsair Communications, Inc.* 6,900 64,256
Cox Communications, Inc.* 5,700 276,094
Intermedia Communications, Inc.* 10,800 452,925
Lightbridge, Inc.* 22,800 193,800
Natural Microsystems Corp.* 16,700 267,200
Qwest Communications International, Inc.* 20,414 711,938
-----------
$ 4,694,709
- ------------------------------------------------------------------------------
Utilities - Telephone
U.S. West, Inc.* 158 $ 7,426
- ------------------------------------------------------------------------------
Total U.S. Stocks $44,599,228
- ------------------------------------------------------------------------------
Foreign Stocks - 1.8%
Bermuda -- 1.0%
Ace Ltd. 13,100 $ 510,900
- ------------------------------------------------------------------------------
Netherlands - 0.8%
Elsag Bailey Process Automation N.V. (Machinery)* 15,500 $ 372,969
- ------------------------------------------------------------------------------
Total Foreign Stocks $ 883,869
- ------------------------------------------------------------------------------
Total Stocks (Identified Cost, $42,134,889) $45,483,097
- ------------------------------------------------------------------------------
Short-Term Obligations - 7.3%
- ------------------------------------------------------------------------------
Principal Amount
(000 Omitted)
- ------------------------------------------------------------------------------
Federal Home Loan Bank, due 7/01/98 $ 730 $ 730,000
Federal National Mortgage Assn., due 7/02/98 2,850 2,849,570
- ------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 3,579,570
- ------------------------------------------------------------------------------
Total Investments (Identified Cost, $45,714,459) $49,062,667
Other Assets, Less Liabilities - (0.3)% (126,889)
- ------------------------------------------------------------------------------
Net Assets - 100.0% $48,935,778
- ------------------------------------------------------------------------------
*Non-income producing security.
See notes to financial statements
<PAGE>
Financial Statements
Statement of Assets and Liabilities
- -------------------------------------------------------------------------------
June 30, 1998
- -------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $45,714,459) $49,062,667
Cash 3,632
Receivable for investments sold 65,956
Dividends receivable 10,236
Receivable from investment adviser 56,993
Deferred organization expense 4,182
Other assets 873
-----------
Total assets $49,204,539
-----------
Liabilities:
Payable for investments purchased $ 238,059
Payable to affiliates -
Management fee 2,374
Administrative fee 60
Shareholder servicing agent fee 27
Accrued expenses and other liabilities 28,241
-----------
Total liabilities $ 268,761
-----------
Net assets $48,935,778
===========
Net assets consist of:
Paid-in capital $40,483,315
Unrealized appreciation on investments 3,348,208
Accumulated undistributed net realized gain on investments 5,104,255
-----------
Total $48,935,778
===========
Shares of beneficial interest outstanding 3,254,597
=========
Net asset value, redemption price, and offering price per share
(net assets of $48,935,778 / 3,254,597 shares of beneficial
interest outstanding) $15.04
======
See notes to financial statements
<PAGE>
Financial Statements - continued
Statement of Operations
- -------------------------------------------------------------------------------
Year Ended June 30, 1998
- -------------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 74,811
Dividends 71,859
Foreign taxes withheld (16)
----------
Total investment income $ 146,654
----------
Expenses -
Management fee $ 184,339
Trustees' compensation 5,000
Shareholder servicing agent fee 2,317
Administrative fee 4,372
Registration fee 17,673
Auditing fee 18,065
Custodian fee 11,962
Printing 6,470
Legal fee 1,883
Amortization of organization expenses 1,394
Miscellaneous 75
----------
Total expenses $ 253,550
Fees paid indirectly (2,427)
Reduction of expenses by investment adviser (51,423)
----------
Net expenses $ 199,700
----------
Net investment loss $ (53,046)
----------
Realized and unrealized gain on investments:
Realized gain (identified cost basis) on investment
transactions $6,352,347
Change in unrealized appreciation on investments 1,207,679
----------
Net realized and unrealized gain on investments $7,560,026
----------
Increase in net assets from operations $7,506,980
==========
See notes to financial statements
<PAGE>
Financial Statements - continued
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------
Year Ended June 30, 1998 1997
- -------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment loss $ (53,046) $ (1,784)
Net realized gain on investments 6,352,347 349,787
Net unrealized gain on investments 1,207,679 2,091,782
----------- -----------
Increase in net assets from operations $ 7,506,980 $ 2,439,785
----------- -----------
Distributions declared to shareholders
from net realized gain on investments $(1,324,355) $ (355,868)
----------- -----------
Net increase in net assets from Fund
share transactions $17,746,250 $14,773,623
----------- -----------
Total increase in net assets $23,928,875 $16,857,540
Net assets:
At beginning of period 25,006,903 8,149,363
----------- -----------
At end of period (including accumulated
net investment loss of $0 and $0,
respectively) $48,935,778 $25,006,903
=========== ===========
See notes to financial statements
<PAGE>
<TABLE>
Financial Statements - continued
Financial Highlights
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended
------------------------------------ Period Ended
June 30, 1998 June 30, 1997 June 30, 1996*
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $12.25 $11.13 $10.00
------ ------ ------
Income from investment operations# -
Net investment loss(S) $(0.02) $(0.00)** $(0.01)
Net realized and unrealized gain on investments 3.45 1.40 1.14
------ ------ ------
Total from investment operations $ 3.43 $ 1.40 $ 1.13
------ ------ ------
Less distributions declared to shareholders from net
realized gain on investments $(0.64) $(0.28) $ --
------ ------ ------
Net asset value - end of period $15.04 $12.25 $11.13
====== ====== ======
Total return 29.15% 12.80% 11.30%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 0.65% 0.65% 0.70%+
Net investment loss (0.17)% (0.01)% (0.25)%+
Portfolio turnover 143% 136% 33%
Net assets at end of period (000 omitted) $48,936 $25,007 $ 8,149
* For the period from the commencement of the Fund's investment operations, December 28, 1995, through
June 30, 1996.
** The per share amount was less than $0.01.
+ 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 adviser voluntarily agreed to maintain the other expenses, excluding management fees, of the
Fund at no more than 0.05% of average daily net assets effective May 3, 1996. During the period December 28,
1995, through May 2, 1996, the Adviser agreed to maintain the expenses at no more than 0.75%. To the extent
actual expenses were over these limitations, the net investment loss per share and ratios would have been:
Net investment loss $(0.04) $(0.04) $(0.09)
Ratios (to average net assets):
Expenses## 0.83% 0.98% 2.59%+
Net investment loss (0.35)% (0.34)% (2.14)%+
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Institutional Mid Cap Growth Fund (formerly MFS(R) Institutional Mid Cap
Growth Equity Fund), (the Fund) is a diversified series of MFS(R)
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.
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 discount
is 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 month end net assets. The fee is reduced according to an
arrangement that 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 net realized gains. During
the year ended June 30, 1998, $53,046 was reclassified from accumulated net
investment loss to accumulated net realized gain on investments due to
differences between book and tax accounting for the offset of net investment
loss against short-term capital gains. This change had no effect on the net
assets or net asset value per share.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.60%
of average daily net assets. The investment adviser has voluntarily agreed to
pay expenses of the Fund in order to maintain other expenses, excluding
management fees, at no more than 0.05% of the Fund's average daily net assets.
This is reflected as a reduction of expenses in the Statement of Operations.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive
remuneration for their services to the Fund from MFS. Certain officers and
Trustees of the Fund are officers or directors of MFS and MFS Service Center,
Inc. (MFSC).
Administrator - The Fund has an administrative services agreement with MFS to
provide the Fund with certain financial, legal, shareholder servicing,
compliance, 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:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
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 and
short-term obligations, aggregated $57,386,091 and $42,729,401, 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 $45,958,760
===========
Gross unrealized appreciation $ 5,980,952
Gross unrealized depreciation (2,632,744)
-----------
Net unrealized appreciation $ 3,103,907
===========
(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, 1998 Year Ended June 30, 1997
-------------------------------- ------------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,169,138 $17,272,721 1,284,350 $14,503,643
Shares issued to shareholders in
reinvestment of distributions 90,842 1,125,529 25,021 269,980
Shares reacquired (46,638) (652,000) -- --
--------- ----------- --------- -----------
Net increase 1,213,342 $17,746,250 1,309,371 $14,773,623
========= =========== ========= ===========
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in a $805 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, 1998, was $207.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Institutional Trust and Shareholders of MFS
Institutional Mid Cap Growth Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of the MFS Institutional Mid Cap
Growth Fund (formerly MFS(R) Institutional Mid Cap Growth Equity Fund) (one of
the series comprising MFS Institutional Trust) as of June 30, 1998, the
related statement of operations for the year then ended, the statement of
changes in net assets for years ended June 30, 1998 and 1997, and the
financial highlights for each of the years in the three-year period ended June
30, 1998. These financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conduct 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 securities
owned at June 30, 1998 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
Mid Cap Growth Fund at June 30, 1998, 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 7, 1998
<PAGE>
Federal Tax Information
In January 1999, shareholders will be mailed a Form 1099 reporting the federal
tax status of all distributions paid during the calendar year 1998.
For the year ended June 30, 1998, the amount of distributions from income
eligible for the 70% dividend received deduction for corporations came to 2%.
The Fund has designated $137,883 as a capital gain dividend.
<PAGE>
(C)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
IMC-2 8/98 .5M
