<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
MID CAP GROWTH FUND
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MFS(R) INSTITUTIONAL MID CAP GROWTH 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*
Mark Regan*
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
22.05% (including the reinvestment of any distributions), which compares to a
return of 13.35% for the average mid cap growth fund tracked by Lipper
Analytical Services, Inc., an independent firm that reports mutual fund
performance. Over the same period, the Fund's return also compares to 20.31% for
the Russell Mid Cap Growth Index, (the Russell Index), which measures the
performance of the 800 smallest companies in the Russell 1000 Index.
The Fund's positive performance can be characterized by four broad themes:
individual stocks that performed well, "second-chance" stocks that we were
able to identify and take significant positions in, businesses that were
acquired by larger-cap companies, and industries that were overweighted based
on macroeconomic changes that benefited a large number of companies in a
specific segment.
Two stocks that performed well were Gemstar International Group, an electronic
program guide services provider, and BJ's Wholesale Club, a discount retailer.
The Fund also had a number of second-chance opportunities, in which stocks we
held had dramatic price declines. However, after careful evaluation, we
determined that the market overreacted, and the companies' problems were short
term in nature. An example of these stocks is Sportsline USA, a partner of CBS
and provider of sports news and information to the Internet.
In addition, there has been a large divergence in valuations between large-cap
and small-cap companies. Many slower-growth, large-cap companies have opted to
supplement their growth through the acquisition of attractive small- and mid-
sized companies. We sold our positions in Ascend Communications, a data
communications company, and Fred Meyer, a supermarket chain, when their
valuations went up on news of their acquisitions by Lucent Technologies and
Kroger, respectively.
Several industry investments proved very beneficial to the portfolio. Buying
oil service stocks as oil prices declined in December 1998 provided positive
returns in the first half of 1999. Shifting into semiconductor manufacturing
companies in the middle of the first half of 1999 also has benefited the Fund.
The past 12-month period was marked by exceptional volatility in the small-
and mid-cap markets. We believe this volatility was driven by a number of
factors. During the summer and fall, the markets fell dramatically because of
the economic crises in Asia and Russia. Valuations reached historical lows in
the small- and mid-cap markets as liquidity and fear drove the markets. This
offered tremendous investment opportunities for us.
The market staged a dramatic turnaround in the fourth quarter, driven largely
by lower interest rates and easing fears of a financial meltdown. Small- and
mid-sized stocks staged an impressive turnaround. The first quarter of 1999
returned to the narrow investment market of the previous few years with small-
and mid-cap stocks lagging the larger-cap indices by some of the widest levels
in history. Investing in Internet stocks became the focus of the market in
this quarter, reaching what we believe were valuations that may never be seen
again by investors.
Finally, in the most recent quarter, the market started to broaden as smaller-
cap stocks, including those in many cyclical industries, showed signs of life.
Our analysts will continue to monitor individual companies, and we will invest
in those we believe will have sustainable long-term growth.
Respectfully,
/s/ John W. Ballen /s/ Mark Regan
- -------------------------------- ----------------------------
John W. Ballen Mark Regan
Portfolio Manager Portfolio Manager
The opinions expressed in this report are those of the portfolio managers and
are current only through the end of the period of the report as stated on the
cover. The managers' views are subject to change at any time based on market
and other conditions, and no forecasts can be guaranteed.
The portfolio is actively managed, and current holdings may be different.
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.
Mark Regan is Senior Vice President of MFS Investment Management(R) and the
portfolio manager of MFS(R) Mid Cap Growth Fund and a portfolio manager of
MFS(R) Institutional Mid Cap Growth Fund. He joined MFS in 1989 as a research
analyst. He was named Investment Officer in 1990, Assistant Vice President in
1991, Vice President in 1992, portfolio manager in 1993, and Senior Vice
President in 1999. Mr. Regan is a graduate of Cornell University and the Sloan
School of Management of the Massachusetts Institute of Technology.
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: December 28, 1995
Size: $61.9 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 December 28, 1995, through June 30, 1999)
[Graphic Omitted]
MFS Institutional Russell Mid Cap S&P 500
Mid Cap Growth Fund Growth Index Composite Index
- --------------------------------------------------------------------------------
12/95 $3,000,000 $3,000,000 $3,000,000
6/96 3,340,200 3,312,700 3,302,800
6/97 3,769,600 4,448,900 3,895,600
6/98 4,868,300 4,831,000 5,790,800
6/99 5,942,014 5,812,614 7,108,648
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN THROUGH JUNE 30, 1999
1 Year 3 Years Life*
- --------------------------------------------------------------------------------
Cumulative Total Return +22.05% +77.80% +98.07%
- --------------------------------------------------------------------------------
Average Annual Total Return +22.05% +21.15% +21.52%
- --------------------------------------------------------------------------------
COMPARATIVE INDICES
- --------------------------------------------------------------------------------
Average mid-cap fund+ +13.35% +16.58% +17.47%
- --------------------------------------------------------------------------------
S&P 500 Composite Index**# +22.76% +29.11% +27.95%
- --------------------------------------------------------------------------------
Russell Mid Cap Growth Index** +20.31% +20.61% +20.80%
- --------------------------------------------------------------------------------
*For the period from the commencement of the Fund's investment operations,
December 28, 1995, through June 30, 1999. Index returns are from
January 1, 1996.
+Source: Lipper Analytical Services, Inc.
**Source: Standard & Poor's Micropal, Inc.
#Effective immediately, the S&P 500 Composite Index is no longer being used
as a benchmark because it does not adequately reflect the Fund's investment
policies and objectives.
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.
<PAGE>
PORTFOLIO OF INVESTMENTS - June 30, 1999
Stocks - 90.7%
- ------------------------------------------------------------------------------
ISSUER SHARES VALUE
- ------------------------------------------------------------------------------
U.S. Stocks - 90.5%
Automotive - 0.2%
Federal-Mogul Corp. 2,700 $ 140,400
- ------------------------------------------------------------------------------
Broadcasting
Radio One, Inc.* 100 $ 4,650
- ------------------------------------------------------------------------------
Business Machines - 2.3%
Affiliated Computer Services, Inc., "A"* 12,400 $ 627,750
Kulicke & Soffa Industries, Inc.* 30,200 809,737
-----------
$ 1,437,487
- ------------------------------------------------------------------------------
Business Services - 7.4%
BISYS Group, Inc.* 6,000 $ 351,000
DST Systems, Inc.* 6,900 433,837
Fiserv, Inc.* 25,237 790,234
IMRglobal Corp.* 19,100 367,675
Learning Tree International, Inc.* 35,700 390,469
Policy Management Systems Corp.* 17,700 531,000
Quintiles Transnational Corp.* 22,600 949,200
Technology Solutions Co.* 68,475 740,386
-----------
$ 4,553,801
- ------------------------------------------------------------------------------
Coal - 0.1%
CONSOL Energy, Inc.* 3,100 $ 37,200
- ------------------------------------------------------------------------------
Computer Software - Personal Computers - 1.1%
Intuit, Inc.* 7,900 $ 711,988
- ------------------------------------------------------------------------------
Computer Software - Services
Informatica Corp.* 50 $ 1,781
- ------------------------------------------------------------------------------
Computer Software - Systems - 8.8%
Ariba, Inc.* 200 $ 19,450
Aspen Technology, Inc.* 24,600 289,050
Cadence Design Systems, Inc.* 34,220 436,305
Checkfree Holdings Corp.* 3,500 96,469
Citrix Systems, Inc.* 24,200 1,367,300
CSG Systems International, Inc.* 4,900 128,319
Edify Corp.* 84,000 1,123,500
Marimba, Inc.* 100 5,269
Redback Networks, Inc.* 50 6,278
Security Dynamics Technologies, Inc.* 58,800 1,249,500
SunGard Data Systems, Inc.* 17,600 607,200
Synopsys, Inc.* 1,362 75,165
Vantive Corp.* 3,100 35,456
-----------
$ 5,439,261
- ------------------------------------------------------------------------------
Conglomerates
Valley Media, Inc.* 200 $ 2,975
- ------------------------------------------------------------------------------
Consumer Goods and Services - 4.8%
Dial Corp. 8,800 $ 327,250
LoJack Corp.* 33,200 278,050
Sportsline USA, Inc.* 65,200 2,339,050
-----------
$ 2,944,350
- ------------------------------------------------------------------------------
Electronics - 9.8%
Analog Devices, Inc.* 11,800 $ 592,213
Cable Design Technologies Corp.* 68,950 1,064,416
GlobeSpan, Inc.* 100 3,975
KLA-Tencor Corp.* 18,700 1,213,162
MKS Instruments, Inc.* 16,200 301,725
Novellus Systems, Inc.* 5,600 382,200
SIPEX Corp.* 56,700 1,162,350
Teradyne, Inc.* 18,700 1,341,725
-----------
$ 6,061,766
- ------------------------------------------------------------------------------
Entertainment - 6.3%
Entercom Communications Corp.* 100 $ 4,275
Gemstar International Group Ltd.* 55,222 3,603,235
Hearst-Argyle Television, Inc.* 10,300 247,200
Sinclair Broadcast Group, Inc., "A"* 1,400 22,925
-----------
$ 3,877,635
- ------------------------------------------------------------------------------
Financial Institutions - 2.5%
Edwards (A.G.), Inc. 47,300 $ 1,525,425
- ------------------------------------------------------------------------------
Food and Beverage Products - 3.7%
Del Monte Foods Co.* 83,300 $ 1,395,275
Keebler Foods Co.* 14,800 449,550
McCormick & Co., Inc. 4,000 126,250
Suiza Foods Corp.* 8,100 339,187
-----------
$ 2,310,262
- ------------------------------------------------------------------------------
Internet - 0.5%
Ask Jeeves, Inc.* 50 $ 700
Flycast Communications Corp.* 50 956
MapQuest.Com, Inc.* 50 816
Online Resources & Communications Corp.* 4,100 55,606
Security First Technologies Corp.* 5,800 261,725
Software.com, Inc.* 100 2,319
USinternetworking, Inc.* 100 4,200
-----------
$ 326,322
- ------------------------------------------------------------------------------
Machinery - 0.8%
Applied Science and Technology, Inc.* 23,500 $ 528,750
- ------------------------------------------------------------------------------
Medical and Health Products - 0.6%
Lasersight, Inc.* 10,500 $ 170,625
PSS World Medical, Inc.* 16,700 186,831
-----------
$ 357,456
- ------------------------------------------------------------------------------
Medical and Health Technology and Services - 17.7%
Concentra Managed Care, Inc.* 129,136 $ 1,912,827
Cytyc Corp.* 93,000 1,813,500
Health Management Associates, Inc., "A"* 71,600 805,500
IDEXX Laboratories, Inc.* 77,200 1,799,725
Lincare Holdings, Inc.* 18,300 457,500
Omnicare, Inc. 5,900 74,488
Steris Corp.* 67,800 1,313,625
Total Renal Care Holdings, Inc.* 165,643 2,577,819
Ventana Medical Systems, Inc.* 11,500 219,937
-----------
$10,974,921
- ------------------------------------------------------------------------------
Oil Services - 3.9%
Cooper Cameron Corp.* 25,500 $ 945,094
Diamond Offshore Drilling, Inc. 14,700 417,112
Global Industries, Inc.* 22,700 290,844
Noble Drilling Corp.* 38,100 750,094
-----------
$ 2,403,144
- ------------------------------------------------------------------------------
Oils - 3.7%
Houston Exploration Co.* 15,100 $ 285,956
Newfield Exploration Co.* 40,400 1,148,875
Transocean Offshore, Inc. 33,800 887,250
-----------
$ 2,322,081
- ------------------------------------------------------------------------------
Pharmaceuticals - 1.8%
Cytoclonal Pharmaceutics, Inc.* 6,500 $ 41,031
Sepracor, Inc.* 10,500 853,125
United Therapeutics Corp.* 20,600 244,625
-----------
$ 1,138,781
- ------------------------------------------------------------------------------
Printing and Publishing - 1.9%
Meredith Corp. 4,900 $ 169,663
Scholastic Corp.* 19,400 982,125
Ziff-Davis, Inc. - ZDNet* 100 2,600
-----------
$ 1,154,388
- ------------------------------------------------------------------------------
Retail - 0.5%
The Great Atlantic & Pacific Tea Company, Inc. 8,400 $ 284,025
- ------------------------------------------------------------------------------
Special Products and Services - 1.1%
Gartner Group, Inc.* 4,000 $ 82,000
Sylvan Learning Systems, Inc.* 100 2,719
Verisign, Inc.* 6,700 577,875
-----------
$ 662,594
- ------------------------------------------------------------------------------
Stores - 3.0%
BJ's Wholesale Club, Inc.* 22,600 $ 679,412
CompUSA, Inc.* 79,800 593,513
Gymboree Corp.* 55,000 577,500
-----------
$ 1,850,425
- ------------------------------------------------------------------------------
Telecommunications - 8.0%
Aerial Communications, Inc.* 59,300 $ 800,550
Copper Mountain Networks, Inc.* 100 7,725
Critical Path, Inc.* 100 5,531
Inet Technologies, Inc.* 50 1,200
Intermedia Communications, Inc.* 36,800 1,104,000
Net Perceptions, Inc.* 100 2,181
Network Solutions, Inc.* 38,500 3,046,313
Time Warner Telecom, Inc.* 200 5,800
-----------
$ 4,973,300
- ------------------------------------------------------------------------------
Total U.S. Stocks $56,025,168
- ------------------------------------------------------------------------------
Foreign Stocks - 0.2%
Bermuda - 0.2%
Xl Capital Ltd. (Insurance) 2,008 $ 113,452
- ------------------------------------------------------------------------------
Total Stocks (Identified Cost, $49,207,455) $56,138,620
- ------------------------------------------------------------------------------
Convertible Preferred Stock - 2.0%
- ------------------------------------------------------------------------------
Medical and Health Technology and Services - 2.0%
Concentra Managed Care, Inc., 4.50% 1,070,000 $ 1,005,800
Concentra Managed Care, Inc., 6.00% 260,000 247,000
- ------------------------------------------------------------------------------
Total Convertible Preferred Stock
(Identified Cost, $957,513) $ 1,252,800
- ------------------------------------------------------------------------------
Short-Term Obligations - 6.6%
- ------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- ------------------------------------------------------------------------------
Federal Home Loan Bank, due 7/01/99,
at Amortized Cost $ 4,100 $ 4,100,000
- ------------------------------------------------------------------------------
Other Short-Term Obligations - 13.4%
- ------------------------------------------------------------------------------
SHARES
- ------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio
(Identified Cost, $8,651,404) 8,651,404 $ 8,651,404
- ------------------------------------------------------------------------------
Total Investments (Identified Cost, $62,916,372) $70,142,824
Other Assets, Less Liabilities - (12.7)% (8,240,498)
- ------------------------------------------------------------------------------
Net Assets - 100.0% $61,902,326
- ------------------------------------------------------------------------------
*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, $62,916,372) $70,142,824
Cash 70,374
Receivable for investments sold 933,254
Dividends and interest receivable 27,462
Receivable from investment adviser 59,379
Deferred organization expenses 2,084
Other assets 440
-----------
Total assets $71,235,817
-----------
Liabilities:
Payable for investments purchased $ 646,445
Collaterial for securities loaned, at value 8,651,404
Payable to affiliates -
Management fee 984
Shareholder servicing agent fee 11
Administrative fee 23
Accrued expenses and other liabilities 34,624
-----------
Total liabilities 9,333,491
-----------
Net assets $61,902,326
===========
Net assets consist of:
Paid-in capital $48,271,568
Unrealized appreciation on investments 7,226,452
Accumulated undistributed net realized gain on investments 6,404,306
-----------
Total $61,902,326
===========
Shares of beneficial interest outstanding 3,802,791
=========
Net asset value, redemption price, and offering price per share
(net assets / shares of beneficial interest outstanding) $16.28
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 167,173
Income on securities loaned 25,028
Dividends 78,727
-----------
Total investment income $ 270,928
-----------
Expenses -
Management fee $ 278,378
Trustees' compensation 5,300
Shareholder servicing agent fee 3,481
Administrative fee 5,851
Custodian fee 20,330
Printing 10,626
Auditing fees 30,099
Legal fees 1,875
Amortization of organization expenses 2,097
Miscellaneous 15,272
-----------
Total expenses $ 373,309
Fees paid indirectly (7,412)
Reduction of expenses by investment adviser (64,321)
-----------
Net expenses $ 301,576
-----------
Net investment loss $ (30,648)
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (identified cost basis) on investment transactions 6,683,719
Change in unrealized appreciation on investments 3,878,244
-----------
Net realized and unrealized gain on investments $10,561,963
-----------
Increase in net assets from operations $10,531,315
===========
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 $ (30,648) $ (53,046)
Net realized gain on investments 6,683,719 6,352,347
Net unrealized gain on investments 3,878,244 1,207,679
------------- -------------
Increase in net assets from operations $ 10,531,315 $ 7,506,980
------------- -------------
Distributions declared to shareholders from net realized gain
on investments $ (5,353,020) $ (1,324,355)
------------- -------------
Net increase in net assets from Fund share transactions $ 7,788,253 $ 17,746,250
------------- -------------
Total increase in net assets $ 12,966,548 $ 23,928,875
Net assets:
At beginning of period 48,935,778 25,006,903
------------- -------------
At end of period (including accumulated net investment loss
of $0 and $0, respectively) $ 61,902,326 $ 48,935,778
============= =============
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, PERIOD ENDED
-------------------------------------------------------- JUNE 30,
1999 1998 1997 1996*
- ----------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C>
Net asset value - beginning of period $ 15.04 $ 12.25 $ 11.13 $ 10.00
------- ------- ------- -------
Income from investment operations# -
Net investment loss(S) $ (0.01) $ (0.02) $ (0.00)** $ (0.01)
Net realized and unrealized gain on
investments and foreign currency 2.96 3.45 1.40 1.14
------- ------- ------- -------
Total from investment operations $ 2.95 $ 3.43 $ 1.40 $ 1.13
------- ------- ------- -------
Less distributions declared to shareholders -
From net realized gain on investments and
foreign currency transactions $ (1.71) $ (0.64) $ (0.28) $ --
------- ------- ------- -------
Net asset value - end of period $ 16.28 $ 15.04 $ 12.25 $ 11.13
======= ======= ======= =======
Total return 22.05% 29.15% 12.80% 11.30%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.66% 0.66% 0.66% 0.70%+
Net investment loss (0.07)% (0.17)% (0.01)% (0.25)%+
Portfolio turnover 147% 143% 136% 33%
Net assets at end of period (000 omitted) $61,902 $48,936 $25,007 $ 8,149
<CAPTION>
(S)The investment adviser voluntarily agreed to maintain the expenses of the Fund, excluding management fees, at no more
than 0.05% of average daily net assets effective May 3, 1996. During the period December 28, 1995, through May 2,
1996, the investment adviser agreed to maintain the expenses at no more than 0.75%. To the extent actual expenses
were over these limitations, the net investment loss per share and the ratios would have been:
<S> <C> <C> <C> <C>
Net investment loss $ (0.03) $(0.04) $(0.04) $(0.09)
Ratios (to average net assets):
Expenses## 0.80% 0.83% 0.99% 2.59%+
Net investment loss (0.21)% (0.35)% (0.34)% (2.14)%+
*For the period from the commencement of the Fund's investment operations, December 28, 1995, through June 30, 1996.
**The per share amount was less than $0.01.
+Annualized.
++Not annualized.
#Per share data are based on average shares outstanding.
##The Fund 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 Mid Cap Growth 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.
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 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 $8,393,201. These loans
were collateralized by cash of $8,651,404, and U.S. Treasury securities of
$17,692. 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. On loans collateralized by U.S. Treasury securities, a fee is
received from the Borrower, and is allocated between the Fund and State
Street. Income from securities lending is reflected 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.
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 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, $30,648 was reclassified to accumulated
undistributed net investment loss from accumulated net realized gain on
investments due to differences between book and tax accounting for the offset
of net investment loss against short-term capital gains. This change had no
effect on the net assets or net asset value per share.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities.
The management fee is computed daily and paid monthly at an annual rate of
0.60% of 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 0.05%
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 and
short-term obligations, aggregated $69,090,492 and $67,803,444, 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 $63,077,440
-----------
Gross unrealized appreciation $10,354,574
Gross unrealized depreciation (3,289,190)
-----------
Net unrealized appreciation $ 7,065,384
===========
(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 591,135 $ 8,860,303 1,169,138 $17,272,721
Shares issued to shareholders in
reinvestment
of distributions 366,582 4,904,864 90,842 1,125,529
Shares reacquired (409,523) (5,976,914) (46,638) (652,000)
-------- ------------ --------- -----------
Net increase 548,194 $ 7,788,253 1,213,342 $17,746,250
======== ============ ========= ===========
</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 $419. The Fund had no
significant borrowings during the year.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Trustees of MFS Institutional Trust and Shareholders of MFS
Institutional Mid Cap Growth Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Institutional Mid Cap Growth
Fund (one of the series comprising 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 four-year period
ended June 30, 1999. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of the
securities owned at June 30, 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
Mid Cap Growth 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 $1,817,363 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
1.46%.
<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
IMC-2 8/99 .5M
