<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
CORE EQUITY FUND
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MFS(R) INSTITUTIONAL CORE 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.
John D. Laupheimer, Jr.*
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,
The Fund, which commenced investment operations on December 31, 1998, provided
a total return of 7.00% (including the reinvestment of distributions through
June 30, 1999. During the same period, the average growth and income fund
tracked by Lipper Analytical Services, Inc., an independent firm that reports
mutual fund performance, returned 10.91%. The Fund's return also compares to a
12.23% return for the Standard & Poor's 500 Composite Index (the S&P 500), a
popular, unmanaged index of common stock total return performance.
The Fund's underweightings in technology and cyclical stocks, combined with
some individual stocks that did not perform well, hurt performance. This Fund
seeks a balance between risk and reward. Historically, the Fund has been
underweighted in technology because we felt that the sector's potential for
risk was higher than its potential for reward. Unfortunately, with the
technology sector's recent strong performance, this strategy has not worked
out in the short term.
Similarly, the Fund has been underweighted in cyclicals over the period,
including basic materials, industrial goods and services, and energy.
Recently, many cyclical stocks have performed well, and our underweighting has
hurt performance. Although these industries can sometimes offer pockets of
strength, price fluctuations in their stocks are usually volatile. We feel
this characteristic is not in line with the Fund's long-term conservative
growth investment style.
Despite the fact that there were individual stocks that hurt performance,
there were some that worked out well for the portfolio. One example is Newell
Rubbermaid, which was added recently. Newell bought Rubbermaid in the first
quarter of this year, and we believe the combined company could have a near
monopoly on a range of consumer staples, including Rolodexes. It also sells
home products such as drapery, hardware, and kitchen accessories. Rubbermaid
had a broad product line that was very popular but its reputation for customer
satisfaction was poor, while Newell brings a strong customer orientation to
the table.
Another example is Wells Fargo & Co., a California-based bank. Last fall, it
acquired Norwest Corp., a Minnesota-based bank, bringing together two
complementary companies: one with good cost controls and another with, in our
opinion, growth potential. Furthermore, we have large weightings in companies
that we think have more favorable price-to-earning ratios than those of the
market as a whole, including United Technologies, an aerospace, defense, and
building equipment company; Xerox, an office equipment company; AlliedSignal, an
aerospace, automotive, and environmental controls company; and Bell Atlantic, a
telecommunications company. We think these companies also have sustainable
long-term earnings growth potential.
Telecommunications companies have been positive performers for the Fund. Our
holdings include Bell Atlantic, MCI WorldCom, and Sprint's long-distance
telephone group. Sales growth for these companies and for telecommunications
companies in general have been very strong. The Internet has driven demand for
telecommunications services, and both telecommunications equipment and service
companies have performed well as a result.
Although this has been a difficult market for the Fund, we will continue to
blend investments in value and growth stocks while trying to manage risk.
Instead of following market trends, we will continue to buy what we think are
reasonably priced companies with promising futures. We believe the best thing
we can do for shareholders is to continue to stick to our investment
discipline -- investing in high-quality, large-cap, blue-chip companies.
Respectfully,
/s/John D. Laupheimer, Jr.
- ----------------------------------
John D. Laupheimer, Jr.
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.
<PAGE>
PORTFOLIO MANAGER'S PROFILE
John D. Laupheimer, Jr., is Senior Vice President and Director of Equity
Research of MFS Investment Management(R). He is also lead portfolio manager of
Massachusetts Investors Trust, America's oldest mutual fund.
He also manages MFS(R) Institutional Core Equity Fund, the Massachusetts
Investors Trust Series offered through MFS(R)/Sun Life annuity products, and
MFS(R) Growth with Income Series (part of MFS(R) Variable Insurance Trust (SM)).
Mr. Laupheimer joined the MFS Research Department in 1981 as a research
analyst. He was named Investment Officer in 1983, Assistant Vice President in
1984, Vice President in 1986, portfolio manager in 1987, Senior Vice President
in 1995, and Director of Equity Research in 1999. Mr. Laupheimer is a graduate
of Boston University and the Sloan School of Management of the Massachusetts
Institute of Technology. He is a Chartered Financial Analyst and a member of
The Boston Security Analysts Society, Inc.
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 long-term growth of capital generally consistent with that of
a diversified large-cap portfolio and income equal to approximately 90% of the
dividend yield of the S&P 500.
Commencement of investment operations: December 31, 1998
Size: $12.8 million net assets as of June 30, 1999
PERFORMANCE SUMMARY
The information below illustrates the historical performance of the Fund in
comparison to various market indicators. Benchmark comparisons are unmanaged
and do not reflect any fees or expenses. It is not possible to invest directly
in an index. The minimum initial investment is generally $3 million. Shares of
the Fund are purchased at net asset value. (See Notes to Performance Summary
for more information.)
GROWTH OF A HYPOTHETICAL $3,000,0000 INVESTMENT
(For the period from December 31, 1998, through June 30, 1999)
[Graphic Omitted]
MFS Institutional S&P 500
Core Equity Fund Composite Index
- --------------------------------------------------------------------------------
12/98 $3,000,000 $3,000,000
6/99 3,210,000 3,371,504
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN THROUGH JUNE 30, 1999
Life*
- --------------------------------------------------------------------
Cumulative Total Return + 7.00%
- --------------------------------------------------------------------
Average Annual Total Return --
- --------------------------------------------------------------------
COMPARATIVE INDICES
- --------------------------------------------------------------------
Average growth and income fund+ +10.91%
- --------------------------------------------------------------------
S&P 500 Composite Index** +12.23%
- --------------------------------------------------------------------
*For the period from the commencement of the Fund's investment operations,
December 31, 1998, through June 30, 1999. Index returns are from
January 1, 1999.
**Source: Standard & Poor's Micropal, Inc.
+Source: Lipper Analytical Services, 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.
<PAGE>
PORTFOLIO OF INVESTMENTS - June 30, 1999
<TABLE>
<CAPTION>
Stocks - 96.5%
- ---------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
- ---------------------------------------------------------------------------------------------------
U.S. Stocks - 90.1%
Aerospace - 5.2%
<S> <C> <C>
AlliedSignal, Inc. 2,829 $ 178,227
Lockheed-Martin Corp. 800 29,800
Raytheon Co., "A" 1,635 112,611
United Technologies Corp. 4,766 341,662
-----------
$ 662,300
- -------------------------------------------------------------------------------------------------
Automotive - 1.4%
Federal-Mogul Corp. 1,784 $ 92,768
Ford Motor Co. 898 50,681
TRW, Inc. 600 32,925
-----------
$ 176,374
- -------------------------------------------------------------------------------------------------
Banks and Credit Companies - 5.8%
Bank America Corp. 2,483 $ 182,035
Northern Trust Corp. 852 82,644
PNC Bank Corp. 492 28,352
State Street Corp. 1,228 104,840
US Bancorp 2,667 90,678
Wells Fargo Co. 5,787 247,394
-----------
$ 735,943
- -------------------------------------------------------------------------------------------------
Business Machines - 3.5%
International Business Machines Corp. 1,000 $ 129,250
Xerox Corp. 5,395 318,642
-----------
$ 447,892
- -------------------------------------------------------------------------------------------------
Business Services - 1.7%
Computer Sciences Corp.* 1,593 $ 110,216
First Data Corp. 2,318 113,437
-----------
$ 223,653
- -------------------------------------------------------------------------------------------------
Chemicals - 0.2%
PPG Industries, Inc. 320 $ 18,900
Rohm & Haas Co. 320 13,720
-----------
$ 32,620
- -------------------------------------------------------------------------------------------------
Computer Hardware - Systems - 1.4%
Hewlett-Packard Co. 1,735 $ 174,367
- -------------------------------------------------------------------------------------------------
Computer Software - Personal Computers - 2.9%
Microsoft Corp.* 4,101 $ 369,859
- -------------------------------------------------------------------------------------------------
Computer Software - Services - 0.7%
Sun Microsystems, Inc.* 1,248 $ 85,956
- -------------------------------------------------------------------------------------------------
Computer Software - Systems - 1.4%
Computer Associates International, Inc. 1,767 $ 97,185
Oracle Corp.* 2,398 89,026
-----------
$ 186,211
- -------------------------------------------------------------------------------------------------
Consumer Goods and Services - 4.9%
Colgate-Palmolive Co. 869 $ 85,814
Gillette Co. 2,566 105,206
Newell Rubbermaid, Inc. 3,978 184,977
Philip Morris Cos., Inc. 855 34,361
Procter & Gamble Co. 857 76,487
Tyco International Ltd. 1,443 136,724
-----------
$ 623,569
- -------------------------------------------------------------------------------------------------
Electrical Equipment - 2.7%
Emerson Electric Co. 2,064 $ 129,774
General Electric Co. 1,571 177,523
Honeywell, Inc. 320 37,080
-----------
$ 344,377
- -------------------------------------------------------------------------------------------------
Electronics - 0.9%
Intel Corp. 1,853 $ 110,254
- -------------------------------------------------------------------------------------------------
Entertainment - 3.6%
Disney (Walt) Co. 3,924 $ 120,908
MediaOne Group, Inc.* 1,735 129,041
Time Warner, Inc. 2,801 205,873
-----------
$ 455,822
- -------------------------------------------------------------------------------------------------
Financial Institutions - 3.5%
American Express Co. 614 $ 79,897
Associates First Capital Corp., "A" 2,122 94,031
Citigroup, Inc. 3,855 183,112
Federal Home Loan Mortgage Corp. 1,534 88,972
Goldman Sachs Group, Inc.* 106 7,659
-----------
$ 453,671
- -------------------------------------------------------------------------------------------------
Food and Beverage Products - 3.7%
Anheuser-Busch Cos., Inc. 2,600 $ 184,437
Coca-Cola Co. 1,000 62,500
Nabisco Holdings Corp., "A" 700 30,275
Quaker Oats Co. 1,140 75,668
Ralston-Ralston Purina Co. 3,925 119,467
-----------
$ 472,347
- -------------------------------------------------------------------------------------------------
Forest and Paper Products - 0.2%
International Paper Co. 513 $ 25,907
- -------------------------------------------------------------------------------------------------
Insurance - 7.2%
Allstate Corp. 1,880 $ 67,445
American International Group, Inc. 1,394 163,185
Chubb Corp. 900 62,550
CIGNA Corp. 1,831 162,959
Equitable Cos., Inc. 1,003 67,201
Hartford Financial Services Group, Inc. 2,957 172,430
Lincoln National Corp. 1,676 87,676
Progressive Corp. 970 140,650
-----------
$ 924,096
- -------------------------------------------------------------------------------------------------
Manufacturing - 1.3%
Danaher Corp. 1,060 $ 61,612
Illinois Tool Works, Inc. 1,245 102,090
-----------
$ 163,702
- -------------------------------------------------------------------------------------------------
Medical and Health Products - 5.6%
American Home Products Corp. 1,902 $ 109,365
Becton, Dickinson & Co. 1,936 58,080
Bristol-Myers Squibb Co. 1,895 133,479
Johnson & Johnson Co. 996 97,608
Pfizer, Inc. 1,155 126,761
Pharmacia & Upjohn, Inc. 2,247 127,658
Warner-Lambert Co. 903 62,646
-----------
$ 715,597
- -------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 2.2%
Guidant Corp. 3,038 $ 156,267
Medtronic, Inc. 1,264 98,434
United HealthCare Corp. 489 30,624
-----------
$ 285,325
- -------------------------------------------------------------------------------------------------
Oils - 2.6%
Conoco, Inc., "A" 1,348 $ 37,575
Exxon Corp. 2,000 154,250
Mobil Corp. 1,415 140,085
-----------
$ 331,910
- -------------------------------------------------------------------------------------------------
Printing and Publishing - 2.4%
Gannett Co., Inc. 1,419 $ 101,281
New York Times Co. 2,056 75,687
Tribune Co. 1,432 124,763
-----------
$ 301,731
- -------------------------------------------------------------------------------------------------
Restaurants and Lodging - 1.4%
McDonald's Corp. 4,232 $ 174,834
- -------------------------------------------------------------------------------------------------
Special Products and Services - 0.3%
Carnival Corp. 700 $ 33,950
- -------------------------------------------------------------------------------------------------
Stores - 6.3%
CVS Corp. 2,920 $ 148,190
Dayton Hudson Corp. 2,108 137,020
Home Depot, Inc. 1,878 121,014
Nordstrom, Inc. 1,758 58,893
TJX Cos., Inc. 5,251 174,924
Wal-Mart Stores, Inc. 3,544 170,998
-----------
$ 811,039
- -------------------------------------------------------------------------------------------------
Supermarkets - 2.8%
Albertsons, Inc. 3,100 $ 159,844
Kroger Co.* 2,898 80,963
Safeway, Inc.* 2,401 118,849
-----------
$ 359,656
- -------------------------------------------------------------------------------------------------
Telecommunications - 10.9%
Alltel Corp. 2,447 $ 174,960
Ameritech Corp. 1,454 106,869
Bell Atlantic Corp. 3,855 252,021
Cisco Systems, Inc.* 2,012 129,648
MCI WorldCom, Inc.* 2,399 206,464
Motorola, Inc. 1,951 184,857
Nortel Networks Corp. 600 52,088
SBC Communications, Inc. 3,005 174,290
Sprint Corp. 1,450 76,578
Sprint Corp. (PCS Group) 609 34,789
-----------
$ 1,392,564
- -------------------------------------------------------------------------------------------------
Utilities - Electric - 2.6%
Duke Energy Corp. 1,800 $ 97,875
FirstEnergy Corp. 1,876 58,156
New Century Energies, Inc. 789 30,623
Peco Energy Co. 1,825 76,422
Texas Utilities Co. 1,805 74,456
-----------
$ 337,532
- -------------------------------------------------------------------------------------------------
Utilities - Gas - 0.8%
Coastal Corp. 800 $ 32,000
Columbia Energy Group 1,124 70,461
-----------
$ 102,461
- -------------------------------------------------------------------------------------------------
Total U.S. Stocks $11,515,519
- -------------------------------------------------------------------------------------------------
Foreign Stocks - 6.4%
Canada - 0.5%
Canadian National Railway Co. (Railroads) 988 $ 66,196
- -------------------------------------------------------------------------------------------------
France - 0.2%
Axa (Insurance) 200 $ 24,381
- -------------------------------------------------------------------------------------------------
Germany - 1.4%
HypoVereinsbank (Banks and Credit Cos.) 552 $ 35,837
Mannesmann AG (Conglomerate) 943 140,905
-----------
$ 176,742
- -------------------------------------------------------------------------------------------------
Japan - 0.3%
AFLAC, Inc. (Insurance) 855 $ 40,933
- -------------------------------------------------------------------------------------------------
Netherlands - 0.3%
Wolters Kluwer N.V. (Publishing) 800 $ 31,822
- -------------------------------------------------------------------------------------------------
Sweden - 0.6%
Ericsson LM, ADR (Telecommunications) 2,387 $ 78,622
- -------------------------------------------------------------------------------------------------
United Kingdom - 3.1%
BP Amoco PLC, ADR (Oils) 2,594 $ 281,449
Reuters Group PLC, ADR (Business Services) 719 58,284
Zeneca Group PLC (Medical and Health Products) 1,600 61,855
-----------
$ 401,588
- -------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 820,284
- -------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $11,901,732) $12,335,803
- -------------------------------------------------------------------------------------------------
Convertible Preferred Stock - 0.3%
- -------------------------------------------------------------------------------------------------
Utilities - Electric - 0.3%
Houston Industries, Inc., 7.00% (Identified Cost, $43,253) 364 $ 43,407
- -------------------------------------------------------------------------------------------------
Convertible Bond - 0.2%
- -------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- -------------------------------------------------------------------------------------------------
Financial Services - 0.2%
Bell Atlantic Financial Services, Inc., 4.25s, 2005##
(Identified Cost $30,534) $ 27 $ 27,607
- -------------------------------------------------------------------------------------------------
Short-Term Obligations - 3.1%
- -------------------------------------------------------------------------------------------------
Federal Farm Credit Bank, due 7/01/99 at Amortized Cost $ 390 $ 390,000
- -------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $12,365,519) $12,796,817
Other Assets, Less Liabilities - (0.1)% (16,098)
- -------------------------------------------------------------------------------------------------
Net Assets - 100.0% $12,780,719
- -------------------------------------------------------------------------------------------------
</TABLE>
*Non-income producing security.
##SEC Rule 144A restriction.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
JUNE 30, 1999
- ----------------------------------------------------------------------------------------------
Assets:
<S> <C>
Investments, at value (identified cost, $12,365,519) $12,796,817
Cash 5,671
Foreign currency, at value (identified cost, $780) 763
Receivable for investments sold 157,662
Interest and dividends receivable 8,955
Receivable from investment adviser 28,872
-----------
Total assets $12,998,740
-----------
Liabilities:
Payable for investments purchased $ 208,112
Payable to affiliates -
Management fee 208
Shareholder servicing agent fee 294
Administrative fee 585
Accrued expenses and other liabilities 8,822
-----------
Total liabilities $ 218,021
-----------
Net assets $12,780,719
===========
Net assets consist of:
Paid-in capital $12,348,796
Unrealized appreciation on investments and translation of assets and
liabilities in foreign currencies 431,023
Accumulated net realized loss on investments and foreign currency
transactions (25,671)
Accumulated undistributed net investment income 26,571
-----------
Total $12,780,719
===========
Shares of beneficial interest outstanding 1,194,211
=========
Net asset value, offering price, and redemption price per share
(net assets / shares of beneficial interest outstanding) $10.70
======
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- -------------------------------------------------------------------------------
PERIOD ENDED JUNE 30, 1999*
- -------------------------------------------------------------------------------
Net investment income (loss):
Income -
Dividends $ 45,103
Interest 7,383
Foreign taxes withheld (468)
---------
Total investment income $ 52,018
---------
Expenses -
Management fee $ 23,388
Trustees' compensation 2,800
Shareholder servicing agent fee 294
Administrative fee 585
Custodian fee 2,271
Printing 1,236
Auditing fees 7,029
Legal fees 1,619
Registration fees 14,300
Miscellaneous 1,291
---------
Total expenses $ 54,813
Fees paid indirectly (604)
Reduction of expenses by investment adviser (28,872)
---------
Net expenses $ 25,337
---------
Net investment income $ 26,681
---------
Realized and unrealized gain (loss) on investments:
Realized loss (identified cost basis) -
Investment transactions $ (25,671)
Foreign currency transactions (110)
---------
Net realized loss on investments and foreign
currency transactions $ (25,781)
---------
Change in unrealized appreciation (depreciation) -
Investments $ 431,298
Translation of assets and liabilities in
foreign currencies (275)
---------
Net unrealized gain on investments and foreign
currency translation $ 431,023
---------
Net realized and unrealized gain on investments $ 405,242
---------
Increase in net assets from operations $ 431,923
=========
*For the period from the commencement of the Fund's investment operations,
December 31, 1998, through June 30, 1999.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -----------------------------------------------------------------------------------------------
PERIOD ENDED
JUNE 30, 1999*
- -----------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
<S> <C>
Net investment income $ 26,681
Net realized loss on investments and foreign currency transactions (25,781)
Net unrealized gain on investments and foreign currency translation 431,023
-----------
Increase in net assets from operations $ 431,923
-----------
Net increase in net assets from Fund share transactions $12,348,796
-----------
Total increase in net assets $12,780,719
Net assets:
At beginning of period --
-----------
At end of period (including accumulated undistributed net investment
income of $26,571) $12,780,719
===========
</TABLE>
*For the period from the commencement of the Fund's investment operations,
December 31, 1998, through June 30, 1999.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights
- ------------------------------------------------------------------------
PERIOD ENDED
JUNE 30, 1999*
- ------------------------------------------------------------------------
Per share data (for a share outstanding throughout
the period):
Net asset value - beginning of period $ 10.00
-------
Income from investment operations# -
Net investment income(S) $ 0.04
Net realized and unrealized gain on investments
and foreign currency transactions 0.66
-------
Total from investment operations $ 0.70
-------
Net asset value - end of period $ 10.70
=======
Total return 7.00%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.66%+
Net investment income 0.68%+
Portfolio turnover 36%
Net assets at end of period (000 omitted) $12,781
(S)The investment adviser voluntarily agreed to maintain the other expenses,
exclusive of management fees, at not more than 0.05% of average daily net
assets. To the extent actual expenses were over this limitation, the net
investment income per share and the ratios would have been:
Net investment loss $ (0.01)
Ratios (to average net assets):
Expenses## 1.40%+
Net investment loss (0.06)%+
*For the period from the commencement of the Fund's investment operations,
December 31, 1998, through June 30, 1999.
+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
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Institutional Core 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 listed issues, 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.
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 period ended June 30, 1999, $110 was reclassified from accumulated
undistributed net investment income to accumulated net realized loss on
investments and foreign currency transactions 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.
(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 advisor 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 purchased option transactions
and short-term obligations, were as follows:
PURCHASES SALES
- -----------------------------------------------------------------------------
U.S. government securities $ 16,028 $ 61,898
----------- ----------
Investments (non-U.S. government securities) $14,998,753 $2,951,640
----------- ----------
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 $12,399,766
-----------
Gross unrealized appreciation $ 715,397
Gross unrealized depreciation (318,346)
-----------
Net unrealized appreciation $ 397,051
===========
(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:
PERIOD ENDED JUNE 30, 1999*
---------------------------
SHARES AMOUNT
- ------------------------------------------------------------------------------
Shares sold 1,194,211 $12,348,796
========= ===========
*For the period from the commencement of the Fund's investment operations,
December 31, 1998, through June 30, 1999.
(6) Line of Credit
The Fund and other affiliated funds participate in a $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. No commitment fee was
allocated to the Fund for the period ended June 30, 1999. The Fund had no
borrowings during the period.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Institutional Trust and Shareholders of MFS
Institutional Core Equity Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Institutional Core Equity Fund
(one of the series comprising MFS Institutional Trust) as of June 30, 1999,
and the related statement of operations, the statement of changes in net
assets and the financial highlights for the period from the commencement of
investment operations, December 31, 1998, through 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 audit.
We conducted our audit 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
audit provides 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
Core Equity Fund at June 30, 1999, the results of its operations, the changes
in its net assets, and its financial highlights for the period from the
commencement of investment operations, December 31, 1998, through June 30,
1999, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
August 6, 1999
<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
ICE-2 8/99 .5M
