<PAGE>
[Logo] M F S(R) ANNUAL REPORT
INVESTMENT MANAGEMENT JUNE 30, 1999
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
[graphic omitted]
MFS(R) INSTITUTIONAL
EMERGING EQUITIES FUND
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MFS(R) INSTITUTIONAL EMERGING EQUITIES FUND
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; INVESTOR SERVICE
Private investor and 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* AUDITORS
Deloitte & Touche LLP
ASSISTANT TREASURERS
Mark E. Bradley* WORLD WIDE WEB
Ellen Moynihan* www.mfs.com
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Shareholders,
It has been almost two years since financial turmoil began to rock markets in
Asia, Russia, and Latin America. Even developed markets such as Europe and the
United States were not immune. In the U.S. equity market, for example,
investors focused on a narrow group of 50 of the largest-company growth stocks
because they seemed to offer less volatility in uncertain times. Fixed-income
investors also became more concerned about risk, moving money into U.S.
Treasury securities and out of corporate and municipal bonds and mortgage-
backed securities.
The narrowness of the market was just one of three broad issues that dominated
the U.S. equity market until recently. The other two were a slowdown in
corporate earnings growth and high valuations, with stocks of many companies
selling at extremely high prices relative to their earnings.
Although these have been challenging issues, we now see signs that we feel
demonstrate each one is changing for the better. Today, we believe the markets
are presenting more opportunities for investors to diversify, for our
portfolio managers to find good values, and for us to show the benefits of
staying with our long-term objectives and strategies. Investors seem to be
regaining confidence in a wider range of companies. Stocks of some small and
mid-sized companies, as well as some large industrial companies, have begun to
perform better in the past few months than they had for the previous year or
so. These companies appear to have benefited from early signs of stability in
emerging markets and a continuation of economic growth in the United States.
U.S. companies also have produced better earnings. Corporate earnings were, on
average, relatively flat in 1998. However, we expect earnings to grow 12% to
14% this year because more companies have benefited from the strong economy
and from aggressive consolidation and cost-cutting measures they have taken
over the past several years.
Based on their earnings projections, our analysts estimate that the U.S. stock
market is still about 30% overvalued. While there has been some shift to a
wider group of stocks, many investors are still focusing on the large-company
stocks. As a result, most of the overvaluation is in the 50 largest stocks in
the Standard & Poor's 500 Composite Index (the S&P 500), a popular, unmanaged
index of common stock total return performance. That means about 450 stocks
are selling at more attractive prices, particularly given what we see as the
improved earnings outlooks for these and many small and mid-sized companies
not in the S&P 500. These companies also benefit from consolidation, cost
cutting, and global growth. Because they are smaller, they may be able to
respond to these changes more quickly, and thus they have the potential to
grow faster than the big companies.
The fixed-income markets, meanwhile, seem to be approaching the level of
relative stability they enjoyed before the Asian turmoil. Some credit for this
stability goes to the Federal Reserve Board (the Fed), which has reassured
investors that it will act to prevent rapid economic growth from causing
higher inflation and reduced purchasing power. Also, once investors saw that
the overseas turmoil had little, if any, effect on the financial strength of
most domestic bond issuers, the major non-Treasury markets -- corporate,
municipal, and mortgage -- began to rebound. Our portfolio managers are now
finding more opportunities to buy bonds with relatively stable prices and
attractive yields.
The past two years have challenged investors. However, we believe we are well
positioned for the current environment because our analysts and portfolio
managers continue to rely on MFS(R) Original Research(SM) to help evaluate the
long-term investment potential of each holding being considered for our
portfolios. Also, we believe our discipline of staying with our clearly
defined investment strategies can help us offer investment products with the
potential to sustain returns over a variety of market cycles.
We appreciate your confidence and welcome any questions or comments you may
have.
Respectfully,
/s/Jeffrey Shames
- -----------------------------
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
July 15, 1999
MANAGEMENT REVIEW AND OUTLOOK
Dear Shareholders,
For the 12 months ended June 30, 1999, the Fund provided a total return of
4.69% (including the reinvestment of any dividends), which compares to a 1.95%
return for the average small cap fund tracked by Lipper Analytical Services,
Inc., an independent firm that reports mutual fund performance. The Fund's
return also compares to a 1.50% return for the Russell 2000 Total Return Index
and to an 8.30% return for the Russell 2000 Growth Index. The Russell 2000
Total Return Index is an unmanaged index comprised of 2,000 of the smallest
U.S.-domiciled company common stocks that are traded 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-earnings ratios.
The Fund has benefited from the strong performance of companies in rapidly
growing industries such as technology, entertainment, health care, and
business services. The Fund's holdings include Security Dynamics Technologies
and Gemstar International. Security Dynamics provides software that ensures
secure transactions over corporate networks and the Internet. Gemstar provides
electronic program guides for television and cable set-top boxes. We think it
has a dominant, patent-protected market position, and its technology could
establish it as a portal to a wide range of TV-based interactive services. The
Fund also has significant holdings among companies that make integrated
circuits used in networking and the Internet, such as PMC-Sierra.
Other than these companies, the Fund has not invested heavily in Internet
stocks. Although we believe the Internet is a transforming force for both
corporate America and the individual consumer, we don't think the valuations
of many Internet stocks reflect their business and investment risks, which
include growing competition, low entry barriers, and unstable business models.
Therefore, while our underweighting of Internet stocks relative to the Russell
2000 probably has detracted from performance in the short term, we believe
this weighting is correct in the long run.
In health care the Fund owns MedPartners, which has exited some businesses
that were underperforming to focus on its pharmacy benefit-management
business. We feel that business may grow annual earnings 25% while generating
strong cash flow and paying off debt. Finally, our business services holdings,
such as BISYS, DST, and NOVA Corp., provide a range of computer-processing
services and, have enjoyed growing revenues, improving margins, and strong
cash flow.
The Fund looks for emerging companies with solid business models we believe
can sustain unit, revenue, and growth rates that substantially exceed the
growth rates of global economies. We search for companies with large market
opportunities, proprietary products or services, visionary managements that
can anticipate and adapt to changing business risks, and financial
characteristics that are the hallmarks of good businesses, such as high profit
margins, the ability to generate strong cash flow, and strong balance sheets.
Because the small-capitalization marketplace is volatile and inefficient, this
is a very research-intensive process. Ultimately, we are trying to identify
companies we believe may post long-term growth rates that are both high and
sustainable.
We expect to see a continuation of the recovery in small-company stocks that
began this spring. Although large-cap growth stocks have led the way for more
than a year, superior earnings growth historically has been rewarded with
superior valuations. However, past performance is no guarantee of future
results. Currently, many small companies are growing at rates well above that
of the average company in the Standard & Poor's 500 Composite Index, a popular
unmanaged index of common stock total return performance. We believe these
growth rates may eventually be recognized by the market.
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 current only through the end of the period 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.
PORTFOLIO MANAGERS' PROFILES
John W. Ballen is President, Chief Investment Officer, and a member of the
Management Committee and Board of Directors of MFS Investment Management(R).
He is portfolio manager of MFS(R) Emerging Growth Fund. Mr. Ballen is also a
portfolio manager of MFS(R) Institutional Emerging Equities Fund, MFS(R)
Emerging Growth Series (part of MFS(R) Variable Insurance Trust(SM)), the
Emerging Growth Series offered through MFS(R)/Sun Life annuity products,
MFS(R) Institutional Mid Cap Growth Fund, MFS(R) Global Growth Fund, and the
Global Growth Series offered through MFS(R)/Sun Life annuity products. Mr.
Ballen joined the MFS Research Department in 1984 as a research analyst. He
was named Investment Officer and portfolio manager in 1986, Vice President 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 of MFS Investment Management(R) and
portfolio manager of MFS(R) New Discovery Fund, MFS(R) New Discovery Series
(part of MFS(R) Variable Insurance Trust(SM)), and the New Discovery Series
offered through MFS(R)/Sun Life annuity products. He is also a portfolio
manager of MFS(R) Institutional Emerging Equities Fund. Mr. Stack joined MFS
in 1993 as a research analyst following the chemical, hospital management,
health maintenance organizations, medical services, and business services
industries. He was named portfolio manager in 1996 and Senior Vice President
in 1999. Prior to joining MFS, he had 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.
All equity portfolio managers began their careers at MFS Investment
Management(R) as research analysts. Our portfolio managers are supported by an
investment staff of over 100 professionals utilizing MFS(R) Original
Research(SM), a company-oriented, bottom-up process of selecting securities.
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.
FUND FACTS
Objective: Seeks to provide long-term growth of capital.
Commencement of investment operations: June 16, 1993
Size: $444.8 million net assets as of June 30, 1999
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. (See Notes to Performance Summary
for more information.)
GROWTH OF A HYPOTHETICAL $3,000,000 INVESTMENT
(For the period from June 16, 1993, through June 30, 1999)
[Graphic Omitted]
MFS Institutional Russell 2000 Russell 2000 Total
Emerging Equities Fund Growth Index Return Index
- --------------------------------------------------------------------------------
6/93 $ 3,000,000 $ 3,000,000 $ 3,000,000
6/94 3,585,000 3,026,000 3,130,000
6/95 5,134,000 3,808,000 3,760,000
6/96 7,258,000 4,817,000 4,660,000
6/97 8,600,000 5,039,000 5,420,000
6/98 10,620,000 5,703,000 6,310,000
6/99 11,120,105 6,177,129 6,407,508
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years Life*
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return +4.69% +53.21% +210.20% +270.67%
- --------------------------------------------------------------------------------------------------------
Average Annual Total Return +4.69% +15.28% + 25.41% + 24.23%
- --------------------------------------------------------------------------------------------------------
COMPARATIVE INDICES
- ---------------------------------------------------------------------------------------------------------
Average small cap fund+ +1.95% +10.45% + 16.52% + 13.93%
- --------------------------------------------------------------------------------------------------------
Russell 2000 Growth Index** +8.30% + 8.64% + 15.34% + 12.79%
- --------------------------------------------------------------------------------------------------------
Russell 2000 Total Return Index** +1.50% +11.22% + 15.40% + 13.48%
- --------------------------------------------------------------------------------------------------------
</TABLE>
*For the period from the commencement of the Fund's investment operations,
June 16, 1993, through June 30, 1999. Index returns are from July 1, 1993.
+Source: Lipper Analytical Services, Inc.
**Source: Standard & Poor's Micropal, Inc.
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. See the prospectus for details.
<PAGE>
PORTFOLIO OF INVESTMENTS - June 30, 1999
<TABLE>
<CAPTION>
Stocks - 98.4%
- ---------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
- ---------------------------------------------------------------------------------------------------
U.S. Stocks - 97.0%
Airlines - 1.0%
<S> <C> <C>
Atlas Air, Inc.* 111,550 $ 3,597,487
Skywest, Inc. 38,000 947,625
------------
$ 4,545,112
- ---------------------------------------------------------------------------------------------------
Broadcasting - 0.4%
Hispanic Broadcasting Corp.* 21,000 $ 1,593,375
- ---------------------------------------------------------------------------------------------------
Business Machines - 2.9%
Affiliated Computer Services, Inc., "A"* 154,161 $ 7,804,401
Kulicke & Soffa Industries, Inc.* 198,100 5,311,556
------------
13,115,957
- ---------------------------------------------------------------------------------------------------
Business Services - 16.8%
BISYS Group, Inc.* 142,700 $ 8,347,950
Bright Horizons Family Solutions, Inc.* 40,500 764,437
Catalina Marketing Corp.* 21,910 2,015,720
Ceridian Corp.* 93,300 3,049,744
Complete Business Solutions, Inc.* 205,300 3,682,569
Computer Horizons Corp.* 62,000 856,375
Dendrite International, Inc.* 114,676 4,142,670
DST Systems, Inc.* 124,376 7,820,141
Fiserv, Inc.* 57,525 1,801,252
Franklin Covey Co.* 37,665 277,779
IMRglobal Corp.* 227,800 4,385,150
Interim Services, Inc.* 162,504 3,351,645
Learning Tree International, Inc.* 277,700 3,037,344
Mecon, Inc.* 69,400 520,500
Memberworks, Inc.* 31,000 899,000
Meta Group, Inc.* 145,200 2,232,450
Modis Professional Services, Inc.* 162,208 2,230,360
National Processing, Inc.* 136,200 1,379,025
NOVA Corp.* 285,223 7,130,575
Paymentech, Inc.* 68,000 1,725,500
Personnel Group of America, Inc.* 53,200 532,000
Professional Detailing, Inc.* 17,600 413,600
Quintiles Transnational Corp.* 157,030 6,595,260
Renaissance Worldwide, Inc.* 207,900 1,656,703
Technology Solutions Co.* 487,687 5,273,116
Teletech Holdings, Inc.* 81,000 820,125
------------
$ 74,940,990
- ---------------------------------------------------------------------------------------------------
Computer Software - Personal Computers - 0.2%
Intuit, Inc.* 7,700 $ 693,963
- ---------------------------------------------------------------------------------------------------
Computer Software - Services - 0.8%
Hyperion Solutions Corp.* 190,510 $ 3,393,459
- ---------------------------------------------------------------------------------------------------
Computer Software - Systems - 13.8%
Acxiom Corp.* 85,280 $ 2,126,670
Aspen Technology, Inc.* 239,100 2,809,425
Black Box Corp.* 52,600 2,636,575
Cadence Design Systems, Inc.* 352,200 4,490,550
Checkfree Holdings Corp.* 27,600 760,725
Clarify, Inc.* 56,400 2,326,500
Edify Corp.* 86,500 1,156,937
Etec Systems, Inc.* 99,800 3,318,350
Fair, Isaac & Co., Inc. 50,400 1,767,150
Harbinger Corp.* 155,050 1,938,125
Intelligroup, Inc.* 14,500 103,313
JDA Software Group, Inc.* 140,200 1,305,612
Keane, Inc. 6,900 156,113
Peerless Systems Corp.* 62,500 656,250
Redback Networks, Inc.* 300 37,669
SCB Computer Technology, Inc.* 75,900 398,475
Security Dynamics Technologies, Inc.* 409,400 8,699,750
Sterling Software, Inc.* 152,600 4,072,512
Summit Design, Inc.* 171,500 514,500
SunGard Data Systems, Inc.* 141,420 4,878,990
Synopsys, Inc.* 103,056 5,687,403
Transaction System Architects, Inc., "A"* 161,600 6,302,400
Vantive Corp.* 222,700 2,547,131
Wind River Systems, Inc.* 130,700 2,099,369
Xionics Document Technologies, Inc.* 126,600 561,788
------------
$ 61,352,282
- ---------------------------------------------------------------------------------------------------
Conglomerates
Valley Media, Inc.* 8,100 $ 120,488
- ---------------------------------------------------------------------------------------------------
Consumer Goods and Services - 3.6%
Alternative Resources Corp.* 119,200 $ 834,400
Blyth Industries, Inc.* 77,300 2,657,188
Galileo International, Inc. 98,500 5,263,594
InfoUSA, Inc., "A"* 142,200 1,262,025
InfoUSA, Inc., "B"* 73,300 623,050
Sportsline USA, Inc.* 150,700 5,406,362
------------
$ 16,046,619
- ---------------------------------------------------------------------------------------------------
Electrical Equipment - 0.9%
AFC Cable Systems, Inc.* 48,350 $ 1,707,359
Barnett, Inc.* 65,300 489,750
Belden, Inc. 68,900 1,649,294
------------
$ 3,846,403
- ---------------------------------------------------------------------------------------------------
Electronics - 12.0%
Analog Devices, Inc.* 129,632 $ 6,505,906
Burr-Brown Corp.* 153,975 5,639,334
Cable Design Technologies Corp.* 153,150 2,364,253
Credence Systems Corp.* 65,100 2,416,837
DuPont Photomasks, Inc.* 33,100 1,584,663
Gemstar International Group Ltd.* 298,100 19,451,025
GlobeSpan, Inc.* 400 15,900
Lattice Semiconductor Corp.* 57,400 3,573,150
Microchip Technology, Inc.* 29,850 1,414,144
MKS Instruments, Inc.* 59,400 1,106,325
Novellus Systems, Inc.* 9,400 641,550
Photronics, Inc.* 122,900 3,011,050
PMC-Sierra, Inc.* 41,200 2,428,225
SIPEX Corp.* 182,000 3,731,000
------------
$ 53,883,362
- ---------------------------------------------------------------------------------------------------
Entertainment - 0.9%
Clear Channel Communications, Inc.* 47,283 $ 3,259,572
Entercom Communications Corp.* 1,500 64,125
Hearst-Argyle Television, Inc.* 24,400 585,600
------------
$ 3,909,297
- ---------------------------------------------------------------------------------------------------
Financial Institutions - 2.0%
Conning Corp. 43,800 $ 711,750
Federated Investors, Inc., "A" 113,700 2,039,494
Student Loan Corp. 64,100 2,852,450
Waddell & Reed Financial, Inc., "A" 119,500 3,278,781
------------
$ 8,882,475
- ---------------------------------------------------------------------------------------------------
Food and Beverage Products - 1.2%
Del Monte Foods Co.* 145,200 $ 2,432,100
Robert Mondavi Corp.* 24,500 891,187
Tootsie Roll Industries, Inc. 54,153 2,091,660
------------
$ 5,414,947
- ---------------------------------------------------------------------------------------------------
Insurance - 0.6%
Annuity & Life Re Holdings Ltd. 1,700 $ 38,144
Executive Risk, Inc. 31,300 2,662,456
------------
$ 2,700,600
- ---------------------------------------------------------------------------------------------------
Internet - 0.1%
Ask Jeeves, Inc. 500 $ 7,000
Security First Technologies Corp.* 5,200 234,650
Software.com, Inc.* 600 13,913
------------
$ 255,563
- ---------------------------------------------------------------------------------------------------
Medical and Health Products - 1.1%
AmeriSource Health Corp., "A"* 36,000 $ 918,000
Haemonetics Corp.* 86,730 1,740,021
PSS World Medical, Inc.* 199,800 2,235,262
------------
$ 4,893,283
- ---------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 14.3%
Apache Medical Systems, Inc.* 45,800 $ 48,663
Concentra Managed Care, Inc.* 543,510 8,050,742
Cytyc Corp.* 130,800 2,550,600
HCIA, Inc.* 125,900 1,125,231
Henry Schein, Inc.* 45,200 1,432,275
Hologic, Inc.* 128,100 720,563
IDEXX Laboratories, Inc.* 463,200 10,798,350
IDX Systems Corp.* 219,600 4,954,725
Impath, Inc.* 58,600 1,582,200
IMS Health, Inc. 28,270 883,438
LifePoint Hospitals, Inc.* 108,300 1,455,281
MEDE AMERICA Corp.* 22,400 845,600
MedPartners, Inc.* 471,000 3,561,937
Mid Atlantic Medical Services, Inc.* 205,000 2,024,375
NCS Healthcare, Inc., "A"* 112,700 612,806
Orthodontic Centers of America, Inc.* 125,400 1,771,275
Osteotech, Inc. 14,000 402,500
Parexel International Corp.* 256,000 3,408,000
Pediatrix Medical Group, Inc.* 54,900 1,166,625
Quorum Health Group, Inc.* 150,350 1,888,772
Steris Corp.* 77,600 1,503,500
Superior Consultant Holdings Corp.* 35,900 886,281
Total Renal Care Holdings, Inc.* 625,943 9,741,238
Valentis, Inc.* 3,400 12,963
Ventana Medical Systems, Inc.* 90,900 1,738,462
Virgin Islands Technologies, Inc.* 115,100 575,500
------------
$ 63,741,902
- ---------------------------------------------------------------------------------------------------
Oil Services - 2.9%
Dril-Quip, Inc.* 34,000 $ 779,875
Global Industries, Inc.* 383,200 4,909,750
Input/Output, Inc.* 176,600 1,335,537
National Oilwell, Inc.* 78,700 1,101,800
Noble Drilling Corp.* 153,300 3,018,094
Weatherford International, Inc.* 46,070 1,687,314
------------
$ 12,832,370
- ---------------------------------------------------------------------------------------------------
Oils - 0.6%
Newfield Exploration Co.* 88,700 $ 2,522,406
- ---------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.3%
Boron, LePore & Associates, Inc.* 150,300 $ 1,258,763
- ---------------------------------------------------------------------------------------------------
Pollution Control - 0.4%
Superior Services, Inc.* 61,500 $ 1,641,281
- ---------------------------------------------------------------------------------------------------
Printing and Publishing - 1.9%
Harte-Hanks Communications, Inc. 60,200 $ 1,632,925
Scholastic Corp.* 138,400 7,006,500
------------
$ 8,639,425
- ---------------------------------------------------------------------------------------------------
Real Estate Investment Trusts - 0.6%
Kilroy Realty Corp. 44,400 $ 1,082,250
MeriStar Hospitality Corp. 79,750 1,789,391
------------
$ 2,871,641
- ---------------------------------------------------------------------------------------------------
Restaurants and Lodging - 3.1%
Applebee's International, Inc. 91,500 $ 2,756,437
Buffets, Inc.* 243,486 2,800,089
Four Seasons Hotels, Inc. 41,700 1,837,406
Landry's Seafood Restaurants, Inc.* 122,400 979,200
Mortons Restaurant Group, Inc.* 2,400 45,750
Papa John's International, Inc.* 26,600 1,188,688
Prime Hospitality Corp.* 45,400 544,800
ShoLodge, Inc.* 67,932 343,906
Sonic Corp.* 77,100 2,515,387
Taco Cabana, Inc.* 61,700 628,569
------------
$ 13,640,232
- ---------------------------------------------------------------------------------------------------
Special Products and Services - 1.0%
Caliber Learning Network, Inc.* 63,500 $ 301,625
Gartner Group, Inc.* 66,000 1,353,000
Newport News Shipbuilding, Inc. 24,200 713,900
Verisign, Inc.* 23,800 2,052,750
------------
$ 4,421,275
- ---------------------------------------------------------------------------------------------------
Stores - 4.6%
BJ's Wholesale Club, Inc.* 81,800 $ 2,459,112
Copart, Inc.* 14,400 306,000
CSK Auto Corp.* 108,000 2,916,000
Gymboree Corp.* 220,300 2,313,150
Mazel Stores, Inc.* 78,300 851,513
Micro Warehouse, Inc.* 126,350 2,258,506
Office Depot, Inc.* 154,450 3,407,553
Petco Animal Supplies, Inc.* 195,600 3,080,700
Regis Corp. 141,550 2,715,991
------------
$ 20,308,525
- ---------------------------------------------------------------------------------------------------
Supermarkets - 0.2%
Kroger Co.* 38,380 $ 1,072,241
- ---------------------------------------------------------------------------------------------------
Telecommunications - 8.8%
Advanced Fibre Communications, Inc.* 72,400 $ 1,131,250
Allegiance Telecom, Inc.* 24,700 1,355,412
American Tower Corp., "A"* 76,650 1,839,600
Aspect Telecommunications Corp.* 163,900 1,598,025
Copper Mountain Networks, Inc.* 100 7,725
DSP Communications, Inc.* 64,600 1,865,325
Hyperion Telecommunications, Inc., "A"* 80,800 1,520,050
Intermedia Communications, Inc.* 354,100 10,623,000
International Telecommunication Data Systems, Inc.* 26,600 425,600
Lightbridge, Inc.* 70,400 884,400
Natural Microsystems Corp.* 63,000 602,438
Network Solutions, Inc.* 34,900 2,761,462
Nextlink Communications, Inc., "A"* 47,400 3,525,375
Pinnacle Holdings, Inc.* 139,400 3,415,300
Proxim, Inc.* 57,500 3,335,000
Transaction Network Services, Inc.* 123,500 3,612,375
VDI Media* 82,400 535,600
------------
$ 39,037,937
- ---------------------------------------------------------------------------------------------------
Total U.S. Stocks $431,576,173
- ---------------------------------------------------------------------------------------------------
Foreign Stocks - 1.4%
United Kingdom - 1.4%
CBT Group PLC, ADR (Computer Software - Personal
Computers)* 362,000 $ 5,973,000
- ---------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $347,358,009) $437,549,173
- ---------------------------------------------------------------------------------------------------
Short-Term Obligations - 2.9%
- ---------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- ---------------------------------------------------------------------------------------------------
Associates Corp. of North America, due 7/01/99 $ 4,200 $ 4,200,000
Federal Home Loan Mortgage Corp., due 7/09/99 8,900 8,890,447
- ---------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost 13,090,447
- ---------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $360,448,456) $450,639,620
Other Assets, Less Liabilities - (1.3)% (5,817,499)
- ---------------------------------------------------------------------------------------------------
Net Assets - 100.0% $444,822,121
- ---------------------------------------------------------------------------------------------------
*Non-income producing security.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
- ---------------------------------------------------------------------------------------------
JUNE 30, 1999
- ---------------------------------------------------------------------------------------------
Assets:
<S> <C>
Investments, at value (identified cost, $360,448,456) $450,639,620
Cash 49,426
Receivable for Fund shares sold 430,833
Receivable for investments sold 2,011,632
Dividends receivable 28,653
Other assets 5,787
------------
Total assets $453,165,951
------------
Liabilities:
Payable for investments purchased $ 1,679,350
Payable for Fund shares reacquired 6,590,868
Payable to affiliates -
Management fee 9,004
Administrative fee 180
Shareholder servicing agent fee 90
Accrued expenses and other liabilities 64,338
------------
Total liabilities $ 8,343,830
------------
Net assets $444,822,121
============
Net assets consist of:
Paid-in capital $338,637,991
Unrealized appreciation on investments 90,191,164
Accumulated undistributed net realized gain on investments 15,992,966
============
Total $444,822,121
============
Shares of beneficial interest outstanding 20,035,884
==========
Net asset value, offering price, and redemption price per share
(net assets / shares of beneficial interest outstanding) $22.20
======
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- -------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999
- -------------------------------------------------------------------------------
Net investment income (loss):
Income -
Interest income $ 1,040,143
Dividend income 625,656
Foreign taxes withheld (461)
------------
Total income $ 1,665,338
------------
Expenses -
Management fee $ 3,376,859
Trustees' compensation 5,300
Shareholder servicing agent fee 33,764
Administrative fee 55,248
Custodian fee 153,313
Printing fee 15,181
Auditing fees 45,558
Legal fees 7,016
Miscellaneous 80,441
------------
Total expenses $ 3,772,680
Fees paid indirectly (53,590)
Reduction of expenses by investment adviser (188,424)
------------
Net expenses $ 3,530,666
------------
Net investment loss $ (1,865,328)
------------
Realized and unrealized gain on investments:
Realized gain (identified cost basis) on investment
transactions $ 23,042,038
Change in unrealized appreciation on investments 5,979,427
------------
Net realized and unrealized gain on investments $ 29,021,465
------------
Increase in net assets from operations $ 27,156,137
============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999 1998
- -------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
<S> <C> <C>
Net investment loss $ (1,865,328) $ (1,581,571)
Net realized gain on investments 23,042,038 67,546,425
Net unrealized gain on investments 5,979,427 25,481,475
------------- -------------
Increase in net assets from operations $ 27,156,137 $ 91,446,329
------------- -------------
Distributions declared to shareholders from net realized
gain on investments $ (39,674,237) $ (55,887,219)
------------- -------------
Net increase (decrease) in net assets from Fund share
transactions $ (45,053,113) $ 83,197,496
------------- -------------
Total increase (decrease) in net assets $ (57,571,213) $ 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 $0 and $0, respectively) $ 444,822,121 $ 502,393,334
============= =============
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- ---------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $22.95 $21.45 $21.17 $16.42 $11.75
------ ------ ------ ------ ------
Income from investment operations# -
Net investment loss(S) $(0.08) $(0.08) $(0.04) $(0.04) $(0.03)
Net realized and unrealized gain on
investments and foreign currency 0.98 4.54 3.42 6.55 5.04
------ ------ ------ ------ ------
Total from investment operations $ 0.90 $ 4.46 $ 3.38 $ 6.51 $ 5.01
------ ------ ------ ------ ------
Less distributions declared to shareholders
from net realized gain on investments and
foreign currency transactions $(1.65) $(2.96) $(3.10) $(1.76) $(0.34)
------ ------ ------ ------ ------
Net asset value - end of period $22.20 $22.95 $21.45 $21.17 $16.42
====== ====== ====== ====== ======
Total return 4.69% 23.51% 18.49% 41.37% 43.21%
Ratios (to average net assets)/Supplemental
data(S):
Expenses## 0.79% 0.76% 0.75% 0.75% 0.75%
Net investment loss (0.41)% (0.36)% (0.22)% (0.22)% (0.19)%
Portfolio turnover 78% 80% 96% 97% 86%
Net assets at end of period (000 omitted) $444,822 $502,393 $383,637 $259,362 $107,019
<CAPTION>
(S)Through December 31, 1998, the investment adviser voluntarily agreed to maintain the expenses of the Fund at not more than
0.75% of the average daily net assets. To the extent actual expenses were over these limitations, the net investment loss
per share and the ratios would have been:
Net investment loss $(0.09) $(0.10) $(0.06) $(0.06) $(0.07)
Ratios (to average net assets):
Expenses## 0.83% 0.83% 0.84% 0.87% 0.98%
Net investment loss (0.45)% (0.44)% (0.31)% (0.34)% (0.42)%
#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. The Fund's expenses are calculated without reduction for this
expense offset arrangement.
</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 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 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.
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, 1999, $301,695 and $1,563,633 were reclassified to
accumulated net investment loss from accumulated net realized gain on
investments and paid-in capital, respectively, 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. Through December 31, 1998, the investment adviser
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.
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.
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 short-term obligations,
aggregated $330,003,279 and $399,852,986, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the Fund, as computed on a federal income tax basis, are
as follows:
Aggregate cost $369,935,522
------------
Gross unrealized appreciation $105,209,568
Gross unrealized depreciation (24,505,470)
------------
Net unrealized appreciation $ 80,704,098
============
(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>
YEAR ENDED JUNE 30, 1999 YEAR ENDED JUNE 30, 1998
---------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 7,351,432 $ 141,926,040 4,982,066 $113,341,586
Shares issued to shareholders
in reinvestment of distributions 1,908,450 38,207,163 2,819,882 54,141,729
Shares reacquired (11,114,474) (225,186,316) (3,794,265) (84,285,819)
----------- -------------- ---------- -------------
Net increase (decrease) (1,854,592) $ (45,053,113) 4,007,683 $ 83,197,496
========== ============== ========= =============
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in an $820 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, 1999, was $327. The Fund had no
significant borrowings during the period.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of the MFS Institutional Trust and the 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 constituting MFS Institutional Trust) as of June 30,
1999, the related statement of operations for the year then ended, the
statement of changes in net assets for the years ended June 30, 1999 and 1998,
and the financial highlights for each of the years in the five-year period
ended June 30, 1999. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of the
securities owned at June 30, 1999, 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, 1999, 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 6, 1999
<PAGE>
FEDERAL TAX INFORMATION
The Fund has designated $30,506,020 as a capital gain dividend.
For the year ended June 30, 1999, the amount of distributions from income
eligible for the 70% dividends received deduction for corporations came to
2.16%.
<PAGE>
MFS' YEAR 2000 READINESS DISCLOSURE
MFS Investment Management(R), as an investment adviser and on behalf of the MFS
funds, is committed to the effective use of technology in managing our portfolio
investments, delivering high-quality service to MFS fund shareholders,
retirement plan participants, and MFS' institutional clients, and supporting the
financial advisers who sell our products. With that in mind, we created a
separately funded Year 2000 Program Management Office in 1996 comprised of a
specialized staff reporting directly to MFS senior management.
The Year 2000 (Y2K) problem arises because calendar-year fields in computers
and software applications traditionally have used two-digit codes so that, for
example, the year 1998 is coded as "98," with the "19" being implied. In the
year 2000, unless necessary corrections have been made, computer applications
may assume "00" refers to 1900 rather than 2000, thus resulting in systems
failures or miscalculations. To address this issue, our team of dedicated
business and technology managers, working with outside experts, is taking
steps to ascertain the Y2K readiness of MFS' internal systems and is working
with our external systems vendors to determine whether they expect their
systems to be ready.
MFS recognizes that fund shareholders and institutional clients also are
concerned about whether the companies whose securities are held in their
portfolios are addressing Y2K issues. As part of the MFS(R) Original Research
(SM) process of evaluating portfolio investments, one of the many relevant
factors that MFS' portfolio managers and research analysts may consider is a
company's Y2K readiness. Each year, MFS' research analysts and portfolio
managers conduct more than 1,000 on-site meetings with companies whose
securities are, or may be, held in fund and client portfolios, and host an
additional 1,500 meetings at MFS' headquarters. When assessing the Y2K
readiness of these companies, MFS' research analysts and portfolio managers
may rely upon discussions at these meetings as well as SEC disclosure
documents and third-party reports.
Y2K readiness is an enormously complex, worldwide issue. No company or
institution can guarantee that it will be unaffected by the Y2K issue. While
MFS is taking significant steps to protect the integrity of its internal
systems, there can be no assurance that these steps will be sufficient to
avoid any adverse impact on MFS, shareholders of MFS funds, participants in
retirement plans administered by MFS, or MFS' institutional clients.
If you have further questions regarding MFS' Year 2000 Readiness Program,
please visit our Web site at www.mfs.com or contact the MFS Year 2000 Program
Management Office by e-mail at [email protected] or by letter at 500 Boylston
Street, Boston, MA 02116-3741.
<PAGE>
(C)1999 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MEE-2 8/99 .5M
