<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
INTERNATIONAL EQUITY FUND
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MFS(R) INSTITUTIONAL INTERNATIONAL EQUITY 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 MANAGER contact your financial adviser.
David R. Mannheim*
CUSTODIAN
TREASURER State Street Bank and Trust Company
W. Thomas London*
AUDITORS
ASSISTANT TREASURERS Deloitte & Touche LLP
Mark E. Bradley*
Ellen Moynihan* WORLD WIDE WEB
James O. Yost* www.mfs.com
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
0.74% (including the reinvestment of any distributions). This compares to
returns of 4.82% for the average international fund tracked by Lipper
Analytical Services, Inc., an independent firm that reports mutual fund
performance, and 7.92% for the Morgan Stanley Capital International (MSCI)
Europe, Australia, Far East (EAFE) Index, an unmanaged, market-capitalization-
weighted total return index of developed-country global stock markets,
excluding the United States, Canada, and the South African mining component.
Over the past 12 months, international equity markets experienced a great deal
of volatility. However, the first half of 1999 saw a recovery of these markets
from the lows reached in October 1998. In local currency, the MSCI EAFE Index
saw a total return of 13.60%, with the MSCI Pacific Index (an unmanaged index
of stock markets in Australia, Hong Kong, Japan, Malaysia, New Zealand, and
Singapore) up 28.00%, and the MSCI Europe Index (an unmanaged index of stock
markets in Australia, Belgium, Denmark, Finland, France, Germany, Italy, the
Netherlands, Norway, Spain, Sweden, Switzerland, Ireland, Portugal and the
United Kingdom) up 8.20%. Among individual markets, Singapore and Hong Kong
led the way. The Japanese market continued its dramatic recovery, gaining 30%.
The emerging markets were also strong, as evidenced by the 36% increase (in
U.S. dollars) of the International Financial Corporate Emerging Markets
Composite Index (an unmanaged index of market-capitalization-weighted stocks
from developed countries). The strong equity market returns were somewhat
offset by a strong dollar, which gained nearly 7% versus the Japanese yen and
more than 13% against the euro.
One reason the Fund underperformed the MSCI EAFE Index over the last year, but
moved closer over the past six months, was the narrowness of performance
within the markets. In most markets the largest capitalization stocks showed
the strongest performance. While the Fund may invest in these larger-
capitalization stocks, in general it is more diversified among a range of
capitalizations. During the past several months the market has broadened, with
small- and mid-cap stocks performing better.
The Fund was also negatively affected by limited exposure to cyclical
industries such as paper, chemicals, and metals. These basic materials
industries were among the best-performing sectors in the first half of the
year as markets reacted to stronger-than-expected growth in the United States
and an apparent recovery in Asia. The portfolio remains underweighted in these
industries, because we believe there are better opportunities for long-term
growth at reasonable valuations in other areas.
Contributing positively to performance were increased holdings in the
utilities and communications area, which now represents our second-largest
sector at 15.80% of our equity investments. This included strong performance
in the past six months in the telecommunications arena from Mannesmann (31%
price increase in U.S. dollars) and NTT Mobile Communications (64%). In the
telecommunications equipment area, Ericsson (36%) was a strong contributor.
The financial services sector, which represents 20.00% of equities, remains
the largest but is underweighted relative to the MSCI EAFE Index at 23.60%.
This sector in general lagged the equity markets, and several of the Fund's
larger holdings were no exception. UBS was down 2.5%, Anglo Irish Bank was
down 13%, and QBE Insurance was down 9%. One stock that contributed positively
toward performance was a smaller position in the Development Bank of
Singapore, whose price increased 64%.
In general, the Fund continues to be overweighted relative to the MSCI EAFE
Index in steady, growth-type industries. In addition to telecommunications,
these include consumer staples, which represents 12.5% of equities, and
technology at 11.70%. Holdings in these sectors include Benckiser, a
Netherlands-based producer of dish-washing detergent and other consumer
products, and Hitachi and Fujitsu, Japanese technology companies from which we
expect to see higher growth as a result of restructuring.
Our bottom-up approach to stock selection and portfolio construction continues
to result in the Fund maintaining its largest position in continental Europe,
55.7% of equity holdings, compared to 47.1% in the MSCI EAFE Index. While our
weighting in Japan has increased to 15.6%, this still is less than the index's
24.10%. The largest country is the United Kingdom at 16.30% of the Fund, vs.
22.20% in EAFE. Our exposure to emerging markets remains low at 2.6% and
includes holdings in Greece and Argentina.
While the rally in international equity markets has pushed valuations to
higher levels, we continue to see very few signs of inflation, with companies
finding it difficult to raise their prices. This, combined with an improving
corporate earnings outlook in many markets, gives us reason to feel optimistic
about the remainder of 1999. Regardless of economic tremors, that may develop
in spots around the world, we believe there will be no lack of opportunistic
and established companies in which to invest. Our mission is to use MFS(R)
Original Research(SM) to try to uncover these investment opportunities.
Respectfully,
/s/ David Mannheim
- ---------------------------
David R. Mannheim
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and
are current only through the end of the period of the report as stated on the
cover. The manager's 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 MANAGER'S PROFILE
David R. Mannheim is Senior Vice President of MFS Investment Management(R) and
Director of International Portfolio Management. He is portfolio manager of
MFS(R) Global Equity Fund, MFS(R) International Growth Fund, MFS(R)
Institutional International Equity Fund, and the International Growth Series
offered through MFS(R)/Sun Life annuity products.
Mr. Mannheim joined MFS in 1988 and was named Investment Officer in 1990,
Assistant Vice President in 1991, Vice President and portfolio manager in
1992, Senior Vice President in 1997, and Director of International Portfolio
Management in 1999. He is a graduate of Amherst College and the Massachusetts
Institute of Technology Sloan School of Management.
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.
<PAGE>
FUND FACTS
Objective: Seeks to provide long-term growth of capital.
Commencement of investment operations: January 30, 1996
Size: $7.7 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 January 30, 1996, through June 30, 1999)
[Graphic Omitted]
MFS Institutional
International Equity Fund MSCI EAFE Index
- --------------------------------------------------------------------------------
1/96 $3,000,000 $3,000,000
6/96 3,288,000 3,126,500
6/97 4,043,100 3,538,000
6/98 4,452,900 3,763,800
6/99 4,485,769 4,062,059
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN THROUGH JUNE 30, 1999
1 Year 3 Years Life*
- -------------------------------------------------------------------------------
Cumulative Total Return +0.74% +36.43% +49.53%
- -------------------------------------------------------------------------------
Average Annual Total Return +0.74% +10.91% +12.50%
- -------------------------------------------------------------------------------
COMPARATIVE INDICES
- -------------------------------------------------------------------------------
Average international fund+ +4.82% + 9.52% +10.11%
- -------------------------------------------------------------------------------
MSCI EAFE Index** +7.92% + 9.12% + 9.28%
- -------------------------------------------------------------------------------
*For the period from the commencement of the Fund's investment operations,
January 30, 1996, through June 30, 1999. Index returns are from
February 1, 1996.
+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.
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. See the
prospectus for details.
<PAGE>
PORTFOLIO OF INVESTMENTS - June 30, 1999
Stocks - 97.6%
- -------------------------------------------------------------------------------
ISSUER SHARES VALUE
- -------------------------------------------------------------------------------
Foreign Stocks - 91.8%
Argentina - 0.5%
Quilmes Industrial S.A., ADR (Beverages) 2,800 $ 34,650
- -------------------------------------------------------------------------------
Australia - 2.2%
QBE Insurance Group Ltd. (Insurance) 41,989 $ 159,541
Seven Network Ltd. (Entertainment) 1,921 5,624
---------
$ 165,165
- -------------------------------------------------------------------------------
Canada - 2.1%
Canadian National Railway Co. (Railroads) 2,400 $ 160,800
- -------------------------------------------------------------------------------
Finland - 4.1%
Helsingin Puhelin Oyj (Telecommunications) 2,800 $ 132,728
Perlos Corp. (Electronics)* 800 11,706
Pohjola Group Insurance Corp. (Insurance) 1,510 77,414
Telephone Cooperative HPY (Telecommunications) 13 33,572
Tieto Corp. (Computer Software - Systems) 1,400 58,285
---------
$ 313,705
- -------------------------------------------------------------------------------
France - 10.2%
Bouygues S.A. (Construction)* 140 $ 36,976
Castorama-Dubois Investissements (Stores) 490 116,137
Pernod Ricard Co. (Beverages) 1,680 112,531
Renault Regie Nationale (Automobiles) 700 30,441
Television Francaise (Entertainment) 490 114,118
TOTAL S.A., "B" (Oils)* 1,590 204,976
Union des Assurances Federales S.A. (Insurance) 1,110 131,543
Wavecom S.A., ADR (Electronics)* 2,700 35,437
---------
$ 782,159
- -------------------------------------------------------------------------------
Germany - 7.8%
Henkel KGaA, Preferred (Chemicals) 1,770 $ 120,748
HypoVereinsbank (Banks and Credit Cos.) 1,400 90,890
Mannesmann AG (Conglomerate) 1,630 243,558
VEBA AG (Oil and Gas) 1,100 64,612
Wella AG, Preferred (Consumer Goods and Services) 103 74,830
---------
$ 594,638
- -------------------------------------------------------------------------------
Greece - 2.1%
Antenna TV S.A., ADR (Broadcasting)* 4,200 $ 57,750
Hellenic Telecommunication Organization S.A., GDR
(Telecommunications) 4,444 95,159
STET Hellas Telecommunications S.A., ADR
(Telecommunications)* 300 6,713
---------
$ 159,622
- -------------------------------------------------------------------------------
Ireland - 3.3%
Allied Irish Bank PLC (Banks and Credit Cos.) 6,700 $ 88,697
Anglo Irish Bank PLC (Banks and Credit Cos.)* 66,829 166,410
---------
$ 255,107
- -------------------------------------------------------------------------------
Italy - 5.2%
Banca Carige S.p.A. (Banks and Credit Cos.) 10,000 $ 87,592
ERG S.p.A. (Oils) 18,100 54,091
Mediaset S.p.A. (Entertainment) 10,700 95,047
Telecom Italia Mobile S.p.A., Saving Shares
(Telecommunications)* 45,000 165,550
---------
$ 402,280
- -------------------------------------------------------------------------------
Japan - 16.3%
Canon, Inc. (Special Products and Services) 5,000 $ 143,897
Chugai Pharmaceutical Co., Ltd. (Pharmaceuticals) 15,000 161,760
Chukyo Coca-Cola Bottling Co., Ltd. (Food and
Beverage Products) 3,000 42,127
Fuji Heavy Industries, Ltd. (Automotive) 4,000 30,896
Fujitsu Ltd. (Computer Hardware - Systems) 5,000 100,686
Hitachi (Electronics) 12,000 112,637
Kita Kyushu Coca-Cola Bottling Co., Ltd.
(Food and Beverage Products) 1,000 56,897
Mikuni Coca-Cola Bottling Co., Ltd. (Food and
Beverage Products) 5,000 101,720
Mitsubishi Motor (Automotive) 4,000 20,741
NTT Mobile Communications Network, Inc.
(Telecommunications) 4 54,251
NTT Mobile Communications Network, Inc.
(Telecommunications)* 16 214,357
Olympus Optical Co. (Conglomerate) 7,000 103,564
Sanyo Coca-Cola Bottling Co., Ltd. (Food and
Beverage Products) 2,000 61,904
Takeda Chemical Industries Co. (Pharmaceuticals) 1,000 46,394
----------
$1,251,831
- -------------------------------------------------------------------------------
Netherlands - 7.8%
Akzo Nobel N.V. (Chemicals) 2,400 $ 100,907
Benckiser N.V., "B" (Consumer Goods and Services) 4,991 266,162
Equant N.V. (Computer Software - Services)* 460 43,297
IHC Caland N.V. (Marine Equipment) 682 26,706
ING Groep N.V. (Financial Services) 3,000 162,304
----------
$ 599,376
- -------------------------------------------------------------------------------
Norway - 2.3%
Sparebanken NOR (Banks and Credit Cos.) 5,100 $ 95,164
Storebrand ASA (Insurance) 12,400 83,422
----------
$ 178,586
- -------------------------------------------------------------------------------
Portugal - 2.0%
Banco Pinto & Sotto Mayor S.A.
(Banks and Credit Cos.) 6,000 $ 106,471
Telecel - Comunicacoes Pessoais S.A.
(Telecommunications) 365 47,017
----------
$ 153,488
- -------------------------------------------------------------------------------
Singapore - 0.5%
Development Bank of Singapore Ltd.
(Banks and Credit Cos.) 3,000 $ 36,674
- -------------------------------------------------------------------------------
Sweden - 5.3%
Ericsson LM, "B" (Telecommunications) 6,350 $ 203,957
Saab AB, "B" (Aerospace) 26,383 205,243
----------
$ 409,200
- -------------------------------------------------------------------------------
Switzerland - 4.5%
Barry Callebaut AG (Food and Beverage Products) 450 $ 68,892
Novartis AG (Medical and Health Products) 36 52,567
UBS AG (Banks and Credit Cos.)* 740 220,867
----------
$ 342,326
- -------------------------------------------------------------------------------
United Kingdom - 15.6%
AstraZeneca Group PLC (Medical and Health Products) 4,100 $ 159,960
BP Amoco PLC (Oils) 4,776 85,507
BP Amoco PLC, ADR (Oils) 620 67,270
British Aerospace PLC (Aerospace)* 29,444 191,647
Cable & Wireless Communications PLC
(Telecommunications) 28,000 269,181
Capital Radio PLC (Broadcasting) 2,100 27,784
Next PLC (Stores) 13,400 162,612
Orange PLC (Telecommunications) 3,600 52,821
TeleWest Communications PLC (Entertainment)* 20,900 93,627
Tomkins PLC (Conglomerate) 19,800 85,813
----------
$1,196,222
- -------------------------------------------------------------------------------
Total Foreign Stocks $7,035,829
- -------------------------------------------------------------------------------
U.S. Stocks - 5.8%
Consumer Goods and Services - 4.5%
Galileo International, Inc. 6,400 $ 342,000
- -------------------------------------------------------------------------------
Internet
Ask Jeeves, Inc.* 50 $ 700
- -------------------------------------------------------------------------------
Telecommunications - 0.1%
Global TeleSystems Group, Inc.* 100 $ 8,100
- -------------------------------------------------------------------------------
Utilities - Telephone - 1.2%
Frontier Corp. 1,600 $ 94,400
- -------------------------------------------------------------------------------
Total U.S. Stocks $ 445,200
- -------------------------------------------------------------------------------
Total Stocks (Identified Cost, $7,040,330) $7,481,029
- -------------------------------------------------------------------------------
Rights
- -------------------------------------------------------------------------------
France
Bouygues S.A. (Construction)* (Identified Cost, $450) 140 $ 372
- -------------------------------------------------------------------------------
Short-Term Obligations - 0.6%
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000 OMITTED)
- -------------------------------------------------------------------------------
Federal Home Loan Bank, due 7/01/99,
at Amortized Cost $ 50 $ 50,000
- -------------------------------------------------------------------------------
Other Short-Term Obligations - 8.5%
- -------------------------------------------------------------------------------
SHARES
- -------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio,
(Identified Cost, $642,021) 649,021 $ 649,021
- -------------------------------------------------------------------------------
Total Investments (Identified Cost, $7,739,801) $8,180,422
Other Assets, Less Liabilities - (6.7)% (513,282)
- -------------------------------------------------------------------------------
Net Assets - 100.0% $7,667,140
- -------------------------------------------------------------------------------
*Non-income producing security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
JUNE 30, 1999
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $7,739,801) $8,180,422
Cash 2,265
Foreign currency, at value (identified cost, $139,074) 151,027
Receivable for investments sold 99,151
Interest and dividends receivable 19,284
Receivable from investment adviser 59,035
Deferred organization expenses 2,219
Other assets 134
----------
Total assets $8,513,537
----------
Liabilities:
Payable for investments purchased $ 169,752
Collateral for securities loaned, at value 649,021
Payable to affiliates -
Management fee 157
Shareholder servicing agent fee 2
Administrative fee 3
Accrued expenses and other liabilities 27,462
----------
Total liabilities $ 846,397
----------
Net assets $7,667,140
==========
Net assets consist of:
Paid-in capital $6,301,155
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 452,339
Accumulated undistributed net realized gain on investments
and foreign currency transactions 838,482
Accumulated undistributed net investment income 75,164
----------
Total $7,667,140
==========
Shares of beneficial interest outstanding 593,733
=======
Net asset value, offering price, and redemption price per share
(net assets / shares of beneficial interest outstanding) $12.91
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 186,140
Interest 17,905
Foreign taxes withheld (23,542)
-----------
Total investment income $ 180,503
-----------
Expenses -
Management fee $ 66,626
Trustees' compensation 5,300
Shareholder servicing agent fee 670
Administrative fee 1,090
Custodian fee 20,200
Printing 9,254
Auditing fees 21,224
Legal fees 1,893
Amortization of organization expenses 1,396
Registration fees 9,117
Miscellaneous 872
-----------
Total expenses $ 137,642
Fees paid indirectly (1,701)
Reduction of expenses by investment adviser (60,431)
-----------
Net expenses $ 75,510
-----------
Net investment income $ 104,993
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 847,579
Foreign currency transactions (40,773)
-----------
Net realized gain on investments and foreign
currency transactions $ 806,806
-----------
Change in unrealized appreciation (depreciation) -
Investments $(1,301,894)
Translation of assets and liabilities in
foreign currencies 28,043
-----------
Net unrealized loss on investments and foreign
currency translation $(1,273,851)
-----------
Net realized and unrealized loss on
investments and foreign currency $ (467,045)
-----------
Decrease in net assets from operations $ (362,052)
===========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999 1998
- ------------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
<S> <C> <C>
Net investment income $ 104,993 $ 123,867
Net realized gain on investments and foreign currency
transactions 806,806 402,556
Net unrealized gain (loss) on investments and foreign
currency translation (1,273,851) 585,568
----------- -----------
Increase (decrease) in net assets from operations $ (362,052) $ 1,111,991
----------- -----------
Distributions declared to shareholders -
From net investment income $ (99,690) $ (68,852)
From net realized gain on investments and foreign currency
transactions (367,595) (292,025)
----------- -----------
Total distributions declared to shareholders $ (467,285) $ (360,877)
----------- -----------
Net increase (decrease) in net assets from Fund share
transactions $(3,980,435) $ 1,037,376
----------- -----------
Total increase (decrease) in net assets $(4,809,772) $ 1,788,490
Net assets:
At beginning of period 12,476,912 10,688,422
----------- -----------
At end of period (including accumulated undistributed net
investment income of $75,164 and $94,262, respectively) $ 7,667,140 $12,476,912
=========== ===========
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
-------------------------------------------------- PERIOD ENDED
1999 1998 1997 JUNE 30, 1996*
- ------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C>
Net asset value - beginning of period $13.88 $13.04 $10.96 $10.00
------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.15 $ 0.14 $ 0.23 $ 0.13
Net realized and unrealized gain (loss) on
investments and foreign currency (0.10) 1.12 2.23 0.83
------ ------ ------ ------
Total from investment operations $ 0.05 $ 1.26 $ 2.46 $ 0.96
------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.22) $(0.08) $(0.13) $ --
From net realized gain on investments and foreign
currency transactions (0.80) (0.34) (0.25) --
------ ------ ------ ------
Total distributions declared to shareholders $(1.02) $(0.42) $(0.38) $ --
------ ------ ------ ------
Net asset value - end of period $12.91 $13.88 $13.04 $10.96
====== ====== ====== ======
Total return 0.74% 10.13% 22.97% 9.60%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.87% 0.86% 0.87% 0.94%+
Net investment income 1.18% 1.08% 1.98% 2.46%+
Portfolio turnover 109% 64% 76% 19%
Net assets at end of period (000 omitted) $7,667 $12,477 $10,688 $2,498
<CAPTION>
(S) Effective May 3, 1996, the investment adviser voluntarily agreed to maintain the expenses of the Fund, exclusive of
management fees, at not more than 0.10% of average daily net assets. During the period January 30, 1996, through May 2,
1996, the investment adviser voluntarily agreed to maintain the expenses of the Fund, exclusive of management fees, at
not more than 0.20% of average daily net assets. To the extent actual expenses were over these limitations, the net
investment income (loss) per share and the ratios would have been:
Net investment income (loss) $ 0.06 $ 0.07 $ 0.10 $(0.08)
Ratios (to average net assets):
Expenses## 1.54% 1.39% 2.01% 4.91%+
Net investment income (loss) 0.51% 0.55% 0.84% (1.51)%+
* For the period from the commencement of the Fund's investment operations, January 30, 1996, through June 30, 1996.
+ 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. The Fund's expenses are calculated without reduction for
this expense offset arrangement. See notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Institutional International Equity 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.
Investments in foreign securities are vulnerable to the effects of changes in
the relative values of the local currency and the U.S. dollar and to the
effects of changes in each country's legal, political, and economic
environment.
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. Debt securities (other than short-term obligations which
mature in 60 days or less), including forward contracts, are valued on the
basis of valuations furnished by dealers or by a pricing service with
consideration to factors such as institutional-size trading in similar groups
of securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics, and other market data, without exclusive reliance upon
exchange or over-the-counter 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.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that results from fluctuations in foreign currency
exchange rates is not separately disclosed.
Deferred Organization Expenses - Costs incurred by the Fund in connection with
its organization have been deferred and are being amortized on a straight-line
basis over a five-year period beginning on the date of commencement of Fund
operations.
Security Loans - The Fund may lend its securities to member banks of the
Federal Reserve System and to member firms of the New York Stock Exchange or
subsidiaries thereof. State Street Bank and Trust Company ("State Street"), as
agent, loans the securities to certain brokers (the "Borrowers") approved by
the Fund. The loans are collateralized at all times by cash and/or U.S.
Treasury securities in an amount at least equal to the market value of the
securities loaned. State Street provides the Fund with indemnification against
Borrower default. The Fund bears the risk of loss with respect to the
investment of cash collateral.
At June 30, 1999, the value of securities loaned was $623,794. These loans
were collateralized by cash of $649,021. Cash collateral is invested in short-
term securities, which are included in the Portfolio of Investments. A portion
of the income generated upon investment of the collateral is remitted to the
Borrowers, and the remainder is allocated between the Fund and State Street in
its capacity as lending agent. Income from securities lending is included in
interest income on the Statement of Operations. The dividend and interest
income earned on the securities loaned is accounted for in the same manner as
other dividend and interest income.
Forward Foreign Currency Exchange Contracts - The Fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties
to meet the terms of their contracts and from unanticipated movements in the
value of a foreign currency relative to the U.S. dollar. The Fund may enter
into forward contracts for hedging purposes as well as for non-hedging
purposes. For hedging purposes, the Fund may enter into contracts to deliver
or receive foreign currency it will receive from or require for its normal
investment activities. The Fund may also use contracts in a manner intended to
protect foreign currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the Fund may
enter into contracts with the intent of changing the relative exposure of the
Fund's portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains
or losses are recorded as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains
or losses on foreign currency transactions.
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.
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 distributions from paid-in
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, accumulated undistributed net investment
income was decreased by $24,401, accumulated net realized gain on investments
and foreign currency transactions was increased by $24,398, and paid-in
capital was increased by $3 due to differences between book and tax accounting
for currency transactions. This change had no effect on the net assets or net
asset value per share. At June 30, 1999, accumulated net realized gain on
investments and foreign currency transactions under book accounting were
different from tax accounting due to temporary differences in accounting for
losses on wash sale transactions.
(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 has voluntarily
agreed to pay the Fund's operating expenses exclusive of management fees such
that the Fund's aggregate expenses do not exceed 0.10% of its average daily
net assets. This is reflected as a reduction of expenses in the Statement of
Operations.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive
remuneration for their services to the Fund from MFS. Certain officers and
Trustees of the Fund are officers or directors of MFS and MFS Service Center,
Inc. (MFSC).
Administrator - The Fund has an administrative services agreement with MFS to
provide the Fund with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Fund pays MFS an administrative fee
at the following annual percentages of the Fund's average daily net assets:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the Fund's average daily net assets at an effective annual
rate of 0.0075%.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$9,385,118 and $13,725,464, 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 $7,788,529
----------
Gross unrealized appreciation $ 760,909
Gross unrealized depreciation (369,016)
----------
Net unrealized appreciation $ 391,893
==========
(5) Shares of Beneficial Interest
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1999 YEAR ENDED JUNE 30, 1998
------------------------------ ----------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 143,554 $ 1,797,619 96,523 $1,273,048
Shares issued to shareholders in
reinvestment of distributions 38,083 467,280 27,197 329,631
Shares reacquired (487,062) (6,245,334) (44,030) (565,303)
-------- ----------- ------- ----------
Net increase (decrease) (305,425) $(3,980,435) 79,690 $1,037,376
======== =========== ====== ==========
</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 $75. The Fund had no
significant borrowings during the year.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders of MFS Institutional International Equity
Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the MFS Institutional International Equity Fund
as of June 30, 1999, the related statement of operations for the year then
ended, and the statement of changes in net assets for the years ended June 30,
1999 and 1998, and financial highlights for each of the years in the 4-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 the 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 $365,646 as a capital gain dividend.
For the year ended June 30, 1999, income from foreign sources was $194,323,
and foreign taxes withheld were $23,634.
<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
IIE-2 8/99 .5M
