<PAGE>
[Logo] MFS(R) SEMIANNUAL REPORT
INVESTMENT MANAGEMENT DECEMBER 31, 1998
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
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 Investment Management(R) 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 Company; SHAREHOLDER SERVICE CENTER
Real Estate Consultant MFS Service Center, Inc.
P.O. Box 2281
CHAIRMAN AND PRESIDENT Boston, MA 02107-9906
Jeffrey L. Shames*
For additional information,
PORTFOLIO MANAGERS contact your financial adviser.
John W. Ballen*
Brian E. Stack* CUSTODIAN
State Street Bank and Trust Company
TREASURER
W. Thomas London* WORLD WIDE WEB
www.mfs.com
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
</TABLE>
*Affiliated with the Investment Adviser
- -------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- -------------------------------------------------------------------------------
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Shareholders,
In 1999, MFS celebrates its 75th anniversary. The nation's first mutual fund --
our Massachusetts Investors Trust (MIT) -- was introduced to the public on March
21, 1924. Since then, MFS Investment Management(R), the company that grew out of
that original fund, has helped guide shareholders through many economic and
investment cycles, primarily by focusing on the long-term opportunities created
by an expanding global economy. As of December 31, 1998, MFS manages nearly $100
billion, and the firm's 2,000 people serve almost four million investors and
their financial advisers worldwide. Meanwhile, MIT's assets have grown to over
$12 billion, and 56 mutual funds are offered in the MFS Family of Funds(R).
One of the elements in the success of MIT did not exist before our founders
invented it in 1924. That is daily redemption. This innovation means that if you
want to sell your investment in any MFS mutual fund, you have the security of
knowing that you may do so immediately by exchanging into another MFS fund. Or,
if you need your money for other purposes, it can quickly be wired or mailed to
you. This daily redemption feature, through which new shares were created when
people invested in MIT and were redeemed when people sold, brought another
important change to the industry. Now, the price of a mutual fund's shares
wasn't determined by supply and demand, but by the value of the securities owned
by the fund.
Another factor in our growth was the development of one of the industry's first
in-house research departments in 1932. Unlike companies that rely on Wall Street
research reports, which can be used by many investors at the same time, MIT's
managers built its long-term track record by visiting companies, talking to
managers and competitors, and "kicking the tires" so they could judge the
quality and potential of each company's products and services for themselves.
Today, MFS has more than 100 full-time portfolio managers, stock analysts, and
credit analysts who track the equity and bond markets. That number includes over
35 equity analysts who specialize in industries such as aviation, media,
technology, automobiles, and utilities.
While MIT introduced the daily redemption feature, that was not our only
invention. We also established the nation's first global bond fund, first
high-yield municipal bond fund, and first high-yield municipal closed-end bond
fund.
We are proud of the record of MIT and of the funds in the MFS Family of Funds,
but we are also proud of our long-standing relationship with financial advisers.
Not only do we believe investors can benefit from the advice of these experts
but, as was shown during the market volatility of 1998, people who work with
financial advisers are less likely to abandon their carefully designed,
long-term investment strategies.
Our ability to service your investment and information needs is also extremely
important to us. The MFS Service Center handles millions of transactions and
phone calls every year. Supporting the work of financial advisers, promptly
sending out statements and confirmations, and answering hundreds of investors'
questions every day are crucial elements in maintaining long-term relationships
with our fund shareholders. That link to our investors has also been enhanced by
our site on the World Wide Web: WWW.MFS.COM. Since 1996, this site has given
investors and the general public access to up-to-date information about MFS
products and services, as well as market outlooks and retirement information.
The site has rapidly become one of our primary vehicles for communicating with
our investors and educating the public about mutual funds in general and MFS in
particular.
If there is a common thread running through these milestones, it is our
always-increasing commitment to providing you with the best possible investment
management and shareholder service, just as we have done for the past 75 years.
As we celebrate this anniversary, it is also a time for MFS to look ahead and
build on our 75 years of innovation and experience to help meet your investment
needs in the next century. We appreciate your confidence and welcome any
questions or comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management
January 15, 1999
MANAGEMENT REVIEW AND OUTLOOK
Dear Shareholders,
For the six months ended December 31, 1998, the Fund provided a total return of
- -1.87%, which compares to a -7.12% return for the Russell 2000 Total Return
Index (the Russell 2000) and to a -4.00% 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 Russell 2000 Growth Index is comprised of securities
within the Russell 2000 with a greater than average growth orientation.
Companies in this index tend to exhibit higher price-to-book and
price-to-earning ratios.
Though still in negative territory overall, we feel the portfolio's relative
performance against its benchmarks results from our focus on seeking companies
that we believe can produce sustainable and predictable growth in unit sales,
revenue, and earnings. To find such companies we rely on MFS(R) Original
Research(SM), through which stocks are selected after in-depth fundamental
analysis of companies' earnings outlooks, managements, business models,
competitive strategies, market positions, and growth prospects. Based on our
findings, we select companies that we believe are best positioned to become
major enterprises over a period of three-to-five years. In choosing stocks, we
are careful to assure that the prices we pay are in line with the companies'
actual fundamental strengths and long-term growth prospects. This research-
intensive process allows us to own companies early in their development cycles
before they become widely known to investors and that enjoy growth rates above
those of the overall market.
As our investors are aware, researching small companies is far more difficult
than researching big companies, simply because there is very little known about
most small companies. So it's imperative that we use our proprietary research
process to the fullest to find the best companies for this portfolio. Strong
research has helped us invest in companies like Envoy, which makes technology
that automates paperwork used by medical organizations to reduce the sizable
transaction costs involved in health care. Customers understand the importance
of the productivity enhancements and cost reductions that Envoy enables, and its
earnings growth reflects that. The stock is up nearly 50% as of December 31.
There has been much publicity focused on the boom in Internet related stocks
over the past year. While we believe that the impact of the Internet on business
has been, and will continue to be, deep and far reaching, we have avoided the
stocks commonly understood to be Internet businesses because, in our opinion,
they are overvalued and have yet to display any business or earnings
sustainability. Instead, we rely on our research to help us uncover companies
that are using the 'Net to enhance their revenue generation capabilities, or
that are providing products and services to help build, maintain, and manage the
Internet or their customers' technological infrastructures. Among these types of
stocks are Cambridge Technology Partners and Technology Solutions, providers of
expertise and services that help businesses better exploit technology for
competitive advantage.
If the weakness in corporate earnings growth in the large-cap sector continues
to impact investor psychology, we could face some additional choppiness among
the small stocks as well. However, as investors turn their attention to stocks
that can provide strong earnings growth at reasonable prices, we believe small
stocks should be quite attractive long-term investment options. While we're
confident that the potential for a sustained rebound in small-cap stocks is
good, it would not be prudent to attempt to predict when, and for how long, that
may occur.
We think it's of value to our investors to know that the commitment to research
that MFS made when it inaugurated one of the industry's first research
departments in 1932 is thoroughly ingrained in our corporate culture today. We
believe it is this commitment that enables us to select stocks that can perform
well over the long term, even with the special challenges involved in small-cap
investing.
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.
The portfolio is actively managed, and current holdings may be different.
It is not possible to invest directly in an index.
PORTFOLIO MANAGERS' PROFILES
John W. Ballen is President, Chief Investment Officer, and a member of the
Executive Committee and Board of Directors of MFS Investment Management(R). He
is also portfolio manager of MFS(R) Emerging 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 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 President, Chief Investment Officer,
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 an M.B.A. degree from Stanford University.
Brian E. Stack is Senior Vice President -- Investments of MFS Investment
Management(R) and portfolio manager of MFS(R) Institutional Emerging Equities
Fund, MFS(R) New Discovery Fund, and the 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, health maintenance
organizations, 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. degree 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. A prospectus containing more information,
including the exchange privilege and all charges and expenses, for any other MFS
product is available from your financial adviser, or by calling MFS at
1-800-225-2606. 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-sized companies that are early in
their life cycles but that may have the potential
to become major enterprises (emerging growth
companies).
Commencement of
investment operations: June 16, 1993
Size: $544.2 million net assets as of December 31, 1998
PERFORMANCE SUMMARY
Because mutual funds 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. Investment results reflect the percentage change in net
asset value, including reinvestment of dividends. 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
<TABLE>
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years/Life*
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return -1.87% +13.69% +67.08% +174.17% +247.73%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +13.69% +18.66% + 22.35% + 25.20%
- ------------------------------------------------------------------------------------------------------
* For the period from the commencement of the Fund's investment operations, June 16, 1993, through
December 31, 1998.
</TABLE>
NOTES TO PERFORMANCE SUMMARY
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.
Investing in small or emerging growth companies involves greater risk than is
customarily associated with more-established companies. These risks may increase
share price volatility.
<PAGE>
PORTFOLIO OF INVESTMENTS (Unaudited) - December 31, 1998
Stocks - 95.6%
- -------------------------------------------------------------------------------
ISSUER SHARES VALUE
- -------------------------------------------------------------------------------
U.S. Stocks - 93.5%
Advertising - 0.5%
Pharmaceutical Marketing Service, Inc.* 81,800 $ 1,175,875
Snyder Communications, Inc.* 50,918 1,718,483
------------
$ 2,894,358
- -------------------------------------------------------------------------------
Airlines - 1.5%
Atlas Air, Inc.* 119,700 $ 5,857,819
Skywest, Inc. 68,300 2,232,556
------------
$ 8,090,375
- -------------------------------------------------------------------------------
Biotechnology - 2.0%
IDEXX Laboratories, Inc.* 397,000 $ 10,681,781
- -------------------------------------------------------------------------------
Business Machines - 2.6%
Affiliated Computer Services, Inc., "A"* 310,761 $ 13,984,245
- -------------------------------------------------------------------------------
Business Services - 19.0%
Billing Concepts Corp.* 81,800 $ 899,800
BISYS Group, Inc.* 196,700 10,154,637
Bright Horizons Family Solutions, Inc.* 34,600 934,200
Catalina Marketing Corp.* 72,710 4,971,546
Ceridian Corp.* 68,200 4,761,212
Dendrite International, Inc.* 120,476 3,008,135
Diamond Technology Partners, Inc., "A"* 5,000 95,625
DST Systems, Inc.* 251,976 14,378,380
Envoy Corp.* 131,200 7,642,400
Fiserv, Inc.* 77,650 3,994,122
Franklin Covey Co.* 48,265 808,439
Galileo International, Inc.* 89,600 3,897,600
Global Directmail Corp.* 164,100 3,835,838
Interim Services, Inc.* 282,704 6,608,206
International Network Services* 21,400 1,423,100
Learning Tree International, Inc.* 350,200 3,173,688
Mecon, Inc.* 98,000 1,029,000
Memberworks, Inc.* 47,500 1,401,250
Meta Group, Inc.* 136,500 4,060,875
Modis Professional Services, Inc.* 258,978 3,755,181
National Processing, Inc.* 173,800 955,900
NOVA Corp.* 223,323 7,746,517
Paymentech, Inc.* 128,100 2,369,850
Personnel Group of America, Inc.* 82,000 1,435,000
Professional Detailing, Inc.* 22,100 624,325
Renaissance Worldwide, Inc.* 334,000 2,045,750
Technology Solutions Co.* 591,187 6,336,786
Teletech Holdings, Inc.* 102,100 1,046,525
------------
$103,393,887
- -------------------------------------------------------------------------------
Computer Software - Services - 0.2%
Hyperion Solutions Corp.* 73,000 $ 1,314,000
- -------------------------------------------------------------------------------
Computer Software - Systems - 14.6%
Acxiom Corp.* 143,180 $ 4,438,580
Aspen Technology, Inc.* 190,900 2,768,050
Black Box Corp.* 63,700 2,412,637
Cadence Design Systems, Inc.* 422,000 12,554,500
Cambridge Technology Partners, Inc.* 215,700 4,772,362
Checkfree Holdings Corp.* 66,600 1,556,775
Clarify, Inc.* 71,100 1,737,506
Compuware Corp.* 30,500 2,382,813
Edify Corp.* 99,700 828,756
Fair, Isaac & Co., Inc. 65,400 3,020,662
Harbinger Corp.* 207,250 1,658,000
Intelligroup, Inc.* 20,600 368,225
JDA Software Group, Inc.* 164,200 1,590,688
Peerless Systems Corp.* 80,500 684,250
RWD Technologies, Inc.* 18,700 404,388
SCB Computer Technology, Inc.* 99,100 978,613
Security Dynamics Technologies, Inc.* 191,600 4,406,800
Sterling Software, Inc.* 192,100 5,198,706
Summit Design, Inc.* 201,600 1,877,400
SunGard Data Systems, Inc.* 152,120 6,037,262
Synopsys, Inc.* 198,856 10,787,938
Transaction System Architects, Inc., "A"* 139,900 6,995,000
Vantive Corp.* 174,300 1,394,400
Xionics Document Technologies, Inc.* 164,500 565,469
------------
$ 79,419,780
- -------------------------------------------------------------------------------
Consumer Goods and Services - 1.7%
Alternative Resources Corp.* 151,200 $ 1,606,500
Blyth Industries, Inc.* 95,000 2,968,750
InfoUSA, Inc., "A"* 269,400 1,313,325
InfoUSA, Inc., "B"* 169,400 889,350
Sportsline USA, Inc.* 140,100 2,180,306
------------
$ 8,958,231
- -------------------------------------------------------------------------------
Electrical Equipment - 0.9%
AFC Cable Systems, Inc.* 61,650 $ 2,072,981
Barnett, Inc.* 82,700 1,137,125
Belden, Inc. 90,100 1,908,994
------------
$ 5,119,100
- -------------------------------------------------------------------------------
Electronics - 6.8%
Actel Corp.* 55,100 $ 1,102,000
Analog Devices, Inc.* 168,032 5,272,004
Burr-Brown Corp.* 213,575 5,005,664
Cable Design Technologies Corp.* 182,250 3,371,625
DuPont Photomasks, Inc.* 42,000 1,782,375
Kulicke & Soffa Industries, Inc.* 82,800 1,469,700
Lattice Semiconductor Corp.* 133,800 6,142,256
Microchip Technology, Inc.* 38,050 1,407,850
Novellus Systems, Inc.* 17,600 871,200
Photronics, Inc.* 156,100 3,741,522
PMC-Sierra, Inc.* 60,400 3,812,750
SIPEX Corp.* 79,200 2,781,900
------------
$ 36,760,846
- -------------------------------------------------------------------------------
Entertainment - 4.8%
Citadel Communications Corp.* 34,100 $ 882,337
Gemstar International Group Ltd.* 199,900 11,444,275
Harrah's Entertainment, Inc.* 149,200 2,340,575
Hearst-Argyle Television, Inc.* 31,300 1,032,900
Heftel Broadcasting Corp., "A"* 57,700 2,841,725
Jacor Communications, Inc.* 118,200 7,609,125
------------
$ 26,150,937
- -------------------------------------------------------------------------------
Financial Institutions - 1.9%
BA Merchants Services, Inc., "A"* 89,800 $ 1,807,225
Conning Corp. 55,700 1,155,775
Student Loan Corp. 86,800 3,895,150
Waddell & Reed Financial, Inc., "A" 155,800 3,690,512
------------
$ 10,548,662
- -------------------------------------------------------------------------------
Food and Beverage Products - 0.9%
Mondavi (Robert) Corp.* 51,000 $ 2,084,625
Tootsie Roll Industries, Inc. 68,626 2,684,992
------------
$ 4,769,617
- -------------------------------------------------------------------------------
Insurance - 0.5%
Annuity & Life Re Holdings Ltd. 2,100 $ 56,437
Executive Risk, Inc. 39,700 2,181,019
MONY Group, Inc.* 10,700 335,044
------------
$ 2,572,500
- -------------------------------------------------------------------------------
Medical and Health Products - 1.3%
AmeriSource Health Corp., "A"* 24,900 $ 1,618,500
Megabios Corp.* 36,300 186,038
PSS World Medical, Inc.* 228,600 5,257,800
------------
$ 7,062,338
- -------------------------------------------------------------------------------
Medical and Health Technology and Services - 10.3%
ABR Information Services, Inc.* 114,700 $ 2,250,987
Apache Medical Systems, Inc.* 62,400 23,400
Concentra Managed Care, Inc.* 685,310 7,324,251
Cytyc Corp.* 162,500 4,184,375
HCIA, Inc.* 159,900 679,575
Hologic, Inc.* 168,100 2,038,213
IDX Systems Corp.* 106,800 4,699,200
Impath, Inc.* 47,300 1,253,450
IMS Health, Inc. 17,985 1,356,743
Mid Atlantic Medical Services, Inc.* 209,600 2,056,700
NCS Healthcare, Inc., "A"* 135,300 3,213,375
Ocular Sciences, Inc.* 6,300 168,525
Orthodontic Centers of America, Inc.* 105,400 2,048,712
PAREXEL International Corp.* 160,800 4,020,000
Quorum Health Group, Inc.* 176,550 2,284,116
Schein (Henry), Inc.* 26,500 1,185,875
Steris Corp.* 111,100 3,159,406
Superior Consultant Holdings Corp.* 42,400 1,844,400
Total Renal Care Holdings, Inc.* 258,243 7,634,309
Ventana Med Systems, Inc.* 151,600 3,278,350
Virgin Islands Technologies, Inc.* 146,100 1,515,788
------------
$ 56,219,750
- -------------------------------------------------------------------------------
Oil Services - 1.3%
Dril-Quip, Inc.* 43,300 $ 768,575
Global Industries, Inc.* 499,700 3,060,663
Input/Output, Inc.* 156,740 1,146,161
National Oilwell, Inc.* 74,400 832,350
Weatherford International, Inc.* 58,470 1,132,856
------------
$ 6,940,605
- -------------------------------------------------------------------------------
Oils - 0.3%
Newfield Exploration Co.* 86,900 $ 1,814,038
- -------------------------------------------------------------------------------
Pharmaceuticals - 0.4%
Sepracor, Inc.* 27,600 $ 2,432,250
- -------------------------------------------------------------------------------
Pollution Control - 0.5%
Superior Services, Inc.* 135,900 $ 2,726,494
- -------------------------------------------------------------------------------
Printing and Publishing - 2.1%
Applied Graphics Technologies, Inc.* 52,100 $ 859,650
Harte-Hanks Communications, Inc. 91,300 2,602,050
Scholastic Corp.* 146,800 7,872,150
------------
$ 11,333,850
- -------------------------------------------------------------------------------
Real Estate Investment Trusts - 0.6%
Kilroy Realty Corp. 56,400 $ 1,297,200
MeriStar Hospitality Corp.* 119,750 2,222,859
------------
$ 3,520,059
- -------------------------------------------------------------------------------
Restaurants and Lodging - 2.8%
Applebee's International, Inc. 120,100 $ 2,477,062
Buffets, Inc.* 294,086 3,510,652
Four Seasons Hotels, Inc. 55,200 1,614,600
Landry's Seafood Restaurants, Inc.* 154,700 1,160,250
Mortons Restaurant Group, Inc.* 3,000 56,625
Papa John's International, Inc.* 32,900 1,451,712
Prime Hospitality Corp.* 57,900 611,569
Promus Hotel Corp.* 26,500 857,938
ShoLodge, Inc.* 85,832 482,805
Sonic Corp.* 95,800 2,383,025
Taco Cabana, Inc.* 78,100 605,275
------------
$ 15,211,513
- -------------------------------------------------------------------------------
Special Products and Services - 2.9%
Caliber Learning Network, Inc.* 79,900 $ 339,575
Equity Corp. International* 140,900 3,742,656
Gartner Group, Inc.* 84,000 1,785,000
Newport News Shipbuilding, Inc. 251,200 8,399,500
Sylvan Learning Systems, Inc.* 42,900 1,308,450
------------
$ 15,575,181
- -------------------------------------------------------------------------------
Stores - 6.1%
AnnTaylor Stores Corp.* 78,400 $ 3,091,900
BJ's Wholesale Club, Inc.* 51,900 2,403,619
CSK Auto Corp.* 137,600 3,672,200
Duane Reade, Inc.* 21,700 835,450
Gymboree Corp.* 334,600 2,133,075
Mazel Stores, Inc.* 98,700 1,270,763
Micro Warehouse, Inc.* 91,150 3,082,009
Office Depot, Inc.* 138,900 5,130,619
Petco Animal Supplies, Inc.* 317,100 3,190,819
Regis Corp. 127,700 5,108,000
Rite Aid Corp. 44,680 2,214,452
Stage Stores, Inc.* 137,900 1,292,812
------------
$ 33,425,718
- -------------------------------------------------------------------------------
Supermarkets - 0.9%
Meyer (Fred), Inc.* 76,890 $ 4,632,623
- -------------------------------------------------------------------------------
Telecommunications - 6.1%
Advanced Fibre Communications* 95,100 $ 1,040,156
Allegiance Telecom, Inc.* 31,300 379,513
American Tower Corp., "A"* 129,950 3,841,647
Aspect Telecommunications Corp.* 554,300 9,561,675
Hyperion Telecommunications, Inc., "A"* 106,700 1,613,837
Intermedia Communications, Inc.* 338,300 5,835,675
International Telecommunication Data Systems, Inc.* 56,700 836,325
Lightbridge, Inc.* 177,700 977,350
Natural Microsystems Corp.* 80,400 585,413
Nextlink Communications, Inc., "A"* 93,000 2,638,875
Proxim, Inc.* 84,900 2,265,769
Transaction Network Services, Inc.* 158,100 3,171,881
VDI Media* 59,600 566,200
------------
$ 33,314,316
- -------------------------------------------------------------------------------
Total U.S. Stocks $508,867,054
- -------------------------------------------------------------------------------
Foreign Stocks - 2.1%
United Kingdom - 2.1%
CBT Group PLC, ADR (Computer Software - Personal
Computers)* 615,800 $ 9,160,025
Saville Systems PLC, ADR (Computer Software -
Systems)* 117,900 2,240,100
------------
$ 11,400,125
- -------------------------------------------------------------------------------
Total Stocks (Identified Cost, $437,735,042) $520,267,179
- -------------------------------------------------------------------------------
Short-Term Obligations - 4.2%
- -------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- -------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., due 1/11/99 $ 6,000 $ 5,991,533
General Electric Capital Corp., due 1/04/99 16,800 16,792,972
- -------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 22,784,505
- -------------------------------------------------------------------------------
Total Investments (Identified Cost, $460,519,547) $543,051,684
Other Assets, Less Liabilities - 0.2% 1,162,770
- -------------------------------------------------------------------------------
Net Assets - 100.0% $544,214,454
- -------------------------------------------------------------------------------
* Non-income producing security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- -------------------------------------------------------------------------------
DECEMBER 31, 1998
- -------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $460,519,547) $543,051,684
Cash 19,464
Receivable for Fund shares sold 3,951,354
Receivable for investments sold 2,912,719
Interest and dividends receivable 106,691
Receivable from investment adviser 188,426
Other assets 2,818
------------
Total assets $550,233,156
------------
Liabilities:
Distributions payable $ 1,467,074
Payable for investments purchased 4,304,960
Payable for Fund shares reacquired 180,941
Payable to affiliates -
Management fee 10,695
Shareholder servicing agent fee 108
Accrued expenses and other liabilities 54,924
------------
Total liabilities $ 6,018,702
------------
Net assets $544,214,454
============
Net assets consist of:
Paid-in capital $465,819,710
Unrealized appreciation on investments 82,532,137
Accumulated distributions in excess of net
realized gain on investments (3,432,129)
Accumulated net investment loss (705,264)
------------
Total $544,214,454
============
Shares of beneficial interest outstanding 26,153,018
==========
Net asset value, offering price, and redemption
price per share (net assets / shares of beneficial
interest outstanding) $20.81
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations (Unaudited)
- -------------------------------------------------------------------------------
SIX MONTHS ENDED DECEMBER 31, 1998
- -------------------------------------------------------------------------------
Net investment income (loss):
Income -
Interest income $ 714,282
Dividend income 377,484
Foreign taxes withheld (227)
------------
Total income $ 1,091,539
------------
Expenses -
Management fee $ 1,796,803
Administrative fee 23,647
Trustees' compensation 2,500
Shareholder servicing agent fee 17,964
Auditing fees 43,804
Custodian fee 81,068
Legal fees 4,599
Printing fee 11,787
Miscellaneous 46,268
------------
Total expenses $ 2,028,440
Fees paid indirectly (43,211)
Reduction of expenses by investment adviser (188,426)
------------
Net expenses $ 1,796,803
------------
Net investment loss $ (705,264)
------------
Realized and unrealized gain on investments:
Realized gain (identified cost basis)
on investment transactions $ 3,315,248
Change in unrealized appreciation on investments (1,679,600)
------------
Net realized and unrealized gain on investments $ 1,635,648
------------
Increase in net assets from operations $ 930,384
============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1998 JUNE 30, 1998
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment loss $ (705,264) $ (1,581,571)
Net realized gain on investments 3,315,248 67,546,425
Net unrealized gain (loss) on investments (1,679,600) 25,481,475
------------ ------------
Increase in net assets from operations $ 930,384 $ 91,446,329
------------ ------------
Distributions declared to shareholders from net realized
gain on investments $(39,674,237) $(55,887,219)
------------ ------------
Net increase in net assets from Fund share transactions $ 80,564,973 $ 83,197,496
------------ ------------
Total increase in net assets $ 41,821,120 $118,756,606
------------ ------------
Net assets:
At beginning of period 502,393,334 383,636,728
------------ ------------
At end of period (including accumulated net investment
loss of $705,264 and $0, respectively) $544,214,454 $502,393,334
============ ============
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
SIX MONTHS ENDED --------------------------------------------------------------------------
DECEMBER 31, 1998 1998 1997 1996 1995 1994
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $22.95 $21.45 $21.17 $16.42 $11.75 $10.17
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment loss(S) $(0.03) $(0.08) $(0.04) $(0.04) $(0.03) $(0.03)
Net realized and unrealized
gain (loss) on investments (0.46) 4.54 3.42 6.55 5.04 1.82***
------ ------ ------ ------ ------ ------
Total from investment
operations $(0.49) $ 4.46 $ 3.38 $ 6.51 $ 5.01 $ 1.79
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- $ -- $ -- $ -- $ -- $(0.00)**
From net realized gain on
investments (1.65) (2.96) (3.10) (1.76) (0.34) (0.21)
------ ------ ------ ------ ------ ------
Total distributions
declared to
shareholders $(1.65) $(2.96) $(3.10) $(1.76) $(0.34) $(0.21)
------ ------ ------ ------ ------ ------
Net asset value - end of period $20.81 $22.95 $21.45 $21.17 $16.42 $11.75
====== ====== ====== ====== ====== ======
Total return (1.87)%++ 23.51% 18.49% 41.37% 43.21% 17.50%
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.76%+ 0.76% 0.75% 0.75% 0.75% 0.78%
Net investment loss (0.29)%+ (0.36)% (0.22)% (0.22)% (0.19)% (0.27)%
Portfolio turnover 37% 80% 96% 97% 86% 94%
Net assets at end of period
(000 omitted) $544,214 $502,393 $383,637 $259,362 $107,019 $27,559
** 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.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash maintained
by the Fund with its custodian and dividend disbursing agent. For fiscal years ending after September 1, 1995, the Fund's
expenses are calculated without reduction for this expense offset arrangement.
(S) The investment adviser agreed to maintain the expenses of the Fund at not more 0.75% of average daily net assets. To the
extent actual expenses were over this limitation, the net investment loss per share and the ratios would have been:
Net investment loss $ (0.04) $ (0.10) $ (0.06) $ (0.06) $ (0.07) $ (0.11)
Ratios (to average net assets):
Expenses## 0.84%+ 0.83% 0.84% 0.87% 0.98% 1.54%
Net investment loss (0.37)%+ (0.44)% (0.31)% (0.34)% (0.42)% (1.02)%
</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.
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 and interest payments received in additional
securities are recorded on the ex-dividend or ex-interest 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.
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.
(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
the Fund's average daily net assets. The investment adviser voluntarily agreed
to pay the expenses of the Fund, excluding management fees, through December 31,
1998. 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 U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$203,397,221 and $163,143,304, 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 $460,519,547
------------
Gross unrealized appreciation $127,461,081
Gross unrealized depreciation (44,928,944)
------------
Net unrealized appreciation $ 82,532,137
============
(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. Transactions in
Fund shares were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1998 YEAR ENDED JUNE 30, 1998
--------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 5,820,099 $ 111,017,915 4,982,066 $ 113,341,586
Shares issued to shareholders in
reinvestment of distributions 1,908,449 38,207,163 2,819,882 54,141,729
Shares reacquired (3,466,006) (68,660,105) (3,794,265) (84,285,819)
----------- ---------------- ----------- ----------------
Net increase 4,262,542 $ 80,564,973 4,007,683 $ 83,197,496
=========== ================ =========== ================
</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 six-months ended December 31, 1998, was $2,539.
<PAGE>
(C)1999 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
IEE-3 2/99 .5M
