<PAGE>
[Logo] M F S(R) Semiannual Report
INVESTMENT MANAGEMENT June 30, 1998
- --------------------------------------------------------------------------------
MFS(R) BOND SERIES
A Series of MFS(R) Variable Insurance Trust(SM)
- --------------------------------------------------------------------------------
[Graphic Omitted]
<PAGE>
MFS(R) BOND SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
<TABLE>
<S> <C>
TRUSTEES INVESTMENT ADVISER
Jeffrey L. Shames* Massachusetts Financial Services Company
Chairman, Chief Executive Officer, and 500 Boylston Street
Director, MFS(R) Investment Management(SM) Boston, MA 02116-3741
Nelson J. Darling, Jr. DISTRIBUTOR
Professional Trustee MFS Fund Distributors, Inc.
500 Boylston Street
William R. Gutow Boston, MA 02116-3741
Vice Chairman,
Capitol Entertainment Management Company; SHAREHOLDER SERVICE CENTER
Real Estate Consultant MFS Service Center, Inc.
P.O. Box 2281
PORTFOLIO MANAGER Boston, MA 02107-9906
Geoffrey L. Kurinsky*
For additional information,
CHAIRMAN AND PRESIDENT contact your financial adviser.
Jeffrey L. Shames*
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.*
</TABLE>
*Affiliated with the Investment Adviser
- -------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- -------------------------------------------------------------------------------
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Contract Owners:
With the U.S. stock market well into its fourth year of record-breaking
advances, it is necessary to take a cautious outlook. By most commonly accepted
measures, equity valuations appear to have risen to a point at which the stock
market has become more vulnerable to changes in the investment environment such
as rising inflation and interest rates or a slowing economy. As a result, while
we continue to hold a favorable long-term outlook for the equity markets, we
also believe that a significant market correction is possible and that such a
correction would be a healthy near-term event.
Currently, equity investors seem to be primarily focused on interest rates,
which have been relatively stable for several months as inflation has remained
low. In an environment of low interest rates, stocks become more attractive than
most fixed-income investments, while low inflation helps control companies'
costs, such as for raw materials, wages, and benefits. The near-term outlook for
a continuation of this environment appears relatively favorable. However, this
year has seen a marked slowdown in corporate earnings. This means that as equity
prices continue to rise, price-to-earnings (P/E) ratios, or the amount an
investor pays for a stock in relation to the company's earnings per share, also
go up. A year ago, the average P/E ratio for stocks in the unmanaged Standard &
Poor's 500 Composite Index stood at approximately 22; this summer, the average
P/E ratio was 32% higher, at about 29. In some cases, such as with some of the
newer companies associated with the Internet, P/E ratios have soared to levels
that are unlikely to be sustained.
As long as interest rates remain low and the economy continues to grow, it is
possible that some of these valuations can be supported. We expect corporate
earnings to grow 4% to 6% this year. However, just as no one can predict market
cycles, so too no one can predict economic cycles -- except to say that these
cycles do exist and that an economic slowdown at some point is inevitable.
Given this reality, we believe it is prudent to remind investors of the need to
take a long-term view and to diversify their investments across a range of asset
classes. This includes portfolios that focus on bonds and international
investments as well as on the U.S. stock market. The likelihood of an eventual
market correction also makes it important for us to use original, bottom-up
research to find companies that we think can keep growing or gain market share
in the face of the occasional downturn. To help achieve this, and to provide the
broadest possible coverage of industry sectors and individual companies, MFS
continues to increase its number of full-time research analysts. These analysts
thoroughly investigate each company's earnings potential and position in its
industry as well as the overall prospects for that industry.
MFS also uses active portfolio management on the fixed-income side, taking
advantage of our extensive research and credit analysis to help reduce the
potential for price declines and enhance the opportunity for appreciation. Every
year, both fixed-income and equity managers meet with thousands of credit
issuers and companies. They also attend many presentations, closely follow
sources of industry research, and keep track of competitors.
We believe that applying this discipline of thorough, bottom-up research to both
the equity and fixed-income markets is the best way to provide favorable
long-term performance for our shareholders -- regardless of changes in the
overall market environment.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS(R) Investment Management(SM)
July 13, 1998
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
Dear Contract Owners:
For the six months ended June 30, 1998, the Series provided a total return of
3.60% (including the reinvestment of any distributions). This compares to a
4.11% return for the Lehman Brothers Government/Corporate Bond Index (the Lehman
Index), an unmanaged, market-value-weighted index of U.S. Treasury and
government-agency securities (excluding mortgage-backed securities) and
investment-grade debt obligations of domestic corporations.
The Series has been helped by its overweightings in investment-grade corporate
bonds and high-yield securities. We have had, on average, a 50% weighting in
investment-grade corporates and roughly 20% in the high-yield market, which is
the Series' maximum allocation. The Series has had almost no allocation in
international government bonds, based on our view that yields have converged
among the United States, Germany, and the other European countries, to basically
a 6% yield. Thus, we think the United States is the most attractive market.
Inflation in the United States is low, the economy is strong, and we have the
market leaders in many major industries, most notably in technology and
telecommunications.
The Series' largest exposure is in the media sector, the credit quality of which
continues to improve. There has been a lot of consolidation in this business,
and companies have benefited from strong cash flows and refinancings of some of
their older, higher-coupon debt. Holdings here include Time Warner,
Telecommunications, Inc., and Continental Cablevision.
Currently, the Series' duration, or sensitivity to changes in interest rates, is
about seven years, which is its usual maximum. It is our view that, with
inflation at about 1.5%, and 10-year U.S. Treasuries at around 5.5% and perhaps
moving down a little, the environment for fixed-income securities is very
attractive.
Looking ahead, the biggest risks to the bond market are the possibility that the
U.S. economy grows too fast and the Asian slowdown that people are counting on
does not develop. If economic growth continues at a 4% to 5% annual rate,
there's no Asian-induced slowdown, and we start to see some early signs of
inflation, the Federal Reserve Board (the Fed) could be forced to raise
short-term interest rates, even if there still are no inflation pressures.
However, if interest rates and inflation remain steady and the U.S. economy
continues to grow at a moderate pace, which is what we expect, it will be a
positive environment for investment-grade corporate and high-yield bonds, as
well as for some of the emerging markets, which are very sensitive to changes in
short-term interest rates.
Respectfully,
/s/ Geoffrey L. Kurinsky
Geoffrey L. Kurinsky
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and are
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.
<PAGE>
PORTFOLIO MANAGER'S PROFILE
Geoffrey L. Kurinsky is a Senior Vice President and a member of the Fixed Income
Management Group of MFS(R) Investment Management(SM). He is portfolio manager of
MFS(R) Bond Fund, MFS(R) Institutional Core Fixed Income Fund, MFS(R) Bond
Series, part of MFS(R) Variable Insurance Trust(SM), and also manages the U.S.
high-grade fixed-income portions of MFS(R) Total Return Fund and MFS(R) World
Asset Allocation(SM) Fund.
He joined the MFS Fixed Income Department in 1987 and was named Vice President
in 1989 and Senior Vice President in 1993. Mr. Kurinsky is a graduate of the
University of Massachusetts and holds an M.B.A. in finance from Boston
University.
SERIES FACTS
Objective: Primarily seeks as high a level of current income as
is believed to be consistent with prudent investment
risk, and secondarily seeks to protect shareholders'
capital.
Commencement of
investment operations: October 24, 1995
Size: $6.8 million net assets as of June 30, 1998
PERFORMANCE SUMMARY
Because the Series is 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.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN THROUGH JUNE 30, 1998
6 Months 1 Year 10 Years/Life*
- -----------------------------------------------------------------------------
Cumulative Total Return +3.60% +10.91% +19.98%
- -----------------------------------------------------------------------------
Average Annual Total Return -- +10.91% + 7.02%
- -----------------------------------------------------------------------------
*For the period from the commencement of the Series' investment operations,
October 24, 1995, through June 30, 1998.
All results are historical and assume the reinvestment of dividends and capital
gains. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS. Performance results reflect any applicable
expense subsidies and waivers, without which the results would have been less
favorable. Subsidies and waivers may be rescinded at any time. See the
prospectus for details.
Returns shown do not reflect the deduction of the mortality and expense risk
charges and administration fees. Please refer to the annuity product's annual
report for performance that reflects the deduction of the fees and charges
imposed by insurance company separate accounts.
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 for the product being offered. Please read
it carefully before investing or sending money.
<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED) - JUNE 30, 1998
BONDS - 95.5%
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Bonds - 93.0%
Aerospace - 1.6%
BE Aerospace, Inc., 8s, 2008 $ 40 $ 39,900
K & F Industries, Inc., 9.25s, 2007 40 40,400
Northrop Grumman Corp., 9.375s, 2024 5 6,119
Stellex Industries, Inc., 9.5s, 2007 25 24,562
----------
$ 110,981
- -----------------------------------------------------------------------------------------------
Airlines - 1.3%
Continental Airlines Pass-Through Trust, 6.648s, 2017 $ 5 $ 5,102
Continental Airlines, Inc., 9.5s, 2001 - 2013 35 37,533
Jet Equipment Trust, 8.64s, 2012## 5 5,308
Jet Equipment Trust, 9.41s, 2010## 5 6,053
Northwest Airlines, Inc., 7.625s, 2005 20 20,078
Northwest Airlines, Inc., 8.7s, 2007 8 8,398
United Airlines Pass-Through Trust, 7.27s, 2013## 5 5,056
----------
$ 87,528
- -----------------------------------------------------------------------------------------------
Apparel and Textiles - 0.4%
Hilfiger (Tommy) USA, Inc., 6.5s, 2003 $ 15 $ 14,987
Hilfiger (Tommy) USA, Inc., 6.85s, 2008 11 10,988
----------
$ 25,975
- -----------------------------------------------------------------------------------------------
Automotive - 0.7%
Federal Mogul Corp., 7.5s, 2004 $ 20 $ 19,960
Federal Mogul Corp., 7.75s, 2006 5 4,998
Ford Motor Co., 8.9s, 2032 5 6,399
Ford Motor Credit Co., 6.125s, 2003 16 16,001
----------
$ 47,358
- -----------------------------------------------------------------------------------------------
Banks and Credit Companies - 5.5%
Advanta Corp., 6.925s, 2002 $ 5 $ 4,619
Capital One Financial Corp., 7.25s, 2003 10 10,125
Criimi Mae Commercial Mortgage Trust, 7s, 2011 250 245,078
MBNA Capital, 8.278s, 2026 35 37,948
Riggs Capital II, 8.875s, 2027 15 16,706
Riggs National Corp., 8.5s, 2006 5 5,236
Washington Mutual Capital I, 8.375s, 2027 50 56,405
----------
$ 376,117
- -----------------------------------------------------------------------------------------------
Building - 1.0%
American Standard Inc., 7.625s, 2010 $ 5 $ 4,900
McDermott, Inc., 9.375s, 2002 20 21,415
Nortek, Inc., 9.25s, 2007 20 20,400
Williams Scotsman, Inc., 9.875s, 2007 20 20,800
----------
$ 67,515
- -----------------------------------------------------------------------------------------------
Chemicals - 0.4%
Solutia, Inc., 7.375s, 2027 $ 25 $ 25,918
- -----------------------------------------------------------------------------------------------
Consumer Goods and Services - 0.4%
Kindercare Learning Centers, Inc., 9.5s, 2009 $ 25 $ 25,125
- -----------------------------------------------------------------------------------------------
Containers - 3.2%
Owens Illinois Inc., 7.35s, 2008 $ 56 $ 56,697
Owens Illinois Inc., 7.5s, 2010 156 158,179
----------
$ 214,876
- -----------------------------------------------------------------------------------------------
Electrical Equipment - 0.1%
Honeywell, Inc., 6.625s, 2028 $ 5 $ 5,063
- -----------------------------------------------------------------------------------------------
Entertainment - 3.7%
Circus Circus Enterprises, Inc., 7s, 2036 $ 10 $ 9,682
Hearst Argyle Television, Inc., 7.5s, 2027 15 15,979
Time Warner Pass-Through Asset Trust, 6.1s, 2001## 45 44,780
Time Warner, Inc., 0s to 2016, 8.3s, 2036 61 19,847
Time Warner, Inc., 9.125s, 2013 12 14,605
Time Warner, Inc., 9.15s, 2023 96 121,033
Turner Broadcasting Systems, Inc., 8.375s, 2013 2 2,292
Viacom Inc., 6.75s, 2003 25 25,250
----------
$ 253,468
- -----------------------------------------------------------------------------------------------
Financial Institutions - 5.0%
Bear Stearns Cos., Inc., 6.2s, 2003 $ 16 $ 16,034
Capital One Bank Medium Term Senior, 6.7s, 2008 10 10,106
Contifinancial Corp., 7.5s, 2002 63 62,710
Donaldson Lufkin & Jenrette, 6.5s, 2008 10 9,999
First Empire Capital Trust I, 8.234s, 2027 5 5,478
Goldman Sachs Group LP, 5.9s, 2003 160 157,888
Lehman Brothers, Inc., 6.5s, 2008 10 10,052
Lehman Brothers, Inc., 7.5s, 2026 4 4,461
Nationwide Mutual Life Insurance Co., 7.5s, 2024## 10 10,368
Paine Webber Group Inc., 6.55s, 2008 6 5,960
Salton Sea Funding Corp., 7.84s, 2010 45 48,978
----------
$ 342,034
- -----------------------------------------------------------------------------------------------
Food Products - 0.1%
Nabisco, Inc., 6.375s, 2035 $ 10 $ 9,936
- -----------------------------------------------------------------------------------------------
Forest and Paper Products - 1.4%
Boise Cascade Co., 7.43s, 2005 $ 10 $ 10,239
Georgia Pacific Corp., 7.25s, 2028 14 14,279
Georgia Pacific Corp., 9.5s, 2022 50 58,306
U.S. Timberlands, 9.625s, 2007 10 10,125
----------
$ 92,949
- -----------------------------------------------------------------------------------------------
Industrial - 0.4%
Burlington Industries, Inc. New, 7.25s, 2027 $ 5 $ 5,158
Natexis Ambs Co. LLC, 8.44s, 2049## 25 24,915
----------
$ 30,073
- -----------------------------------------------------------------------------------------------
Insurance - 1.4%
Atlantic Mutual Insurance Co., 8.15s, 2028## $ 35 $ 36,176
Conseco, Inc., 6.4s, 2001 25 24,984
Fairfax Financial Holdings Ltd., 7.375s, 2018 14 14,362
Safeco Capital Trust I, 8.072s, 2037 10 10,686
Travelers Capital III, 7.75s, 2036 10 10,479
----------
$ 96,687
- -----------------------------------------------------------------------------------------------
Media - 0.8%
Frontiervision Operating Partnership LP, 11s, 2006 $ 20 $ 22,150
News America Holdings, Inc., 7.75s, 2045 5 5,366
News America Holdings, Inc., 8s, 2016 5 5,509
News America, Inc., 6.625s, 2008 10 9,985
Outdoor Systems, Inc., 8.875s, 2007 10 10,413
----------
$ 53,423
- -----------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 0.7%
Columbia/HCA Healthcare Corp., 6.875s, 2001 $ 4 $ 3,922
Columbia/HCA Healthcare Corp., 6.91s, 2005 10 9,713
Columbia/HCA Healthcare Corp., 7.69s, 2025 23 22,222
Healthsouth Corp., 6.875s, 2005## 5 5,002
Tenet Healthcare Corp., 7.625s, 2008## 5 5,056
----------
$ 45,915
- -----------------------------------------------------------------------------------------------
Metals and Minerals - 1.0%
Kaiser Aluminum & Chemical Corp., 10.875s, 2006 $ 25 $ 26,875
Metals USA, Inc., 8.625s, 2008 40 38,800
----------
$ 65,675
- -----------------------------------------------------------------------------------------------
Oil Services - 0.3%
Clark Refining & Marketing, Inc., 8.375s, 2007 $ 5 $ 5,025
KCS Energy, Inc., 8.875s, 2008 5 4,750
Ultramar Diamond Shamrock Corp., 7.2s, 2017 5 5,199
Vintage Petroleum, Inc., 8.625s, 2009 5 5,050
----------
$ 20,024
- -----------------------------------------------------------------------------------------------
Oils - 2.9%
Belco Oil & Gas Corp., 8.875s, 2007 $ 5 $ 4,825
Cliffs Drilling Co., 10.25s, 2003 5 5,350
Lasmo USA, Inc., 7.3s, 2027 12 11,964
Petroleum Geo Services A/S, 7.125s, 2028 25 25,301
Sun Co., Inc., 9s, 2024 101 125,482
Synder Oil Corp., 8.75s, 2007 5 5,025
Transocean Offshore, Inc., 8s, 2027 10 11,347
Wiser Oil Co., 9.5s, 2007 5 4,700
----------
$ 193,994
- -----------------------------------------------------------------------------------------------
Special Products and Services - 0.1%
Polymer Group, Inc., 9s, 2007 $ 10 $ 10,175
- -----------------------------------------------------------------------------------------------
Supermarkets - 0.2%
Marsh Supermarkets, Inc., 8.875s, 2007 $ 10 $ 10,200
- -----------------------------------------------------------------------------------------------
Telecommunications - 5.2%
Airtouch Communications, Inc., 6.65s, 2008 $ 20 $ 20,155
Allbritton Communications Co., 8.875s, 2008 20 21,600
Century Communications Corp., 0s, 2008 200 90,750
Chancellor Media Corp., 8.75s, 2007 10 10,425
Continental Cablevision, Inc., 11s, 2007 55 60,049
Intermedia Communications, Inc., 0s to 2002, 11.25s, 2007 20 14,600
Level 3 Commerce, Inc., 9.125s, 2008 20 19,450
Nextel Communications, Inc., 0s to 1999, 9.75s, 2004 25 24,313
Pagemart Wireless, Inc., 0s to 2003, 11.25s, 2008 20 12,000
TCI Communications Financing III, 9.65s, 2027 5 6,125
TCI Communications, Inc., 6.375s, 2003 15 15,110
TCI Communications, Inc., 8s, 2005 8 8,735
Tele-Communications, Inc., 6.34s, 2002 20 19,926
Western Wireless Corp., 10.5s, 2007 25 26,875
WorldCom, Inc., 8.875s, 2006 5 5,439
----------
$ 355,552
- -----------------------------------------------------------------------------------------------
Transportation - 0.6%
Federal Express Corp., 7.65s, 2014 $ 39 $ 42,721
- -----------------------------------------------------------------------------------------------
U.S. Federal Agencies - 2.3%
FNMA, 6.5s, 2013, TBA $ 157 $ 158,188
- -----------------------------------------------------------------------------------------------
U.S. Government Guaranteed - 5.7%
GNMA, 7s, 2028, TBA $ 47 $ 48,134
GNMA, 7.5s, 2026, TBA 171 175,685
GNMA, 8s, 2024, TBA 150 155,778
GNMA, 8s, 2025 9 9,763
----------
$ 389,360
- -----------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 36.7%
U.S. Treasury Bonds, 6.125s, 2027 $ 908 $ 972,976
U.S. Treasury Notes, 5.5s, 2003 150 149,883
U.S. Treasury Notes, 6.25s, 2002 1,025 1,051,742
U.S. Treasury Notes, 6.5s, 2006 131 139,105
U.S. Treasury Notes, 6.625s, 2002 80 82,862
U.S. Treasury Notes, 7s, 2006 15 16,381
U.S. Treasury Notes, 7.875s, 2004 50 56,156
U.S. Treasury Notes, 8.5s, 2000 2 2,091
U.S. Treasury Notes, 9.125s, 1999 15 15,455
----------
$2,486,651
- -----------------------------------------------------------------------------------------------
Utilities - Electric - 5.7%
Beaver Valley Funding Corp., 9s, 2017 $ 50 $ 57,177
Cleveland Electric Illuminating Co., 7.88s, 2017 20 21,830
Commonwealth Edison Co., 7.625s, 2007 5 5,315
Connecticut Light & Power Co., 7.875s, 2024 10 10,203
Connecticut Light & Power Co., 8.59s, 2003 100 101,125
Consumers Energy Co., 6.375s, 2008## 7 6,891
First PV Funding Corp., 10.3s, 2014 5 5,328
GG1B Funding Corp., 7.43s, 2011 49 49,645
Midland Cogeneration Venture Corp., 10.33s, 2002 11 12,311
Niagara Mohawk Power Corp., 7.75s, 2006 20 21,398
Niagara Mohawk Power Corp., 8.5s, 2023 10 11,065
Niagara Mohawk Power Corp., 8.75s, 2022 10 10,999
Seabrook Station - Unit 1, 7.83s, 2019 9 9,731
Texas & New Mexico Power Co., 12.5s, 1999 5 5,151
Texas Utilities Co., 6.375s, 2008 15 14,699
United Illuminating Co., 6.25s, 2002 5 4,966
Waterford 3 Funding Corp., 8.09s, 2017 35 36,279
----------
$ 384,113
- -----------------------------------------------------------------------------------------------
Utilities - Gas - 4.2%
Coastal Corp., 6.95s, 2028 $ 80 $ 77,286
Coastal Corp., 7.42s, 2037 97 101,412
Texas Gas Transmission Corp., 7.25s, 2027 100 104,055
----------
$ 282,753
- -----------------------------------------------------------------------------------------------
Total U.S. Bonds $6,310,347
- -----------------------------------------------------------------------------------------------
Foreign Bonds - 2.5%
Argentina - 0.3%
Hidroelectrica Alicura (Utilities - Electric), 8.375s, 1999## $ 20 $ 19,900
- -----------------------------------------------------------------------------------------------
Bulgaria - 0.7%
National Republic of Bulgaria (Government), 6.563s, 2024 $ 60 $ 45,828
- -----------------------------------------------------------------------------------------------
Chile - 0.1%
Empresa Nacional de Electric (Utilities - Electric), 7.325s, 2037 $ 5 $ 4,885
- -----------------------------------------------------------------------------------------------
Finland - 0.1%
Upm Kymmene Corp. (Forest and Paper Products), 7.45s, 2027## $ 5 $ 5,295
- -----------------------------------------------------------------------------------------------
Mexico - 0.4%
Banco Commercial S.A. (Banks and Credit Cos), 8.25s, 2007 $ 20 $ 19,744
Corporacion Andina De Fomento (Banks and Credit Cos), 7.1s, 2003 8 8,203
----------
$ 27,947
- -----------------------------------------------------------------------------------------------
Panama - 0.3%
Republic of Panama (Government), 8.25s, 2008 $ 20 $ 19,500
- -----------------------------------------------------------------------------------------------
South Korea - 0.6%
Republic of Korea (Government), 8.875s, 2008 $ 50 $ 45,223
- -----------------------------------------------------------------------------------------------
Total Foreign Bonds $ 168,578
- -----------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $6,402,149) $6,478,925
- -----------------------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 2.9%
- -----------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., due 7/01/98, at Amortized Cost 195 $ 195,000
- -----------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $6,597,149) $6,673,925
OTHER ASSETS, LESS LIABILITIES - 1.6% 110,550
- -----------------------------------------------------------------------------------------------
Net Assets - 100.0% $6,784,475
- -----------------------------------------------------------------------------------------------
* Non-income producing security.
## SEC Rule 144A restriction.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
- ------------------------------------------------------------------------------
June 30, 1998
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $6,597,149) $6,673,925
Cash 4,209
Receivable for Series shares sold 12,927
Receivable for investments sold 3,174
Interest receivable 100,810
Deferred organization expenses 4,262
----------
Total assets $6,799,307
----------
Liabilities:
Payable for Series shares reacquired $ 750
Payable for investments purchased 10,293
Payable to affiliate
Management fee 334
Administative fee 8
Transfer agent fee 18
Accrued expenses and other liabilities 3,430
----------
Total liabilities $ 14,832
----------
Net assets $6,784,475
==========
Net assets consist of:
Paid-in capital $6,535,619
Unrealized appreciation on investments 76,775
Accumulated undistributed net realized gain on investments 20,471
Accumulated undistributed net investment income 151,610
----------
Total $6,784,475
==========
Shares of beneficial interest outstanding 614,590
=======
Net asset value per share
(net assets of $6,784,075 / 614,590 shares of beneficial
interest outstanding) $11.04
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - CONTINUED
STATEMENT OF OPERATIONS (UNAUDITED)
- ------------------------------------------------------------------------------
Six Months Ended June 30, 1998
- ------------------------------------------------------------------------------
Net investment income:
Interest income $ 177,286
----------
Expenses -
Management fee $ 15,061
Trustees' compensation 1,185
Shareholder servicing agent fee 877
Administrative fee 377
Printing 12,671
Auditing fee 8,400
Amortization of organization expenses 911
Legal fee 530
Custodian fee 163
Miscellaneous 2,054
----------
Total expenses $ 42,229
Fees paid indirectly (376)
Preliminary reduction of expenses by investment adviser (16,751)
----------
Net expenses $ 25,102
----------
Net investment income $ 152,184
----------
Realized and unrealized gain on investments:
Realized gain on investment transactions (identified cost basis) $ 20,930
Change in unrealized appreciation on investments 19,181
----------
Net realized and unrealized gain on investments $ 40,111
----------
Increase in net assets from operations $ 192,295
==========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
(Unaudited)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets:
From operations -
Net investment income $ 152,184 $ 138,768
Net realized gain on investments 20,930 71,311
Net unrealized gain on investments 19,181 51,317
---------- ----------
Increase in net assets from operations $ 192,295 $ 261,396
---------- ----------
Distributions declared to shareholders -
From net investment income $ (139,106) $ --
From net realized gain on investments and foreign
currency transactions (68,528) --
---------- ----------
Increase in net assets from Series share
transactions $2,796,260 $2,888,957
---------- ----------
Total increase in net assets $2,780,521 $3,150,353
Net assets:
At beginning of period 4,003,554 853,201
---------- ----------
At end of period (including accumulated
undistributed net investment income of
$151,610 and $138,532, respectively) $6,784,475 $4,003,554
========== ==========
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
Six Months Ended ---------------------------------------------
June 30, 1998 1997 1996 1995*
(Unaudited)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $11.08 $10.06 $10.19 $10.00
------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.33 $ 0.64 $ 0.58 $ 0.09
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 0.06 0.38 (0.36) 0.21
------ ------ ------ ------
Total from investment operations $ 0.39 $ 1.02 $ 0.22 $ 0.30
------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.29) $ -- $(0.35) $(0.09)
From net realized gain on investments and
foreign currency transactions (0.14) -- -- (0.02)
------ ------ ------ ------
Total distributions declared to shareholders $(0.43) $ -- $(0.35) $(0.11)
------ ------ ------ ------
Net asset value - end of period $11.04 $11.08 $10.06 $10.19
====== ====== ====== ======
Total return 3.60%++ 10.14% 2.09% 3.02%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 1.00%+ 1.00% 1.00% 1.00%+
Net investment income 6.07%+ 6.04% 5.84% 4.89%+
Portfolio turnover 144% 219% 231% 55%
Net assets at end of period (000 omitted) $6,784 $4,004 $853 $228
* For the period from the commencement of the Series' investment operations, October 24, 1995, through December 31, 1995.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Series' expenses are calculated without reduction for fees paid indirectly.
(S) The investment adviser and/or distributor voluntarily waived a portion of
their management fee and/or distribution fee, respectively for certain of
the periods indicated. If the fee had been incurred by the Series, the net
investment per share and the ratios would have been: Net investment income
(loss) $ 0.29 $ 0.37 $(0.26) $(0.70) Ratios (to average net assets):
Expenses## 1.69%+ 3.58% 9.45% 43.85%+
Net investment income (loss) 5.38%+ 3.46% (2.61)% (37.96)%+
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS Bond Series (the Series) is a diversified series of MFS Variable Insurance
Trust (the Trust) which is comprised of the following 13 Series: MFS Bond
Series, MFS(R) Emerging Growth Series, MFS(R)/Foreign & Colonial Emerging
Markets Equity Series, MFS(R) Growth with Income Series, MFS(R) High Income
Series, MFS(R) Limited Maturity Series, MFS(R) Money Market Series, MFS(R) New
Discovery Series, MFS(R) Research Series, MFS(R) Total Return Series, MFS(R)
Utilities Series, MFS(R) Value Series and MFS(R) 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 the Series of the Trust are separate
accounts of insurance companies which offer variable annuity and/or life
insurance products. As of June 30, 1998, there were 14 shareholders in the
Series.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Investments
in foreign securities are vulnerable to the effects of changes in the relative
values of the local currency and the U.S. dollar and to the effects of changes
in each country's legal, political, and economic environment.
Investment Valuations - Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues, forward contracts, and swap
agreements, 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.
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 Series
operations.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
discount is 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-dividend or ex-interest
date in an amount equal to the value of the security on such date.
Fees Paid Indirectly - The Series' custody fee is calculated as a percentage of
the Series' month end net assets. The fee is reduced according to an arrangement
that measures the value of cash deposited with the custodian by the Series. This
amount is shown as a reduction of expenses on the Statement of Operations.
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 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. Accordingly, the amount of net
investment income and net realized gain reported on these financial statements
may differ from that reported on the Series' tax return.
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 tax 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 net realized gains.
(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
management fee is computed daily and paid monthly at an annual rate of 0.60% of
average daily net assets. The Series has a temporary expense reimbursement
agreement whereby MFS has voluntarily agreed to pay all of the Series' operating
expenses, exclusive of management fees. The Series 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 Series' actual
expenses, the excess will be applied to amounts paid by MFS in prior years. At
June 30, 1998, the aggregate unreimbursed expenses owed to MFS by the Series
amounted to $134,603, including $16,751 incurred in the current year.
Administrator - The Series has an administrative services agreement with MFS to
provide the Series with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Series pays MFS an administrative fee
at the following annual percentages of the Series' 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 Series' average daily net assets at an effective annual rate
of 0.035%.
(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 $4,361,030 $3,225,871
========== ==========
Investments (non-U.S. government securities) $5,695,816 $3,695,027
========== ==========
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 $6,597,149
----------
Gross unrealized appreciation $ 97,848
Gross unrealized depreciation (21,072)
----------
Net unrealized appreciation $ 76,776
==========
(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 Year Ended
June 30, 1998 December 31, 1997
-------------------- ---------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------
Shares sold 268,903 $2,978,018 302,671 $3,167,115
Shares issued to shareholders in
reinvestment
of distributions 19,405 207,633 -- --
Shares reacquired (34,954) (389,391) (26,220) (278,158)
------- ---------- ------- ----------
Net increase 253,354 $2,796,260 276,451 $2,888,957
======= ========== ======= ==========
(6) Line of Credit
The Series and other affiliated funds participate in a $805 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
Series shares. Interest is charged to each Series, 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. Interest expense includes a
commitment fee of $6 which is based on the average daily unused portion of the
line of credit.
The Series and other affiliated series also participate in a $20 million
uncommitted, unsecured line of credit provided by State Street Bank and Trust
Company under a line of credit agreement. Borrowings may be made to temporarily
finance the purchase of securities, the redemption of shares, or emergency
expenses. During the period ended June 30, 1998, the maximum amount outstanding
was $382,243. Interest expense incurred on the borrowings amounted to $400 for
the period ended June 30, 1998, at a weighted average interest rate on
borrowings of 6.31%.
<PAGE>
(C)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
VFB-3 8/98 8.2M
