<PAGE>
[Logo] M F S(R)
INVESTMENT MANAGEMENT
WE INVENTED THE MUTUAL FUND(R)
SEMIANNUAL REPORT
DECEMBER 31, 1999
[graphic omitted]
MFS(R) INSTITUTIONAL
EMERGING MARKETS
DEBT FUND
<PAGE>
<TABLE>
<S> <C>
MFS(R) INSTITUTIONAL EMERGING MARKETS DEBT FUND
TRUSTEES INVESTMENT ADVISER
Jeffrey L. Shames* Massachusetts Financial Services Company
Chairman and Chief Executive Officer, 500 Boylston Street
MFS Investment Management(R) Boston, MA 02116-3741
Nelson J. Darling, Jr.+ DISTRIBUTOR
Private investor and trustee MFS Fund Distributors, Inc.
500 Boylston Street
William R. Gutow+ Boston, MA 02116-3741
Private investor and real estate
consultant; Vice Chairman, Capitol Entertainment INVESTOR SERVICE
Management Company (video franchise) 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 consultant.
Matthew W. Ryan*
CUSTODIAN
TREASURER State Street Bank and Trust Company
W. Thomas London*
WORLD WIDE WEB
ASSISTANT TREASURERS www.mfs.com
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
* MFS Investment Management
+ Independent Trustee
</TABLE>
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Shareholders,
One could easily argue that the Internet represents the greatest technological
development most of us may see in our lifetimes. There is no disputing that this
new communication medium is changing forever the way we work, play, and shop.
One might also argue that investing in this new technology represents the
investment opportunity of a lifetime. The question for any investor is whether
and how to take advantage of it.
The popular press, it seems, would have us believe that by surfing the Web, we
can learn everything we need to know about investing. Indeed, there is no doubt
that Internet-delivered information and brokerage services enable individual
investors to be well-informed and to trade at bargain prices. But we believe the
facts argue that, for most of us, professionally managed investment portfolios
purchased through a financial consultant will continue to be one of the best
products for long-term investing in this new millennium.
Why do we believe managed portfolios plus professional advice will continue to
define the best course of action for many investors? Let's look at some of the
characteristics of a successful long-term investment approach:
o HAVING A PLAN AND STICKING TO IT: Our experience is that successful
investors -- those whose lives are enriched by the fruits of their investing
-- share two characteristics. They have a plan for reaching their monetary
goals, and they stick with that plan through up markets and down. And for
many investors, working with a financial consultant may be the best way to
develop a plan. Although the Internet abounds with calculators for
developing all sorts of investment plans, none has your consultant's high
level of experience and an understanding of your unique situation. And no
calculator can counsel you during a down market, when you may be tempted to
abandon your goals and your plan.
o DIVERSIFICATION: Few individual investors can afford to own a large number
of holdings, so poor performance of one company can potentially drag down
their entire personal portfolio. This is especially true when investing in
volatile new areas such as the Internet. On the other hand, a diversified,
professionally managed investment portfolio that owns dozens or even
hundreds of holdings is better positioned to survive a disappointment in one
or several investments.
o GOOD IN A DOWN MARKET: As we enter the tenth year of the greatest bull
market in history, it's easy to forget that market downturns are an almost
inevitable part of investing. Few investment portfolios, of course, are
going to be up when the overall market is down. But we believe diversified,
professionally managed investment portfolios may be less likely to suffer
the extreme downturns experienced by a large number of individual holdings
when the market heads south.
o MFS ORIGINAL RESEARCH(R): The Internet is one of the greatest research tools
ever invented, but it's still not the same as being eyeball to eyeball with
the management of a company and discussing their plans for their firm's
future.
o GOOD PERFORMANCE AT AN ACCEPTABLE LEVEL OF RISK: Investing in individual
stocks or bonds does indeed offer the potential of exhilarating performance
that few managed portfolios even attempt. The downside is that the most
exciting investments are also likely to be the ones that give you sleepless
nights. The diversification and professional management of investment
portfolios help make them inherently less risky than individual stock
picking, and managed portfolios are available in a wide range of risk
profiles.
We believe that now, more than ever, managed investment portfolios sold by an
investment professional may offer many investors the best way to participate in
whatever investment opportunities the new millennium may bring. The combination
of professional portfolio management and professional advice recognizes the key
reason that investors give us their money: because they don't want to make a
hobby or a second profession out of investing; they simply want their money to
work for them so they have a better likelihood of realizing their dreams.
As always, we appreciate your confidence in MFS and welcome any questions or
comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
January 15, 2000
Investments in mutual funds will fluctuate and may be worth more or less upon
redemption.
Mutual funds are designed for long-term retirement investing; please see your
financial consultant for more information.
The opinions expressed in this letter are those of Jeffrey L. Shames, and no
forecasts can be guaranteed.
MANAGEMENT REVIEW AND OUTLOOK
Dear Shareholders,
For the six months ended December 31, 1999, the Fund provided a total return of
14.43% (including the reinvestment of any distributions), which compares to a
13.32% return for the average emerging markets debt 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 a 9.30%
return for the J.P. Morgan Emerging Local Markets Index (the ELMI), which is
comprised of local-currency, short-term instruments, and to an 11.10% return for
its custom index, a blend of 50% of the J.P. Morgan Emerging Markets Bond Index
Global (the EMBI Global) and 50% of the ELMI. The EMBI Global is comprised of
Brady bonds (U.S. dollar-denominated restructured bank loans). The Fund
typically invests half its net assets in Brady bonds and half in local-currency
instruments.
Emerging markets debt and currencies finished strongly in 1999. Unlike 1998,
when bond prices collapsed following the Russian crisis, returns on emerging
market debt significantly outperformed those on currencies in 1999. These
impressive returns can be attributed to the following factors: attractive
valuations (i.e., high yields); improving country fundamentals; improvement in
investor sentiment (particularly in the fourth quarter); and supportive global
liquidity. In addition, higher petroleum prices helped oil exporting countries
such as Russia, Algeria, Venezuela, and Mexico.
The Fund's returns benefited primarily from our bottom-up credit research and
government bond selections. The bond portfolio was overweighted in key
outperforming credits, such as Brazil, Russia, Morocco, Algeria, and Bulgaria
and underweighted in deteriorating credits, notably Ecuador and Argentina.
Currency selection contributed positively to the Fund's performance. The Fund
benefited from overweighted positions in the Argentine peso, established after
devaluation fears sent local interest rates soaring; Turkish lira; and the
Mexican peso. Relative to the indices, the Fund gained by underweighting the
Czech korona, the Thai baht, and Philippine peso. In hindsight, we were too
cautious establishing positions in the Indonesian rupiah, in our opinion, the
best-performing ELMI currency in 1999.
We are constructive about emerging market debt and currencies in 2000. We think
the key factors supportive of the asset class include: 1) higher forecasted
global growth, particularly in Europe and Asia; 2) continued increases in
commodity prices; and 3) larger capital inflows into emerging market economies.
In our view, these positive forces are unlikely to be derailed by expected
interest-rate increases in the United States and Europe. In addition, regional
and country fundamentals we feel are expected to show continued improvement. The
Asian recovery is strengthening; the challenge is finding Asian credits at
reasonable valuations. We believe Eastern European economies will benefit from
the upturn in developed Europe, and we continue to overweight credits in the
region. We feel Latin America is poised to rebound as export volumes and prices
increase, foreign investment in the region continues to increase, and industrial
activity maintains the recovery begun in the fourth quarter.
Against a supportive global economic backdrop, improving country fundamentals,
and still attractive yields, we believe emerging market debt may continue to be
strong performers. Investors are reminded, however, that higher returns are
generally associated with higher levels of volatility.
Respectfully,
/s/ Matathew W. Ryan
Matthew W. Ryan
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.
It is not possible to invest directly in an index.
The portfolio is actively managed, and current holdings may be different.
PORTFOLIO MANAGER'S PROFILE
Matthew W. Ryan is Vice President of MFS Investment Management(R) and portfolio
manager of MFS(R) Institutional Emerging Markets Debt Fund. Before joining the
firm in 1997, Mr. Ryan worked for four years as an economist at the
International Monetary Fund and for five years as an international economist
with the U.S. Treasury Department. He was named portfolio manager in 1998 and
Vice President in 1999. He is a graduate of Williams College and earned a
master's degree in international economics and foreign policy from Johns Hopkins
University. Mr. Ryan is also a Chartered Financial Analyst.
All portfolio managers at MFS Investment Management(R) are supported by an
investment staff of over 100 professionals utilizing MFS Original Research(R), a
global, 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 consultant, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
<PAGE>
FUND FACTS
Objective: Seeks total return (high current income and long-term growth of
capital).
Commencement of investment operations: August 7, 1995
Size: $3.9 million net assets as of December 31, 1999
PERFORMANCE SUMMARY
Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for the
applicable time periods. Investment results reflect the percentage change in net
asset value, including reinvestment of dividends. The minimum investment is
generally $3 million. Shares of the Fund are purchased at net asset value. (See
Notes to Performance Summary.)
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN THROUGH DECEMBER 31, 1999
6 Months 1 Year 3 Years Life*
- ----------------------------------------------------------------------------
Cumulative Total Return +14.43% +25.90% +28.15% +61.63%
- ----------------------------------------------------------------------------
Average Annual Total Return -- +25.90% + 8.62% +11.53%
- ----------------------------------------------------------------------------
* For the period from the commencement of the Fund's investment operations,
August 7, 1995, through December 31, 1999.
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. MORE RECENT
RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. 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 ecomomic 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 (Unaudited) - December 31, 1999
Bonds - 77.2%
- --------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- ------------------------------------------------------------------------------
Foreign Bonds - 77.2%
Algeria - 2.0%
Algeria Chase Manhattan, 6s, 2004 $ 40 $ 30,600
Algeria Reprofiling LNS, 6.75s, 2000 23 22,106
Algeria Tranche, 6.375s, 2004+ 35 24,850
----------
$ 77,556
- ------------------------------------------------------------------------------
Argentina - 10.4%
Acindar Industria Argentina de Acero,
11.25s, 2004 (Steel) $ 30 $ 23,475
Autopistas del Sol S.A., 10.25s, 2009
(Industrial)## 30 23,700
Republic of Argentina, 2.868s, 2001 ARS 40 16,163
Republic of Argentina, 0s, 2004 $ 40 23,800
Republic of Argentina, 6.813s, 2005 97 88,088
Republic of Argentina, 11.786s, 2005 40 36,940
Republic of Argentina, 2.868s, 2007 ARS 30 20,821
Republic of Argentina, 11.75s, 2009 $ 30 30,000
Republic of Argentina, 11.375s, 2017 20 19,900
Republic of Argentina, 6.875s, 2023 65 51,512
Republic of Argentina, 9.75s, 2027 75 67,785
----------
$ 402,184
- ------------------------------------------------------------------------------
Brazil - 13.6%
Bahia Sul Celulose S.A., 10.625s, 2004
(Paper & Related Products) $ 20 $ 19,600
Banco Nacional de Desenvolvi, 12.193s, 2008
(Banks and Credit Cos.)## 130 117,650
CSN Iron S.A., 9.125s, 2007 (Metals) 30 24,900
Federal Republic of Brazil, 11.625s, 2004 20 19,930
Federal Republic of Brazil, 6.938s, 2006 14 12,408
Federal Republic of Brazil, 7s, 2009 80 64,400
Federal Republic of Brazil, 14.5s, 2009 101 111,989
Federal Republic of Brazil, 7s, 2012 60 44,700
Federal Republic of Brazil, 5s, 2014 63 47,397
Federal Republic of Brazil, 6.938s, 2024 85 64,498
----------
$ 527,472
- ------------------------------------------------------------------------------
Bulgaria - 3.5%
National Republic of Bulgaria, 2.75s, 2012 $ 55 $ 39,600
National Republic of Bulgaria, 6.5s, 2024 120 96,156
----------
$ 135,756
- ------------------------------------------------------------------------------
Colombia - 1.9%
Republic of Columbia, 9.75s, 2009 $ 30 $ 27,864
Republic of Columbia, 8.375s, 2027 60 46,200
----------
$ 74,064
- ------------------------------------------------------------------------------
Grand Cayman Islands - 0.5%
Enersis S.A., 7.4s, 2016
(Utilities - Electric) $ 25 $ 21,305
- ------------------------------------------------------------------------------
Hong Kong - 0.9%
Bangkok Bank Public Co., 9.025s, 2029
(Banks and Credit Cos.)## $ 45 $ 34,875
- ------------------------------------------------------------------------------
Indonesia - 1.0%
Indah Kiat Finance Mauritius Ltd., 10s, 2007
(Paper & Forest Products) $ 50 $ 37,000
- ------------------------------------------------------------------------------
Luxembourg - 0.8%
PTC International Finance II S.A.,
11.25s, 2009 (Telecommunications)## $ 30 $ 30,900
- ------------------------------------------------------------------------------
Mexico - 10.6%
Alestra S.A. de R.L. de C.V., 12.625s, 2009
(Telecommunications) $ 55 $ 55,412
Banco Nacional de Commerce, 7.25s, 2004
(Banks and Credit Cos.) 20 18,650
Grupo Industrial Durango S.A., 12.625s, 2003
(Paper & Related Products) 20 19,900
Multicanal S.A., 13.125s, 2009 (Cable Television) 30 29,250
Nuevo Grupo Isuacell S.A de C.V., 14.25s, 2006
(Telecommunications)## 80 83,200
Petroleos Mexicanos, 9.5s, 2027 (Oil Services) 55 53,900
Satelites Mexicanos S.A. de C.V., 10.125s, 2004
(Telecommunications) 25 17,000
United Mexican States, 10.375s, 2009*** 60 63,600
United Mexican States, 11.375s, 2016 30 33,900
United Mexican States, 11.5s, 2026 30 35,739
----------
$ 410,551
- ------------------------------------------------------------------------------
Morocco - 1.0%
Morocco Tranche A, 6.844s, 2009+ $ 42 $ 38,182
- ------------------------------------------------------------------------------
Netherlands - 5.4%
Cellco Finance N.V. Turkcell, 12.75s, 2005
(Industrial)## $ 100 $ 103,000
Netia Holdings B.V., 10.25s, 2007
(Telecommunications) 100 85,000
Tjiwi Kimia International B.V., 13.25s, 2001
(Paper & Related Products) 25 22,250
----------
$ 210,250
- ------------------------------------------------------------------------------
Panama - 1.1%
Republic of Panama, 4s, 2016 $ 27 $ 21,292
Republic of Panama, 8.875s, 2027 25 21,188
----------
$ 42,480
- ------------------------------------------------------------------------------
Peru - 1.2%
Republic of Peru, 4.5s, 2017 $ 70 $ 48,475
- ------------------------------------------------------------------------------
Philippines - 1.2%
National Power Corp., 9.625s, 2028
(Utilities - Electric) $ 30 $ 26,734
Republic of Phillippines, 9.5s, 2024 20 20,451
----------
$ 47,185
- ------------------------------------------------------------------------------
Poland - 3.5%
Government of Poland, 10s, 2004 PLN 600 $ 134,746
- ------------------------------------------------------------------------------
Russia - 6.7%
Ministry of Finance, 10s, 2007 100 $ 62,380
Ministry of Finance, 12.75s, 2028+ 120 84,000
Russia Principal Loans, 5.968s, 2020+** 390 61,425
Russian Federation, 8.75s, 2005 55 34,100
Russian Federation, 11.75s, 2003## 25 18,700
----------
$ 260,605
- ------------------------------------------------------------------------------
Singapore - 1.0%
Krung Thai Bank Public Co. Ltd., 6.534s, 2006
(Banks and Credit Cos.) $ 50 $ 39,750
- ------------------------------------------------------------------------------
South Africa - 7.0%
Republic of South Africa, 12.5s, 2002 ZAR 1,000 $ 163,171
Republic of South Africa, 13s, 2010 700 109,439
----------
$ 272,610
- ------------------------------------------------------------------------------
Turkey - 1.5%
Export Credit Bank of Turkey, 12.5s, 2002
(Banks and Credit Cos.)## $ 30 $ 31,200
Republic of Turkey, 12.375s, 2009 25 26,687
----------
$ 57,887
- ------------------------------------------------------------------------------
Venezuela - 2.4%
Republic of Venezuela, 9.25s, 2027 $ 140 $ 92,932
- ------------------------------------------------------------------------------
Total Bonds (Identified Cost, $2,781,445) $2,996,765
- ------------------------------------------------------------------------------
Rights
- ------------------------------------------------------------------------------
SHARES
- ------------------------------------------------------------------------------
United Mexican States* (Identified Cost, $0) 385,000 $ 0
- ------------------------------------------------------------------------------
Short-Term Obligations - 19.6%
- ------------------------------------------------------------------------------
PRINCIPAL AMOUNT
000 OMITTED)
- ------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., due 1/03/00 at
Amortized Cost $ 760 $ 759,937
- ------------------------------------------------------------------------------
Total Investments (Identified Cost, $3,541,382) $3,756,702
Other Assets, Less Liabilities - 3.2% 125,971
- ------------------------------------------------------------------------------
Net Assets - 100.0% $3,882,673
- ------------------------------------------------------------------------------
* Non-income producing security.
** Non-income producing security-in-default.
*** Security held as futures collateral.
## SEC Rule 144A restriction.
+ Restricted security.
Abbreviations have been used throughout this report to indicate amounts shown in
currencies other than the U.S. dollar. A list of abbreviations is shown below.
ARS = Argentine Peso PLN = Polish Zloty
HKD = Hong Kong Dollars ZAR = South African Rand
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- -------------------------------------------------------------------------------
DECEMBER 31, 1999
- -------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $3,541,382) $ 3,756,702
Foreign currency, at value (identified cost, $1,689) 1,689
Net receivable for forward foreign currency exchange contracts
to purchase 1,202
Net receivable for forward foreign currency exchange contracts
subject to master netting agreements 49,509
Receivable for daily variation margin on open futures contracts 937
Receivable for investments sold 47,277
Interest receivable 78,462
Deferred organization expenses 2,494
Other assets 35
-----------
Total assets $ 3,938,307
-----------
Liabilities:
Payable to custodian $ 36,933
Net payable for forward foreign currency exchange contracts
to sell 1,365
Payable for investments purchased 14,799
Payable to affiliates -
Management fee 90
Shareholder servicing agent fee 1
Accrued expenses and other liabilities 2,446
-----------
Total liabilities $ 55,634
-----------
Net assets $ 3,882,673
===========
Net assets consist of:
Paid-in capital $ 4,158,305
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 268,371
Accumulated net realized loss on investments and foreign
currency transactions (463,349)
Accumulated distributions in excess of net investment income (80,654)
-----------
Total $ 3,882,673
===========
Shares of beneficial interest outstanding 392,774
=======
Net asset value, offering price, and redemption price per share
(net assets/shares of beneficial interest outstanding) $9.89
=====
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations (Unaudited)
- -------------------------------------------------------------------------------
SIX MONTHS ENDED DECEMBER 31, 1999
- -------------------------------------------------------------------------------
Net investment income:
Interest income $ 187,762
-----------
Expenses -
Management fee $ 15,866
Trustees' compensation 3,100
Shareholder servicing agent fee 140
Administrative fee 198
Auditing fees 18,500
Registration fees 7,757
Custodian fee 6,302
Printing 5,137
Amortization of organization expenses 2,057
Legal fees 536
Miscellaneous 295
-----------
Total expenses $ 59,888
Fees paid indirectly (1,529)
Reduction of expenses by investment adviser (35,027)
-----------
Net expenses $ 23,332
-----------
Net investment income $ 164,430
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 137,906
Futures contracts (1,267)
Foreign currency transactions 93,229
-----------
Net realized gain on investments and foreign currency
transactions $ 229,868
-----------
Change in unrealized appreciation (depreciation) -
Investments $ 121,047
Futures contracts 7,739
Translation of assets and liabilities in foreign currencies (1,222)
-----------
Net unrealized gain on investments and foreign currency
translation $ 127,564
-----------
Net realized and unrealized gain on investments and
foreign currency $ 357,432
-----------
Increase in net assets from operations $ 521,862
===========
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ---------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1999 JUNE 30, 1999
(UNAUDITED)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 164,430 $ 386,207
Net realized gain (loss) on investments and foreign currency
transactions 229,868 (607,781)
Net unrealized gain on investments and foreign currency
translation 127,564 72,015
---------- -----------
Increase (decrease) in net assets from operations $ 521,862 $ (149,559)
---------- -----------
Distributions declared to shareholders -
From net investment income $ (519,205) $ (362,744)
In excess of net realized gain on investments and foreign
currency transactions -- (27,982)
---------- -----------
Total distributions declared to shareholders $ (519,205) $ (390,726)
---------- -----------
Net increase (decrease) in net assets from Fund share
transactions $ 310,372 $(1,216,578)
---------- -----------
Total increase (decrease) in net assets $ 313,029 $(1,756,863)
Net assets:
At beginning of period 3,569,644 5,326,507
---------- -----------
Atend of period (including accumulated distributions in
excess of net investment income and undistributed net
investment income of $80,654 and $274,121, respectively) $3,882,673 $ 3,569,644
========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- ----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, 1999 ------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996*
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 9.96 $10.86 $11.94 $10.88 $10.00
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.45 $ 0.84 $ 0.73 $ 0.94 $ 0.70
Net realized and unrealized gain (loss) on
investments and foreign currency 1.01 (0.93) (0.56) 1.41 0.56
------ ------ ------ ------ ------
Total from investment operations $ 1.46 $(0.09) $ 0.17 $ 2.35 $ 1.26
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(1.53) $(0.75) $(0.40) $(0.83) $(0.38)
From net realized gain on investments and
foreign currency transactions -- -- (0.83) (0.46) --
In excess of net realized gain on investments
and foreign currency transactions -- (0.06) (0.02) -- --
------ ------ ------ ------ ------
Total distributions declared to shareholders $(1.53) $(0.81) $(1.25) $(1.29) $(0.38)
------ ------ ------ ------ ------
Net asset value - end of period $ 9.89 $ 9.96 $10.86 $11.94 $10.88
====== ====== ====== ====== ======
Total return 14.43%++ 0.18% 1.67% 22.79% 12.93%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.33%+ 1.31% 1.30% 1.29% 1.25%+
Net investment income 8.79%+ 8.88% 6.46% 8.30% 7.59%+
Portfolio turnover 143% 399% 159% 473% 285%
Net assets at end of period (000 Omitted) $3,883 $3,570 $5,327 $5,326 $4,160
(S) Subject to reimbursement by the Fund, MFS has voluntarily agreed under a temporary expense reimbursement agreement to
pay all of the Fund's operating expenses exclusive of management fees. In consideration, the Fund pays MFS a fee not
greater than 0.40% of average daily net assets. To the extent actual expenses were over this limitation, the net
investment income per share and ratios would have been:
Net investment income $ 0.36 $ 0.71 $ 0.66 $ 0.85 $ 0.43
Ratios (to average net assets):
Expenses## 3.20%+ 2.63% 1.91% 2.07% 4.21%+
Net investment income 6.92%+ 7.56% 5.86% 7.48% 4.63%+
* For the period from the commencement of the Fund's investment operations, August 7, 1995, through June 30, 1996.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
</TABLE>
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS Institutional Emerging Markets Debt Fund (the Fund) is a nondiversified
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. The fund can
invest in foreign securities. 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 - Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues and 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.
Non-U.S. dollar denominated short-term obligations are valued at amortized cost
as calculated in the foreign currency and translated into U.S. dollars at the
closing daily exchange rate. Futures contracts listed on commodities exchanges
are reported at market value using closing settlement prices. Securities for
which there are no such quotations or valuations are valued in good faith, at
fair value, 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.
Futures Contracts - The Fund may enter into futures contracts for the delayed
delivery of securities or currency, or contracts based on financial indices at a
fixed price on a future date. In entering such contracts, the Fund is required
to deposit with the broker either in cash or securities an amount equal to a
certain percentage of the contract amount. Subsequent payments are made or
received by the Fund each day, depending on the daily fluctuations in the value
of the contract, and are recorded for financial statement purposes as unrealized
gains or losses by the Fund. The Fund's investment in futures contracts is
designed to hedge against anticipated future changes in interest or exchange
rates or securities prices. Should interest or exchange rates or securities
prices move unexpectedly, the Fund may not achieve the anticipated benefits of
the futures contracts and may realize a loss.
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. Interest payments received in additional
securities are recorded on the ex-interest date in an amount equal to the value
of the security on such date. The Fund uses the effective interest method for
reporting interest income on payment-in-kind (PIK) bonds.
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 be 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.
At June 30, 1999, the Fund, for federal income tax purposes, had a capital loss
carryforward of $597,483 which may be applied against any net taxable realized
gains of each succeeding year until the earlier of its utilization or expiration
on June 30, 2007.
(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 0.85% of
the Fund's average daily net assets.
The Fund has a temporary expense reimbursement agreement whereby MFS has
voluntarily agreed to pay all of the Fund's operating expenses, exclusive of
management fees. The Fund in turn will pay MFS an expense reimbursement fee not
greater than 0.40% of average daily net assets. To the extent that the expense
reimbursement fee exceeds the Fund's actual expenses, the excess will be applied
to amounts paid by MFS in prior years. At December 31, 1999, aggregate
unreimbursed expenses amounted to $230,826.
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 $4,400,530
and $4,257,837, 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 $3,552,839
----------
Gross unrealized appreciation $ 230,294
Gross unrealized depreciation (26,431)
----------
Net unrealized appreciation $ 203,863
==========
(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>
SIX MONTHS ENDED DECEMBER 31, 1999 YEAR ENDED JUNE 30, 1999
---------------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,179 $ 12,106 3,006 $ 29,302
Shares issued to shareholders in
reinvestment of distributions 52,980 519,205 43,174 390,726
Shares reacquired (19,816) (220,939) (178,320) (1,636,606)
------- -------- -------- -----------
Net increase (decrease) 34,343 $310,372 (132,140) $(1,216,578)
======= ======== ======== ===========
</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 six months ended December 31, 1999, was $13. The Fund had no
borrowings during the period.
(7) Financial Instruments
The Fund trades financial instruments with off-balance-sheet risk in the normal
course of its investing activities in order to manage exposure to market risks
such as interest rates and foreign currency exchange rates. These financial
instruments include forward foreign currency exchange contracts and futures
contracts. The notional or contractual amounts of these instruments represent
the investment the Fund has in particular classes of financial instruments and
does not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered.
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
NET
UNREALIZED
CONTRACTS TO CONTRACTS APPRECIATION
SETTLEMENT DATE DELIVER/RECEIVE IN EXCHANGE FOR AT VALUE (DEPRECIATION)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales 5/03/00 HKD 1,332,681 170,000 $171,365 $(1,365)
-------- -------
Purchases 5/03/00 HKD 1,332,681 170,163 $171,365 $ 1,202
-------- -------
</TABLE>
At December 31, 1999, forward foreign currency purchases and sales under master
netting agreements excluded above amounted to a net receivable of $25,085 with
Deutsche Bank and $24,424 with Merrill Lynch.
At December 31, 1999, the Fund had sufficient cash and/or securities to cover
any commitments under these contracts.
Futures Contracts
<TABLE>
<CAPTION>
UNREALIZED
DESCRIPTION EXPIRATION CONTRACTS POSITION APPRECIATION
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Notes March 2000 3 Short $3,875
------
</TABLE>
At December 31, 1999, the Fund had sufficient cash and/or securities to cover
any margin requirements under these contracts.
(8) Restricted Securities
The Fund may invest not more than 15% of its net assets in securities which are
subject to legal or contractual restrictions on resale. At December 31, 1999,
the Fund owned the following restricted securities, excluding securities issued
under Rule 144A, constituting 5.37% of net assets which may not be publicly sold
without registration under the Securities Act of 1933. The Fund does not have
the right to demand that such securities be registered. The value of these
securities is determined by valuations furnished by dealers or by a pricing
service, or if not available, in good faith, at fair value, by the Trustees.
<TABLE>
<CAPTION>
SHARE/PAR
DESCRIPTION DATE OF ACQUISITION AMOUNT COST VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Algeria Tranche, 6.375s, 2004 11/16/1999 35,000 $ 24,638 $ 24,850
Ministry of Finance, 12.75s, 2028 4/14/1999 120,000 64,171 84,000
Morocco Tranche A, 6.844s, 2009 8/26/1998 42,190 33,587 38,182
Russia Principal Loans, 5.968s, 2020 5/06/1999 390,000 35,535 61,425
--------
$208,457
========
</TABLE>
<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, [Graphic Omitted]
retirement plan participants, and MFS' institutional
clients, and supporting the financial consultants who sell
our products.
MFS can now say that it is ready for the Year 2000. Our testing has demonstrated
that MFS' computer hardware and software will recognize "00" as the Year 2000
and will not confuse those digits with 1900. All of our critical business
applications and processes have been successfully tested, and we have adopted
companywide policies that will help us maintain our readiness through the
remainder of the year. Any new technology that is brought into the company
before the end of the year will be held to the same stringent standards as our
current technology. We have also developed a vendor readiness survey, contacted
over 700 of our vendors, and established an ongoing process to review responses,
as well as to review readiness statements of new vendors and products.
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 Original Research(R)
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.
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 fund shareholders, retirement plan participants, or
institutional clients.
If you have further questions regarding MFS' Year 2000 Readiness Program, please
visit our Web site at www.mfs.com, call our toll-free line, 1-800-637-4406, or
write to 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) 2000 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116
IMD-3 02/00 200
