MFS(R) Variable Insurance Trust(SM)
MFS(R) World Governments Series
Semiannual Report
June 30, 1995
<PAGE>
Dear Contract Owner:
A general slowdown in most major economies has resulted in favorable performance
for both stock and bond markets around the world during the past six months.
Yields on many fixed-income securities declined over the period, resulting in
favorable price performance for these investments. At the same time, the decline
in interest rates and strong corporate earnings reports caused many stock prices
to rise over the period, producing strong returns. For the six months ended June
30, 1995, the market, as measured by the Standard & Poor's 500 Composite Index
(the S&P 500), a popular, unmanaged index of common stock performance, returned
+20.19%.
U.S. Outlook
In response to increasing evidence of economic weakness during the second
quarter, the Federal Reserve Board has reversed policy by lowering the federal
funds rate 0.25%. This marks the first time in three years that this rate has
been lowered, and brings the Federal Reserve's 18-month monetary-tightening
initiative to at least a temporary conclusion. Although inflation at the
consumer level has been trending higher this year at a 3 1/2% annualized rate,
recent evidence suggests that these pressures are beginning to moderate,
allowing the Federal Reserve to shift its policy focus toward sustaining
economic growth. Despite the economy's apparent lackluster performance in the
second quarter, we do not anticipate that the economy will lapse into recession.
Rather, we believe it will continue to expand at a more moderate, sustainable
pace, supported by lower prevailing interest rates and a healthy export sector.
Global Outlook
Economic recoveries in both Europe and Japan have been inhibited by the strength
of the yen and deutsche mark against the U.S. dollar. These export-led
expansions are struggling to compete in a global marketplace in which their
products are less competitively priced. Consumer sectors in these economies have
been impaired by relatively high unemployment rates and continued low growth in
domestic money supplies. Recently, the Bank of Japan lowered interest rates in
an effort to stimulate domestic demand as well as to arrest the strength of the
yen against the dollar. Germany's Bundesbank lowered rates in March, yet it
appears that controlled inflation and sluggish domestic demand should leave it
with further room to ease. Our view is that the global expansion remains intact,
yet at a sluggish pace, particularly in Japan. Inflation in overseas economies
remains in a downward trend, providing fixed-income investors with opportunities
for relatively attractive real (adjusted for inflation) rates of interest,
possibly accompanied by moderate price appreciation. While we view emerging
markets with caution, selected opportunities exist in both fixed-income and
equity markets, particularly at the more attractive levels resulting from
selloffs in many of those markets last year. Recently, the U.S. dollar has
stabilized in world currency markets. Although we believe that the dollar
continues to represent a sound store of value over the long term, in the near
term its relative strength will be restrained by the persistently large U.S.
current-account deficit.
Bond Markets
As the economy's ability to create jobs has diminished along with its use of
available productive capacity, fixed-income markets have become increasingly
convinced that inflationary pressures will remain subdued. As a result,
long-term U.S. Treasury bond yields have declined to 6.50% from their 7.85%
level at the beginning of the year. As bond yields continued to decline, it
became apparent that the markets had been anticipating an easing of the Federal
Reserve's policy. Now that the easing has begun, we believe that prevailing
rates may consolidate near present levels in the near term. Longer term, we feel
that continuing moderate growth should result in interest rates maintaining
their present levels or perhaps declining moderately over the balance of this
year.
The general slowdown of world economies has resulted in solid performance in
world bond markets during the past six months. European markets continue to be
buoyed by slow growth, low and controlled inflation and recent interest rate
cuts from key central banks. The Japanese market also has been strong as anemic
economic growth and consumer price deflation have helped interest rates stage a
major decline. We remain positive on overseas markets because we anticipate
<PAGE>
continued slow growth and minimal inflationary pressures.
Comments from the portfolio manager of this Series are presented below. We
appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/ A. Keith Brodkin /s/ Stephen C. Bryant
A. Keith Brodkin Stephen C. Bryant
Chairman and President Portfolio Manager
July 18, 1995
MFS(R) World Governments Series
All global bond markets have rallied significantly this year as fears of strong
world growth and runaway inflation that plagued markets last year have given way
to expectations of a much slower path of worldwide economic recovery. The best
performing bond market in local currency terms so far this year has been Japan's
(12.01%). Performing almost as well as Japan have been countries within the U.S.
dollar bloc, notably the U.S. (11.4%), Canada (10.45%), and Australia (10.02%).
As is the U.S., both Canada and Australia are enjoying lower inflation and
higher real (adjusted for inflation) interest rates. Although the Series was
underweighted in U.S. Treasury bonds during the past six months, which hurt
performance, it had an overweighted position in Australia and a neutral position
in Canada, both of which contributed favorably to results.
In Europe, the Netherlands and Germany were the better performers, returning
8.65% and 7.25%, respectively. Economic growth in Europe is slowing more quickly
than had been forecast at the beginning of the year, and thus our strategy has
been and continues to be focused on core markets such as Germany and the
Netherlands and, to a lesser extent, Denmark and France. We have generally
stayed out of the higher-yielding markets of Italy, Spain and Sweden, as these
countries have been experiencing rising inflation and political problems which
appear to preclude strong efforts at deficit reduction. With growth slowing and
inflation stable to declining, we expect an easing in monetary policy in Europe,
led by the German Bundesbank. Thus, we believe there is good capital
appreciation potential in these core markets over the next six months.
One of the factors which has contributed positively to the total return of the
Series this year has been our movement out of the U.S. dollar and into the yen
and a few of the core European currencies. The decline of the U.S. dollar has
been quite dramatic and, thus, it would not be unusual to expect a period of
consolidation or stability in the foreign exchange markets. However, so far this
year, both the yen and the deutsche mark have appreciated well over 10% versus
the U.S. dollar. Both Germany and Japan have already lowered interest rates, in
part to curtail the U.S. dollar's weakness as well as to stimulate their own
economic recoveries. Surprisingly, these actions, combined with the foreign
central banks' support of the dollar, have had a minimal impact in bolstering
the beleaguered currency. Until the U.S. takes strong initiatives to curtail
large budget and current-account deficits, the portfolio will be positioned for
a somewhat weaker U.S. dollar.
<PAGE>
Portfolio Manager Profile
Stephen Bryant joined MFS in 1987 as an Assistant Vice President - Investments
in the International Fixed-Income Department. He was named Vice President -
Investments in 1989 and Senior Vice President in 1993. Mr. Bryant is a graduate
of Wesleyan University.
Objective and Policies
MFS World Governments Series' investment objective is to seek not only
preservation but also growth of capital, together with moderate current income.
The Series seeks to achieve its investment objective through an internationally
diversified portfolio consisting primarily of fixed-income securities.
The Series varies the percentage of assets invested in various foreign
securities in relation to the state of the economies of the principal countries
of the world, their financial markets and the relationship of their currencies
to the U.S. dollar. The Series also invests in U.S. securities. In addition, the
Series may engage in options and futures transactions and enter into forward
foreign currency exchange contracts.
Performance Summary
Because portfolios like MFS World Governments Series are designed for investors
with long-term goals, we have provided cumulative results as well as the average
annual total returns for the past 6-month and 1-year periods ended June 30, 1995
and for the period from June 14, 1994+ to June 30, 1995.
Average Annual and Cumulative Total Rates of Return
Investment Results
(net asset value change including reinvested distributions)
6/14/94+-
6 Months 1 Year 6/30/95
================================================================================
Cumulative Total Return +11.10% +11.75% +11.98%
- --------------------------------------------------------------------------------
Average Annual Total Return -- +11.75% +11.45%
- --------------------------------------------------------------------------------
All Series results represent past performance and are not necessarily an
indication of future results. Investment return and principal value will
fluctuate, and units, when redeemed, may be worth more or less than their
original cost. All Series results reflect the applicable expense subsidy which
is explained in the Notes to Financial Statements. Had the subsidy not been in
effect, the results would have been less favorable. The subsidy may be rescinded
by MFS at any time. All Series results do not reflect expenses that would be
imposed by insurance company separate accounts.
+Commencement of offering of shares.
<PAGE>
MFS Variable Insurance Trust --
MFS World Governments Series
Portfolio of Investments -- June 30, 1995
Bonds -- 71.6%
<TABLE>
<CAPTION>
====================================================================================================================================
Principal Amount
Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign Denominated -- 60.7%
Australia -- 8.3%
Commonwealth of Australia, 12s, 2001 AUD 150 $ 122,544
Commonwealth of Australia, 10s, 2002 250 186,924
-----------
$ 309,468
- ------------------------------------------------------------------------------------------------------------------------------------
Canada -- 3.4%
Government of Canada, 9.75s, 2001 CAD 160 $ 128,361
- ------------------------------------------------------------------------------------------------------------------------------------
Denmark -- 5.0%
Kingdom of Denmark, 9s, 1998 DKK 370 $ 70,940
Kingdom of Denmark, 9s, 2000 615 118,074
-----------
$ 189,014
- ------------------------------------------------------------------------------------------------------------------------------------
France -- 3.6%
Government of France, 8s, 1998 FRF 210 $ 44,582
Government of France, 7s, 1999 220 45,207
Government of France, 7.75s, 2000 210 44,301
-----------
$ 134,090
- ------------------------------------------------------------------------------------------------------------------------------------
Germany -- 20.8%
German Unity Fund, 8.5s, 2001 DEM 50 $ 39,309
Republic of Germany, 8.5s, 2000 150 117,981
Republic of Germany, 6.5s, 2003 750 525,597
Republic of Germany, 6.875s, 2005 136 97,916
-----------
$ 780,803
- ------------------------------------------------------------------------------------------------------------------------------------
Ireland -- 3.4%
Irish Gilts, 9.75s, 1998 IEP 75 $ 127,551
- ------------------------------------------------------------------------------------------------------------------------------------
Italy -- 3.6%
Republic of Italy, 8.5s, 1999 ITL 165,000 $ 91,203
Republic of Italy, 9.5s, 1999 80,000 44,612
-----------
$ 135,815
- ------------------------------------------------------------------------------------------------------------------------------------
Netherlands -- 8.1%
Dutch State Loan, 6.25s, 1998 NLG 40 $ 26,222
Netherlands Government, 7.75s, 2005 170 115,279
Netherlands Government, 8.25s, 2007 230 160,652
-----------
$ 302,153
- ------------------------------------------------------------------------------------------------------------------------------------
Spain -- 2.9%
Government of Spain, 12.25s, 2000 ESP 13,000 $ 109,559
- ------------------------------------------------------------------------------------------------------------------------------------
United Kingdom -- 1.6%
United Kingdom Gilts, 7s, 2001 GBP 40 $ 59,480
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Total Foreign Denominated $ 2,276,294
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Dollar Denominated -- 10.9%
U.S. Treasury Notes, 7.75s, 1999 $ 125 $ 133,320
U.S. Treasury Notes, 7.125s, 2000 50 52,226
U.S. Treasury Notes, 7.25s, 2004 115 122,888
U.S. Treasury Stripped Principal Payments, 0s, 2019 500 98,565
-----------
$ 406,999
- ------------------------------------------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $2,566,832) $ 2,683,293
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Short-Term Obligations -- 24.8%
<TABLE>
<CAPTION>
====================================================================================================================================
Principal Amount
Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Dollar Denominated -- 24.0%
Federal Home Loan Mortgage Corp., due 7/03/95 $ 900 $ 899,695
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign Denominated -- 0.8%
New Zealand Treasury Bills, due 12/20/95 NZD 31 $ 30,670
- ------------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Obligations (Amortized Cost, $929,008) $ 930,365
- ------------------------------------------------------------------------------------------------------------------------------------
Call Options Purchased -- 1.4%
====================================================================================================================================
Principal Amount
of Contracts
Description/Expiration Month/Strike Price (000 Omitted)
- ------------------------------------------------------------------------------------------------------------------------------------
Canadian Dollars
August/1.34 CAD 159 $ 82
Deutsche Marks
July/1.385 DEM 661 3,978
Italian Lire/Deutsche Marks
September/1143.9 ITL 30,027 121
Japanese Bonds
July/110.164 JPY 16,000 8,400
July/112.844 30,000 6,600
August/109.274 22,000 11,792
August/113.763 22,000 2,376
September/108.284023 14,000 5,712
September/108.577 13,000 7,540
September/111.15 26,000 8,268
- ------------------------------------------------------------------------------------------------------------------------------------
Total Call Options Purchased (Premiums Paid, $25,737) $ 54,869
- ------------------------------------------------------------------------------------------------------------------------------------
Put Options Purchased -- 0.2%
====================================================================================================================================
British Pounds
September/1.5305 GBP 136 $ 788
Deutsche Marks
July/1.415 DEM 531 673
Deutsche Marks/British Pounds
July/2.29 128 0
Japanese Bonds
August/108.985 JPY 13,000 338
Japanese Yen
July/85.25 37,196 3,217
Japanese Yen/Deutsche Marks
September/63 27,552 1,365
- ------------------------------------------------------------------------------------------------------------------------------------
Total Put Options Purchased (Premiums Paid, $9,973) $ 6,381
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $3,531,550) $ 3,674,908
- ------------------------------------------------------------------------------------------------------------------------------------
Call Options Written -- (0.7)%
====================================================================================================================================
Japanese Bonds
July/110.2 JPY 16,000 $ (8,397)
August/109.3 22,000 (11,792)
Japanese Yen
August/80.0818 34,906 (1,047)
March/78 16,120 (4,499)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Call Options Written (Premiums Received, $22,444) $ (25,735)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Put Options Written
<TABLE>
<CAPTION>
====================================================================================================================================
Principal Amount
of Contracts
Description/Expiration Month/Strike Price (000 Omitted) Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Japanese Bonds
September/108.284023 JPY 14,000 $ (574)
September/108.577 13,000 (338)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Put Options Written (Pemiums Received, $4,196) $ (912)
- ------------------------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities -- 2.7% $ 100,340
====================================================================================================================================
Net Assets -- 100.0% $ 3,748,601
====================================================================================================================================
</TABLE>
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.
AUD = Australian Dollars GBP = British Pounds
CAD = Canadian Dollars IEP = Irish Punts
CHF = Swiss Francs ITL = Italian Lire
DEM = Deutsche Marks JPY = Japanese Yen
DKK = Danish Kroner NLG = Dutch Guilders
ESP = Spanish Pesetas NZD = New Zealand Dollars
FRF = French Francs SEK = Swedish Kronor
See notes to financial statements
<PAGE>
MFS Variable Insurance Trust --
MFS World Governments Series
Statement of Assets and Liabilities
================================================================================
June 30, 1995
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $3,531,550) $3,674,908
Cash 30,027
Net receivable for forward foreign currency exchange
contracts purchased 66,618
Premium receivable on options written 1,351
Receivable for Series shares sold 29,462
Interest receivable 88,019
Receivable from investment adviser 33,938
Deferred organization expenses 4,397
----------
Total assets $3,928,720
----------
Liabilities:
Payable for Series shares reacquired $ 72
Payable for securities purchased 6,778
Written options outstanding, at value
(premiums received, $26,640) 26,647
Net payable for forward foreign currency exchang
contracts sold 128,932
Payable to affiliates for management fee 77
Accrued expenses and other liabilities 17,613
----------
Total liabilities $ 180,119
----------
Net assets $3,748,601
==========
Net assets consist of:
Paid-in capital $3,412,550
Unrealized appreciation on investment and translation
of assets and liabilities in foreign currencies 85,364
Accumulated undistributed net realized gain on
investments and foreign currency transactions 163,144
Accumulated undistributed net investment income 87,543
----------
Total $3,748,601
==========
Shares of beneficial interest outstanding 343,689
==========
Net asset value, offering price and redemption price
per share (net assets/shares of beneficial
interest outstanding) $ 10.91
==========
See notes to financial statements
<PAGE>
MFS Variable Insurance Trust --
MFS World Governments Series
Statement of Operations
================================================================================
Six Months Ended June 30, 1995
- --------------------------------------------------------------------------------
Net investment income:
Interest income $ 131,965
---------
Expenses --
Management fee $ 13,785
Trustees' compensation 1,325
Shareholder servicing agent fee 648
Auditing fees 16,400
Custodian fee 1,955
Amortization of organization expenses 915
Miscellaneous 101
---------
Total expenses $ 35,129
Preliminary refund of expenses by investment adviser (16,763)
---------
Net expenses $ 18,366
---------
Net investment income $ 113,599
---------
Realized and unrealized gain (loss) on investments:
Realized gain (identified cost basis) --
Investment transactions $ 80,932
Written option transactions 37,202
Foreign currency transactions 56,045
---------
Net realized gain on investments and foreig
currency transactions $ 174,179
---------
Change in unrealized appreciation (depreciation) --
Investments $ 171,127
Written options (4,802)
Translation of assets and liabilities in foreign currencies (66,897)
---------
Net unrealized gain on investments $ 99,428
---------
Net realized and unrealized gain on investments and
foreign currency $ 273,607
---------
Increase in net assets from operations $ 387,206
=========
See notes to financial statements
<PAGE>
MFS Variable Insurance Trust --
MFS World Governments Series
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
====================================================================================================================================
Six Months Ended Period Ended
June 30, 1995 December 31, 1994 *
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets:
From operations --
Net investment income $ 113,599 $ 47,596
Net realized gain (loss) on investments and foreign currency transactions 174,179 (11,035)
Net unrealized gain (loss) on investments and foreign currency translation 99,428 (14,064)
----------- ----------
Increase in net assets from operations $ 387,206 $ 22,497
----------- ----------
Distributions declared to shareholders --
From net investment income $ -- $ (47,596)
In excess of net investment income -- (26,056)
----------- ----------
Total distributions declared to shareholders $ -- $ (73,652)
----------- ---------
Series share (principal) transactions --
Net proceeds from sale of shares $ 2,926,452 $3,259,477
Net asset value of shares issued to shareholders in reinvestment of distributions -- 73,652
Cost of shares reacquired (2,446,306) (409,225)
----------- ----------
Increase in net assets from Series share transactions $ 480,146 $2,923,904
----------- ----------
Total increase in net assets $ 867,352 $2,872,749
Net assets:
At beginning of period 2,881,249 8,500
----------- ----------
At end of period (including accumulated undistributed (distributions in excess of)
net investment income of $87,543 and $(10,012), respectively) $ 3,748,601 $2,881,249
=========== ==========
</TABLE>
*For the period from the commencement of investment operations, June 14, 1994 to
December 31, 1994.
See notes to financial statements
<PAGE>
MFS Variable Insurance Trust --
MFS World Governments Series
Financial Highlights
<TABLE>
<CAPTION>
====================================================================================================================================
Six Months Ended Period Ended
June 30, 1995 December 31, 1994*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value -- beginning of period $ 9.82 $ 10.00
----------- -----------
Income from investment operations # --
Net investment income## $ 0.32 $ 0.17
Net realized and unrealized gain (loss) on investments 0.77 (0.09)
----------- -----------
Total from investment operations $ 1.09 $ 0.08
----------- -----------
Less distributions declared to shareholders ---
From net investment income $ -- $ (0.17)
In excess of net investment income -- (0.09)
------------ -----------
Total distributions declared to shareholders $ -- (0.26)
------------ -----------
Net asset value -- end of period $ 10.91 $ 9.82
=========== ===========
Total return 11.10++ 0.79%++
Ratios (to average net assets)/Supplemental data##:
Expenses 1.00%+ 1.00%+
Net investment income 6.18%+ 4.68%+
Portfolio turnover 93% 62%
Net assets at end of period (000 omitted) $ 3,749 $ 2,881
* For the period from the commencement of investment operations, June 14,
1994 to December 31, 1994.
+ Annualized.
++ Not annualized.
# Per share data is based on average shares outstanding.
## The adviser voluntarily agreed to maintain the expenses of the Series at
not more than 1.00% of average daily net assets. To the extent actual
expenses were over these limitations, the net investment income per share
and the ratios would have been:
Net investment income $ 0.27 $ 0.16
Ratios (to average net assets):
Expenses 1.91%+ 1.10%+
Net investment income 5.27%+ 4.58%+
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS World Government Series (the Series) is a non-diversified series of MFS
Variable Insurance Trust (the Trust) which is comprised of the following twelve
series: Bond Series, Emerging Growth Series, Growth Series, Growth With Income
Series, High Income Series, Limited Maturity Series, Money Market Series,
Research Series, Strategic Fixed Income Series, Total Return Series, Utilities
Series, and World Governments Series. 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.
The shareholders of each Series of the Trust are separate accounts of insurance
companies which offer variable annuity and/or life insurance products. At June
30, 1995, there are nine shareholders, who own all of the outstanding shares of
the Series.
(2) Significant Accounting Policies
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 base currency and translated into U.S.
dollars at the closing daily exchange rate. Futures contracts, options and
options on futures contracts listed on commodities exchanges are valued at
closing settlement prices. Over-the-counter options are valued by brokers
through the use of a pricing model which takes into account closing bond
valuations, implied volatility and short-term repurchase rates. Securities for
which there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Trustees.
Repurchase Agreements -- The Series may enter into repurchase agreements with
institutions that the Series' investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The Series requires
that the securities purchased in a repurchase transaction be transferred to the
custodian in a manner sufficient to enable the Series to obtain those securities
in the event of a default under the repurchase agreement. The Series monitors,
on a daily basis, the value of the securities transferred to ensure that the
value, including accrued interest, of the securities under each repurchase
agreement is greater than amounts owed to the Series under each such repurchase
agreement.
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 Series 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 operations of the Series.
<PAGE>
Written Options -- The Series may write covered call or put options for which
premiums are received and are recorded as liabilities, and are subsequently
adjusted to the current value of the options written. Premiums received from
writing options which expire are treated as realized gains. Premiums received
from writing options which are exercised or are closed are offset against the
proceeds or amount paid on the transaction to determine the realized gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
security purchased by the Series. The Series, as writer of an option, may have
no control over whether the underlying securities may be sold (call) or
purchased (put) and, as a result, bears the market risk of an unfavorable change
in the price of the securities underlying the written option. In general,
written call options may serve as a partial hedge against decreases in value in
the underlying securities to the extent of the premium received. Written options
may also be used as a part of an income producing strategy reflecting the view
of the Series' management on the direction of interest rates.
Forward Foreign Currency Exchange Contracts -- The Series 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 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 Series will enter into forward
contracts for hedging purposes as well as for non-hedging purposes. For hedging
purposes, the Series may enter into contracts to deliver or receive foreign
currency it will receive from or require for its normal investment activities.
It 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 Series may enter into
contracts with the intent of changing the relative exposure of the Series'
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 for financial statement purposes as unrealized until the contract
settlement date.
Investment Transactions and Income -- Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and original issue discount are amortized or 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.
Tax Matters and Distributions -- The Series' 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 net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Series files a tax
return annually using tax accounting methods required under provisions of the
Code which may differ from generally accepted accounting principles, the basis
on which these financial statements are prepared. Foreign taxes have been
provided for on interest income earned on foreign investments in accordance with
the applicable country's tax rates and to the extent unrecoverable are recorded
as a reduction of investment income. Distributions to shareholders are recorded
on the ex-dividend date.
The Series distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a return of
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains.
Losses of $38,084 incurred after October 31, 1994 have been deferred until next
year for tax purposes.
(3) Transactions with Affiliates
Investment Adviser -- The Series has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
<PAGE>
management fee is computed daily and paid monthly at an effective annual rate of
0.75% of average daily net assets. Under a temporary expense reimbursement
agreement with MFS, MFS has voluntarily agreed to limit the operating expenses
of the Series at levels which increase over time. Currently MFS has agreed to
limit the Series' expenses at an effective annual rate of 1.00% of average daily
net assets. MFS will pay all Series expenses in excess of the current limit
subject to reimbursement by the Series at a later date. To the extent that
actual Series expenses do not reach the limit, the Series will reimburse MFS for
prior expenses paid by MFS on behalf of the Series such that the Series' expense
ratio does not exceed 1.00% of average daily net assets. As of June 30, 1995,
the aggregate unreimbursed expenses owed to MFS by the Series amounted to
$53,236 including $16,763 incurred in the current period.
The Series pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Series, all of whom receive
remuneration for their services to the Series from MFS. Certain of the officers
and Trustees of the Series are officers or directors of MFS and MFS Service
Center, Inc. (MFSC).
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 average daily net assets at an effective annual rate of up to
0.10%.
(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 $ 849,881 $ 727,930
============ ==========
Investments (non-U.S. government securities) $ 3,311,881 $2,510,205
============ ==========
The cost and unrealized appreciation or depreciation in value of the investments
owned by the Series, as computed on a federal income tax basis, are as follows:
Aggregate cost $ 3,531,550
===========
Gross unrealized appreciation $ 164,726
Gross unrealized depreciation (21,368)
-----------
Net unrealized appreciation $ 143,358
===========
(5) Shares of Beneficial Interest
The Series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
Transactions in Series shares were as follows:
================================================================================
Six Months Ended Period Ended
June 30, 1995 December 31, 1994 *
- --------------------------------------------------------------------------------
Shares Shares
- --------------------------------------------------------------------------------
Shares sold 280,445 325,790
Shares issued to shareholders in
reinvestment of distributions -- 7,470
Shares reacquired (230,062) (40,804)
-------- -------
Net increase 50,383 292,456
======== ========
* For the period from commencement of investment operations, June 14, 1994 to
December 31, 1994.
<PAGE>
(6) Line of Credit
The Series entered into an agreement which enables it to participate with other
funds managed by MFS in an unsecured line of credit with a bank which permits
borrowings up to $350 million, collectively. Borrowings may be made to
temporarily finance the repurchase of Series 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.
(7) Financial Instruments
The Series 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 written options and forward foreign currency
exchange contracts. The notional or contractual amounts of these instruments
represent the investment the Series 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. A
summary of obligations under these financial instruments at June 30, 1995, is as
follows:
Written Option Transactions
<TABLE>
<CAPTION>
1995 Calls 1995 Puts
--------------------------- ----------------------------
Principal Principal
Amounts Amounts
of Contracts of Contracts
(000 Omitted) Premiums (000 Omitted) Premiums
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding, beginning of period --
Canadian Dollars -- $ -- 68 $ 353
Deutsche Marks -- -- 1,165 8,916
Japanese Yen 5,000 673 10,000 1,075
Swiss Francs/Deutsche Marks 119 501 -- --
Options written --
Australian Dollars 81 620 443 5,424
British Pounds 146 2,515 138 2,515
Canadian Dollars -- -- 299 1,287
Deutsche Marks 2,852 10,674 1,823 12,338
Deutsche Marks/British Pounds 118 765 -- --
Italian Lire/Deutsche Marks 333,158 3,049 124,895 952
Japanese Yen 158,465 40,758 212,048 23,637
Spanish Pesetas/Deutsche Marks -- -- 12,676 831
Options terminated in closing transactions --
Australian Dollars (81) (620) (443) (5,424)
British Pounds (146) (2,515) (138) (2,515)
Canadian Dollars -- -- (367) (1,640)
Deutsche Marks (509) (2,526) (2,988) (21,254)
Deutsche Marks/British Pounds (118) (765) -- --
Italian Lire/Deutsche Marks -- -- (124,895) (952)
Japanese Yen (74,439) (18,987) (195,048) (20,516)
Spanish Pesetas/Deutsche Marks -- -- (12,676) (831)
Options exercised --
Deutsche Marks (293) (935) -- --
Swiss Francs/Deutsche Marks (119) (501) -- --
Options expired --
Deutsche Marks (2,050) (7,213) -- --
Italian Lire/Deutsche Marks (333,158) (3,049) -- --
-------- -------- -------- --------
Outstanding, end of period 89,026 $ 22,444 27,000 $ 4,196
======== ======== ======== ========
Options outstanding at end of period consist of --
Japanese Yen 89,026 $ 22,444 27,000 $ 4,196
======== ======== ======== ========
</TABLE>
At June 30, 1995, the Series had sufficient cash and/or securities at least
equal to the value of the written options.
<PAGE>
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
Contracts Net Unrealized
to Deliver/ In Exchange Contracts Appreciation
Settlement Date Receive for at Value (Depreciation)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales 7/05/95 - 9/27/95 AUD 782,868 $ 563,931 $ 554,595 $ 9,336
7/07/95 - 8/02/95 CAD 346,850 252,360 252,498 (138)
7/10/95 CHF 45,208 399,532 393,580 5,952
7/05/95 - 9/29/95 DEM 6,729,204 4,794,882 4,876,612 ( 81,730)
7/07/95 - 10/06/95 DKK 2,362,035 432,828 437,487 ( 4,659)
7/05/95 - 7/21/95 ESP 40,349,939 316,146 333,355 (17,209)
7/10/95 - 12/27/95 FRF 3,350,253 686,504 689,744 ( 3,240)
7/07/95 - 8/25/95 GBP 280,987 442,810 447,095 ( 4,285)
8/04/95 IEP 77,173 125,792 126,484 ( 692)
9/11/95 - 10/02/95 ITL 581,190,649 351,837 352,032 (195)
7/05/95 - 9/25/95 JPY 184,736,130 2,146,196 2,178,439 (32,243)
9/26/95 NLG 259,559 167,426 168,606 (1,180)
7/24/95 - 9/15/95 NZD 337,966 224,559 224,630 (71)
7/13/95 - 8/16/95 SEK 1,610,879 222,292 220,870 1,422
------------- ----------- ------------
$ 11,127,095 $11,256,027 $ (128,932)
============= =========== ============
- ------------------------------------------------------------------------------------------------------------------------------------
Purchases 7/05/95 - 9/08/95 AUD 336,341 $ 247,148 $ 238,660 $ (8,488)
7/07/95 - 8/01/95 CAD 156,211 111,984 113,715 1,731
7/10/95 CHF 452,080 388,788 393,580 4,792
7/05/95 - 10/02/95 DEM 6,910,905 4,951,672 5,008,616 56,944
7/07/95 - 9/28/95 DKK 2,461,399 454,061 456,011 1,950
7/05/95 - 7/10/95 ESP 26,289,546 206,722 217,316 10,594
7/10/95 - 12/27/95 FRF 2,699,867 545,630 555,659 10,029
7/07/95 - 12/27/95 GBP 205,796 325,117 327,473 2,356
9/11/94 - 9/14/95 ITL 388,148,083 232,311 235,267 2,956
7/05/95 - 9/22/95 JPY 248,927,601 2,974,089 2,951,614 ( 22,475)
7/24/95 - 10/26/95 NZD 746,118 492,187 495,667 3,480
7/13/95 - 8/16/95 SEK 1,610,879 218,121 220,870 2,749
------------- ------------ -----------
$ 11,147,830 $ 11,214,448 $ 66,618
============= ============ ===========
</TABLE>
At June 30, 1995, the Series had sufficient cash and/or securities to cover any
commitments under these contracts.
<PAGE>
Independent Auditors' Report
To the Trustees of MFS Variable Insurance Trust and Shareholders of MFS World
Governments Series:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS World Governments Series (the Series) (one
of the series constituting MFS Variable Insurance Trust) as of June 30, 1995,
the related statement of operations for the six months then ended, the
statements of changes in net assets and the financial highlights for the six
months then ended and the period from June 14, 1994 (commencement of investment
operations) to December 31, 1994. These financial statements and financial
highlights are the responsibility of the Series' 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, 1995 by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the MFS World
Governments Series at June 30, 1995, 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 4, 1995
--------------------------------------------------
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.
