<PAGE>
[Logo MFS(SM) Annual Report
INSTITUTIONAL ADVISORS, INC. for Year Ended
June 30, 1998
- --------------------------------------------------------------------------------
MFS(R) INSTITUTIONAL EMERGING EQUITIES FUND
- --------------------------------------------------------------------------------
[Graphic Omitted]
<PAGE>
MFS(R) INSTITUTIONAL EMERGING EQUITIES FUND
<TABLE>
<S> <C>
TRUSTEES INVESTMENT ADVISER
Jeffrey L. Shames* Massachusetts Financial Services Company
Chairman, Chief Executive Officer, and 500 Boylston Street
Director, MFS(R) Investment Boston, MA 02116-3741
Management(SM)
DISTRIBUTOR
Nelson J. Darling, Jr. MFS Fund Distributors, Inc.
Professional Trustee 500 Boylston Street
Boston, MA 02116-3741
William R. Gutow
Vice Chairman, INVESTOR SERVICE
Capitol Entertainment Management Company; MFS Service Center, Inc.
Real Estate Consultant P.O. Box 2281
Boston, MA 02107-9906
PORTFOLIO MANAGERS
John W. Ballen* For additional information,
Brian E. Stack* 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.*
</TABLE>
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[DALBARLOGO] 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 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.
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 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
23.51%, which compares to a 16.50% return for the Russell 2000 Total Return
Index and a 13.20% return for the Russell 2000 Growth Index. 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.
The portfolio invests in small-capitalization companies that we believe are best
positioned to become major enterprises over a period of three-to-five years
based on their abilities to produce sustainable and predictable growth in sales,
revenues, and earnings. In choosing stocks, we are careful to assure that the
prices we're paying are in line with the companies' actual fundamental strength
and long-term growth prospects. The foundation of our stock picking process is
MFS(R) Original Research(SM), by which stocks are selected after in-depth
fundamental analysis of companies' earnings outlooks, managements, business
models, competitive strategies, market positions, and growth prospects. This
research-intensive process allows us to own companies that are enjoying growth
driven by innovation and creativity rather than by the temporary boost of a
booming economy.
When investing in smaller companies, thorough research is essential, as smaller
companies are generally followed on Wall Street by fewer analysts than are
larger corporations. Simply put, the depth of information about any small
company that is available to investors is limited. Our staff of more than 30
research analysts helps us gain an informational edge that enables us to
discover promising young stocks early.
Much of the economic growth in the United States has been driven by technology
companies. Technology stocks comprise about 26% of the equities in the portfolio
and, in choosing investments here, we seek out stocks that, spurred by the
growing demand for all types of technology, we believe can sustain long-term
growth. We have been a long-term holder of PMC-Sierra, for example, which makes
an integrated circuit for transmitting voice and data over a wide area. This
company is benefiting from the Internet boom and the growing demand for
multimedia applications. The company's high margins, leading market share, and
ability to compete effectively in a fast-growing market sector have made it an
attractive investment for the portfolio.
Another stock that is a byproduct of the growth of technology in our lives is
Learning Tree International. Learning Tree provides information technology
training to technology professionals. The pace of change in technology is so
rapid that even professionals can find their skills becoming obsolete. We owned
the stock at its initial public offering, and it performed exceptionally well in
the months following, driven by great demand for training on Microsoft's then
leading-edge version of Windows NT. As that product cycle ran its course, we
sold the company's stock because our research indicated that the company
couldn't sustain its lofty valuation, despite its underlying fundamental
strength. However, it remains a leader in a vibrant market and is investing to
extend that leadership. We feel the stock is now attractively priced and we are
currently adding to our position because we expect solid long-term growth and
that the company's franchise is strong.
Finally, as we approach the end of the century, our investment decisions must
take into account the looming Year 2000 problem for makers and consumers of
technology. This issue presents both an opportunity and a risk. We do not invest
in companies whose main line of business is fixing Year 2000 problems because
this will only provide them with short-term earnings growth that will likely
disappear after the turn of the century. However, companies that can use their
Year 2000 expertise as an entree for additional client work may be good
candidates for the portfolio. At the same time, the Year 2000 problem creates a
potential investment risk for portfolio companies that rely heavily on
older-generation computer systems. These companies will need to spend vast
amounts of time and money to update their software. We are carefully reviewing
the action plans of portfolio companies that might be vulnerable to this risk.
Globally, the Asian crisis has had little impact on the portfolio, as most of
the companies we invest in are focused on selling products and services to the
U.S. economy. Any damage to the portfolio has been more a reflection of investor
psychology than any real fundamental change. In Europe, while few companies are
dependent on international trade, the reduction of trade barriers between
European nations could help smaller companies sell globally earlier in their
life cycles. This could help their markets expand and their earnings grow.
Respectfully,
/s/ John W. Ballen /s/ Brian E. Stack
John W. Ballen Brian E. Stack
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.
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 Investment Management, 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.
Brian E. Stack is a Vice President -- Investments of MFS(R) Investment
Management(SM) and portfolio manager of MFS(R) Institutional Emerging Equities
Fund, MFS(R) New Discovery Fund and MFS(R) New Discovery Series offered through
MFS(R)/Sun Life annuity products. Mr. Stack joined MFS in 1993 as an equity
research analyst following the chemical, hospital management, HMO, medical
services and business services industries and was named a portfolio manager in
1996. He has worked as an equity analyst since 1987. He is a graduate of Boston
College and has an M.B.A. from the University of Virginia.
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
Objective: Seeks long-term growth of capital. The Fund invests,
under normal market conditions, at least 80% of its
assets in equity securities of small and medium-size
companies that are early in their life cycle but which
may have the potential to become major enterprises
(emerging growth companies).
Commencement of
investment operations: June 16, 1993
Size: $502.4 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 July 1, 1993, through June 30, 1998)
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.
MFS RUSSELL
INSTITUTIONAL 2000 CONSUMER
EMERGING TOTAL PRICE
EQUITIES RETURN INDEX
FUND INDEX -- U.S.
- ----------------------------------------------------------
7/93 $ 3,000,000 $ 3,000,000 $ 3,000,000
12/94 4,340,000 3,289,000 3,110,000
12/96 7,457,000 4,918,000 3,295,000
6/98 10,622,240 6,314,085 3,389,548
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS THROUGH JUNE 30, 1998
1 Year 3 Years 5 Years 10 Years/Life
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS Institutional Emerging Equities Fund* +23.51% +27.43% +28.34% +28.52%
- ----------------------------------------------------------------------------------------------------------------
Russell 2000 Growth Index# +13.20% +23.00% +18.07% +13.71%
- ----------------------------------------------------------------------------------------------------------------
Russell 2000 Total Return Index# +16.50% +18.85% +16.05% +16.05%
- ----------------------------------------------------------------------------------------------------------------
Consumer Price Index#+ + 1.75% + 2.27% + 2.47% + 2.47%
- ----------------------------------------------------------------------------------------------------------------
* "Life" refers to the period from the commencement of the Fund's investment operations, June 16, 1993, through June 30, 1998.
# Source: CDA/Wiesenberger. "Life" refers to the period from July 1, 1993, through June 30, 1998.
+ The Consumer Price Index is measured by the U.S. Bureau of Labor Statistics and measures the cost of living (inflation).
</TABLE>
All results are historical and assume the reinvestment of dividends and
capital gains. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 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.
Investments in foreign and emerging market securities may provide superior
returns but also involve greater risk than U.S. investments. Investments in
foreign and emerging market securities may be favorably or unfavorably
affected by changes in interest rates and currency exchange rates, market
conditions, and the economic and political conditions of the countries where
investments are made. These risks may increase share price volatility.
<PAGE>
PORTFOLIO OF INVESTMENTS - June 30, 1998
Stocks - 95.3%
- ------------------------------------------------------------------------------
Issuer Shares Value
- ------------------------------------------------------------------------------
U.S. Stocks - 95.3%
Advertising - 0.2%
Snyder Communications, Inc.* 18,692 $ 822,448
- ------------------------------------------------------------------------------
Airlines - 1.1%
Atlas Air, Inc.* 108,100 $ 3,655,131
Skywest, Inc. 70,900 1,985,200
------------
$ 5,640,331
- ------------------------------------------------------------------------------
Biotechnology - 1.8%
IDEXX Laboratories, Inc.* 366,600 $ 9,119,175
- ------------------------------------------------------------------------------
Broadcasting
Citadel Communications Corp. 4,500 $ 72,000
- ------------------------------------------------------------------------------
Business Machines - 3.2%
Affiliated Computer Services, Inc., "A"* 416,634 $ 16,040,409
Aztec Consulting, Inc.* 18,434 140,559
------------
$ 16,180,968
- ------------------------------------------------------------------------------
Business Services - 21.4%
AccuStaff, Inc.* 217,612 $ 6,800,375
Answerthink Consulting Group, Inc.* 1,600 34,400
BISYS Group, Inc.* 179,200 7,347,200
Catalina Marketing Corp.* 63,500 3,298,031
Ceridian Corp.* 67,200 3,948,000
Computer Learning Centers, Inc.* 238,200 5,925,225
Dendrite International, Inc.* 81,738 3,075,392
Diamond Technology Partners, Inc., "A"* 4,300 130,075
DST Systems, Inc.* 170,200 9,531,200
Fiserv, Inc.* 168,500 7,155,984
Franklin Covey Co.* 41,565 800,126
Galileo International, Inc. 55,900 2,518,994
Global Directmail Corp.* 188,100 2,374,762
Interim Services, Inc.* 244,104 7,841,841
International Network Services* 28,800 1,180,800
Learning Tree International, Inc.* 300,400 6,045,550
May & Speh, Inc.* 234,800 4,666,650
Mecon, Inc.* 83,900 870,463
Memberworks, Inc.* 40,600 1,309,350
Meta Group, Inc.* 148,750 3,291,094
National Processing, Inc.* 151,000 1,613,813
NOVA Corp.* 59,100 2,112,825
Paymentech, Inc.* 114,500 2,354,406
Personnel Group of America, Inc.* 81,500 1,630,000
PMT Services, Inc.* 222,000 5,647,125
Professional Detailing, Inc.* 14,900 370,638
Renaissance Worldwide, Inc.* 116,900 2,542,575
SPS Transaction Services, Inc.* 105,000 3,294,375
Superior Consultant, Inc.* 37,200 1,604,250
Superior Services, Inc.* 59,000 1,773,688
Technology Solutions Co.* 158,425 5,020,092
Teletech Holdings, Inc.* 114,900 1,407,525
------------
$107,516,824
- ------------------------------------------------------------------------------
Computer Software - Services - 0.1%
Concentric Network Corp.* 16,700 $ 506,219
International Integration, Inc.* 1,200 20,700
------------
$ 526,919
- ------------------------------------------------------------------------------
Computer Software - Systems - 15.4%
American Business Information, Inc., "A"* 139,000 $ 2,119,750
American Business Information, Inc., "B"* 120,000 1,920,000
Aspen Technology, Inc.* 108,200 5,464,100
Black Box Corp.* 50,300 1,669,331
Cadence Design Systems, Inc.* 343,250 10,726,562
Clarify, Inc.* 61,600 831,600
Compuware Corp.* 88,000 4,499,000
Comverse Technology, Inc.* 56,600 2,936,125
Edify Corp.* 89,100 902,138
Fair, Isaac & Co., Inc. 56,700 2,154,600
Harbinger Corp.* 105,700 2,556,619
IKOS Systems, Inc.* 37,500 146,484
Intelligroup, Inc.* 29,700 527,175
Peerless Systems Corp.* 68,700 1,425,525
RWD Technologies, Inc.* 13,600 321,300
SCB Computer Technology, Inc.* 77,100 848,100
Security Dynamics Technologies, Inc.* 161,820 2,993,670
Sterling Software, Inc.* 257,300 7,606,431
Summit Design, Inc.* 173,800 2,552,688
SunGard Data Systems, Inc.* 165,180 6,338,783
Synopsys, Inc.* 211,311 9,667,478
Transaction System Architects, Inc., "A"* 108,300 4,169,550
USCS International, Inc.* 140,700 2,910,731
Vantive Corp.* 64,400 1,320,200
Xionics Document Technologies, Inc.* 153,400 757,413
------------
$ 77,365,353
- ------------------------------------------------------------------------------
Consumer Goods and Services - 1.1%
Alternative Resources Corp.* 86,200 $ 1,066,725
Blyth Industries, Inc.* 87,100 2,896,075
Dial Corp. 62,100 1,610,719
------------
$ 5,573,519
- ------------------------------------------------------------------------------
Containers - 0.4%
AptarGroup, Inc. 17,100 $ 1,063,406
Stone Container Corp.* 60,600 946,875
------------
$ 2,010,281
- ------------------------------------------------------------------------------
Electrical Equipment - 1.7%
AFC Cable Systems, Inc.* 53,700 $ 1,906,350
Barnett, Inc.* 46,400 939,600
Belden, Inc. 77,300 2,367,313
Cable Design Technologies Corp.* 170,500 3,516,562
------------
$ 8,729,825
- ------------------------------------------------------------------------------
Electronics - 6.3%
Actel Corp.* 81,900 $ 880,425
Anadigics, Inc.* 68,000 926,500
Analog Devices, Inc.* 188,066 4,619,371
BMC Industries, Inc. 113,200 990,500
Burr-Brown Corp.* 159,225 3,343,725
DuPont Photomasks, Inc.* 49,000 1,690,500
International Rectifier Corp.* 156,100 1,326,850
Lattice Semiconductor Corp.* 85,900 2,440,097
Microchip Technology, Inc.* 67,500 1,763,438
Photronics, Inc.* 150,200 3,313,788
PMC-Sierra, Inc.* 79,900 3,745,312
Sipex Corp.* 133,200 2,863,800
Triquint Semiconductor, Inc.* 48,000 912,000
Ultratech Stepper, Inc.* 41,100 811,725
VLSI Technology, Inc.* 107,400 1,802,306
------------
$ 31,430,337
- ------------------------------------------------------------------------------
Entertainment - 4.0%
Gemstar International Group Ltd.* 194,300 $ 7,274,106
Harrah's Entertainment, Inc.* 162,800 3,785,100
Hearst-Argyle Television, Inc.* 27,100 1,084,000
Heftel Broadcasting Corp., "A"* 55,400 2,479,150
Jacor Communications, Inc.* 62,800 3,705,200
Univision Communications, Inc., "A"* 42,300 1,575,675
------------
$ 19,903,231
- ------------------------------------------------------------------------------
Financial Institutions - 1.9%
ARM Financial Group, Inc., "A" 17,000 $ 376,125
BA Merchants Services, Inc., "A"* 77,900 1,572,606
Conning Corp. 48,200 939,900
Student Loan Corp. 75,300 3,543,807
Waddell & Reed Financial, Inc., "A" 120,300 2,879,681
------------
$ 9,312,119
- ------------------------------------------------------------------------------
Food and Beverage Products - 0.9%
Mondavi (Robert) Corp.* 65,300 $ 1,852,887
Tootsie Roll Industries, Inc. 37,580 2,884,265
------------
$ 4,737,152
- ------------------------------------------------------------------------------
Insurance - 0.9%
Annuity and Life Re Holdings Ltd.* 1,800 $ 39,825
Executive Risk, Inc. 34,700 2,559,125
Life Re Corp. 24,800 2,055,300
------------
$ 4,654,250
- ------------------------------------------------------------------------------
Medical and Health Products - 2.2%
AmeriSource Health Corp., "A"* 97,700 $ 6,417,669
Datascope Corp.* 22,000 584,375
Megabios Corp.* 31,000 236,375
PSS World Medical, Inc.* 277,300 4,055,512
------------
$ 11,293,931
- ------------------------------------------------------------------------------
Medical and Health Technology and Services - 9.7%
Apache Medical Systems, Inc.* 58,200 $ 112,763
Concentra Managed Care, Inc.* 222,145 5,775,770
Cytyc Corp.* 122,900 2,004,806
HCIA, Inc.* 141,500 1,821,812
HealthSouth Corp.* 86,478 2,307,882
Hologic, Inc.* 107,400 1,953,337
IDX Systems Corp.* 89,500 4,122,594
Mariner Health Group, Inc.* 49,100 816,288
Mid Atlantic Medical Services, Inc.* 135,000 1,552,500
NCS Healthcare, Inc., "A"* 117,900 3,360,150
Ocular Sciences, Inc.* 5,500 178,750
Orthodontic Centers of America, Inc.* 64,900 1,358,844
Pediatric Services America, Inc.* 97,700 1,514,350
Province Healthcare Co.* 21,200 586,975
Quorum Health Group, Inc.* 165,100 4,375,150
Renal Care Group, Inc.* 38,800 1,709,625
Steris Corp.* 59,600 3,790,187
Total Renal Care Holdings, Inc.* 288,505 9,953,422
Transition Systems, Inc.* 26,400 280,500
Virgin Islands Technologies, Inc.* 86,300 976,269
------------
$ 48,551,974
- ------------------------------------------------------------------------------
Oil Services - 1.4%
Dril-Quip, Inc.* 31,400 $ 824,250
EVI Weatherford, Inc.* 50,590 1,878,153
Global Industries, Inc.* 189,800 3,202,875
National Oilwell, Inc.* 32,700 876,769
------------
$ 6,782,047
- ------------------------------------------------------------------------------
Oils - 0.4%
Newfield Exploration Co.* 82,100 $ 2,042,238
- ------------------------------------------------------------------------------
Pharmaceuticals - 0.2%
King Pharmaceuticals, Inc.* 14,400 $ 201,600
Kos Pharmaceuticals, Inc.* 69,300 701,663
------------
$ 903,263
- ------------------------------------------------------------------------------
Printing and Publishing - 1.7%
Applied Graphics Technologies, Inc.* 30,900 $ 1,413,675
Harte-Hanks Communications, Inc. 79,100 2,041,769
Scholastic Corp.* 119,400 4,761,075
Workflow Management, Inc.* 12,656 102,039
------------
$ 8,318,558
- ------------------------------------------------------------------------------
Real Estate Investment Trusts - 0.9%
Kilroy Realty Corp. 48,800 $ 1,220,000
Patriot American Hospitality, Inc. 147,180 3,523,121
------------
$ 4,743,121
- ------------------------------------------------------------------------------
Restaurants and Lodging - 3.6%
Applebee's International, Inc. 107,400 $ 2,403,075
Buffets, Inc.* 227,421 3,567,667
Capstar Hotel Co.* 119,050 3,333,400
Four Seasons Hotels, Inc. 25,400 895,350
Outback Steakhouse, Inc.* 62,300 2,429,700
Prime Hospitality Corp.* 70,100 1,222,369
Promus Hotel Corp.* 22,000 847,000
ShoLodge, Inc.* 70,066 551,770
Sonic Corp.* 83,100 1,859,362
Suburban Lodges of America, Inc.* 33,000 499,125
Taco Cabana, Inc.* 66,400 419,150
------------
$ 18,027,968
- ------------------------------------------------------------------------------
Special Products and Services - 2.2%
Caliber Learning Network, Inc.* 6,900 $ 106,087
Cognizant Corp. 28,859 1,818,117
Equity Corp. International* 126,450 3,034,800
Navigant International, Inc.* 8,967 76,220
Newport News Shipbuilding, Inc. 215,900 5,775,325
School Specialty, Inc.* 10,363 169,694
------------
$ 10,980,243
- ------------------------------------------------------------------------------
Stores - 6.4%
AnnTaylor Stores Corp.* 123,000 $ 2,606,062
BJ's Wholesale Club, Inc.* 33,500 1,360,938
Corporate Express, Inc.* 212,500 2,696,094
CSK Auto Corp.* 84,700 2,138,675
Duane Reade, Inc.* 57,900 1,737,000
General Nutrition Cos., Inc.* 37,300 1,160,963
Gymboree Corp.* 108,300 1,641,422
Mazel Stores, Inc.* 86,200 1,379,200
Micro Warehouse, Inc.* 81,700 1,266,350
Petco Animal Supplies, Inc.* 171,800 3,425,262
Regis Corp. 106,000 3,133,625
Rite Aid Corp. 123,670 4,645,354
U.S. Office Products Co.* 22,218 433,251
Viking Office Products, Inc.* 147,800 4,637,225
------------
$ 32,261,421
- ------------------------------------------------------------------------------
Supermarkets - 0.9%
Meyer (Fred), Inc.* 111,360 $ 4,732,800
- ------------------------------------------------------------------------------
Telecommunications - 5.3%
Allegiance Telecom, Inc.* 23,700 $ 355,500
American Tower Corp., "A"* 103,300 2,576,044
Aspect Telecommunications Corp.* 256,000 7,008,000
Hyperion Telecommunications, Inc., "A"* 36,600 574,162
Intermedia Communications, Inc.* 138,900 5,825,119
Lightbridge, Inc.* 131,400 1,116,900
Natural Microsystems Corp.* 55,800 892,800
Nextlink Communications, Inc., "A"* 87,000 3,295,125
Proxim, Inc.* 73,700 1,225,262
Transaction Network Services, Inc.* 155,600 3,277,325
VDI Media* 40,600 395,850
------------
$ 26,542,087
- ------------------------------------------------------------------------------
Transportation
Dynamex, Inc.* 4,000 $ 48,500
- ------------------------------------------------------------------------------
Total Stocks (Identified Cost, $394,611,146) $478,822,883
- ------------------------------------------------------------------------------
Short-Term Obligations - 4.8%
- ------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.,
due 7/10/98 - 7/24/98 $ 15,900 $ 15,859,981
Federal National Mortgage Assn., due 8/26/98 8,030 7,962,423
- ------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 23,822,404
- ------------------------------------------------------------------------------
Total Investments (Identified Cost, $418,433,550) $502,645,287
Other Assets, Less Liabilities - (0.1)% (251,953)
- ------------------------------------------------------------------------------
Net Assets - 100.0% $502,393,334
- ------------------------------------------------------------------------------
* 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, $418,433,550) $502,645,287
Cash 37,436
Receivable for Fund shares sold 712,152
Receivable for investments sold 172,302
Dividends receivable 37,716
Receivable from investment adviser 297,667
Other assets 2,822
------------
Total assets $503,905,382
------------
Liabilities:
Payable for investments purchased $ 1,401,142
Payable for Fund shares reacquired 42,312
Payable to affiliates -
Management fee 30,520
Administrative fee 619
Shareholder servicing agent fee 310
Accrued expenses and other liabilities 37,145
------------
Total liabilities $ 1,512,048
------------
Net assets $502,393,334
============
Net assets consist of:
Paid-in capital $385,254,737
Unrealized appreciation on investments 84,211,737
Accumulated undistributed net realized gain on investments 32,926,860
------------
Total $502,393,334
============
Shares of beneficial interest outstanding 21,890,476
==========
Net asset value, offering price, and redemption price per
share(net assets / shares of beneficial interest outstanding) $22.95
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- -------------------------------------------------------------------------
Year Ended June 30, 1998
- -------------------------------------------------------------------------
Net investment income (loss):
Income -
Interest income $ 1,200,840
Dividend income 525,067
Foreign taxes withheld (1,880)
------------
Total income $ 1,724,027
------------
Expenses -
Management fee $ 3,305,598
Administrative fee 62,455
Trustees' compensation 5,000
Shareholder servicing agent fee 33,073
Custodian fee 145,660
Auditing fees 18,758
Printing fee 11,075
Legal fees 5,839
Amortization of organization expenses 840
Miscellaneous 55,517
------------
Total expenses $ 3,643,815
Fees paid indirectly (40,550)
Reduction of expenses by investment adviser (297,667)
------------
Net expenses $ 3,305,598
------------
Net investment loss $ (1,581,571)
------------
Realized and unrealized gain on investments:
Realized gain (identified cost basis) on
investment transactions $ 67,546,425
Change in unrealized appreciation on investments 25,481,475
------------
Net realized and unrealized gain on investments $ 93,027,900
------------
Increase in net assets from operations $ 91,446,329
============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
- ---------------------------------------------------------------------------
Year Ended Year Ended
June 30, 1998 June 30, 1997
- ---------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment loss $ (1,581,571) $ (661,361)
Net realized gain on investments 67,546,425 35,985,298
Net unrealized gain on investments 25,481,475 23,702,376
------------ ------------
Increase in net assets from operations $ 91,446,329 $ 59,026,313
------------ ------------
Distributions declared to shareholders
from net realized gain on investments $(55,887,219) $(44,043,097)
------------ ------------
Net increase in net assets from Fund
share transactions $ 83,197,496 $109,291,545
------------ ------------
Total increase in net assets $118,756,606 $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 $0 and
$0, respectively) $502,393,334 $383,636,728
============ ============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- --------------------------------------------------------------------------------------------------------------------
Year Ended June 30, Period Ended
------------------------------------------------------------------- June 30,
1998 1997 1996 1995 1994 1993*
-------- -------- -------- -------- -------- --------
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
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) $ (0.08) $ (0.04) $ (0.04) $ (0.03) $ (0.03) $ 0.01
Net realized and unrealized
gain on investments and
foreign currency transactions 4.54 3.42 6.55 5.04 1.82*** 0.16
-------- -------- -------- -------- -------- --------
Total from investment operations $ 4.46 $ 3.38 $ 6.51 $ 5.01 $ 1.79 $ 0.17
-------- -------- -------- -------- -------- --------
Less distributions declared
to shareholders -
From net investment income $ -- $ -- $ -- $ -- $ (0.00)** $ --
From net realized gain on investments
and foreign currency transactions (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 $ 22.95 $ 21.45 $ 21.17 $ 16.42 $ 11.75 $ 10.17
======== ======== ======== ======== ======== ========
Total return 23.51% 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) (0.36)% (0.22)% (0.22)% (0.19)% (0.27)% 2.24%+
Portfolio turnover 80% 96% 97% 86% 94% 0%
Net assets at end of period
(000 omitted) $502,393 $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.
** Per share amount was less than $0.01.
*** The per share data are not in accord with the net realized and unrealized 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.
(S) The investment adviser voluntarily agreed to pay the expenses of the Fund, exclusive of management fees. To the extent actual
expenses were over these limitations, the net investment loss per share and the ratios would have been:
$
Net investment loss $(0.10) $(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) (0.44)% (0.31)% (0.34)% (0.42)% (1.02)% 0.64%+
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Institutional Emerging Equities Fund (the Fund) is a diversified series of
MFS Institutional Trust (the Trust). The Trust is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are 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, $1,581,571 was reclassified from
accumulated net investment loss to accumulated net realized gain on
investments due to differences between book and tax accounting for net
investment losses. 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 the expenses of the Fund, excluding management fees. This is reflected as
a reduction of expenses in the Statement of Operations.
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%
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 short-term obligations,
aggregated $347,256,448 and $334,061,579, 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 $421,386,914
============
Gross unrealized appreciation $107,580,593
Gross unrealized depreciation (26,322,220)
------------
Net unrealized appreciation $ 81,258,373
============
(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 4,982,066 $113,341,586 5,591,839 $110,894,997
Shares issued to shareholders in
reinvestment of distributions 2,819,882 54,141,729 2,309,406 42,400,694
Shares reacquired (3,794,265) (84,285,819) (2,272,650) (44,004,146)
---------- ------------ ---------- ------------
Net increase 4,007,683 $ 83,197,496 5,628,595 $109,291,545
========== ============ ========== ============
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in an $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 $614.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Institutional Trust and Shareholders of MFS
Institutional Emerging Equities Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Institutional Emerging Equities
Fund (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 the years ended June 30, 1998 and 1997,
and the financial highlights for each of the years in the six-year period
ended June 30, 1998. These financial statements and 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 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, 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
Emerging Equities 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.
The Fund has designated $26,586,203 as a capital gain dividend.
For the year ended June 30, 1998, the amount of distributions from income
eligible for the 70% dividends-received deduction for corporations came to
2.16%.
(C)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
IEE-2 8/98 0.5M
