MFS[RegTM] EMERGING GROWTH SERIES
MFS[RegTM] GROWTH WITH INCOME SERIES
MFS[RegTM] TOTAL RETURN SERIES PROSPECTUS
MFS[RegTM] BOND SERIES May 1, 1998
- --------------------------------------------------------------------------------
MFS Variable Insurance Trust (the "Trust") is an open-end management investment
company offering insurance company separate accounts a selection of investment
vehicles for variable annuity and variable life insurance contracts (the
"Contracts"). Currently the Trust offers shares of beneficial interest of 13
separate mutual fund series (individually or collectively hereinafter referred
to as a "Series" or the "Series"), four of which are offered pursuant to this
Prospectus:
- -- MFS Emerging Growth Series (the "Emerging Growth Series"), which seeks to
provide long-term growth of capital;
- -- MFS Growth With Income Series (the "Growth With Income Series"), which seeks
to provide reasonable current income and long-term growth of capital and
income;
- -- MFS Total Return Series (the "Total Return Series"), which seeks primarily
to provide above-average income (compared to a portfolio invested entirely
in equity securities) consistent with the prudent employment of capital,
and secondarily to provide a reasonable opportunity for growth of capital
and income; and
- -- MFS Bond Series (the "Bond Series"), which seeks primarily to provide as
high a level of current income as is believed consistent with prudent
investment risk and secondarily to protect shareholders' capital.
This Prospectus sets forth concisely the information about each Series that a
prospective investor should know before applying for the Contracts offered by
the separate accounts of certain insurance companies ("Participating Insurance
Companies"). Investors are advised to read this Prospectus and the applicable
Contract prospectus carefully and retain them for future reference. If you
require more detailed information, a Statement of Additional Information dated
May 1, 1998, as amended or supplemented from time to time ("SAI"), is available
upon request without charge and may be obtained by calling or by writing to the
Shareholder Servicing Agent (see back cover for address and phone number). The
SAI, which is incorporated by reference into this Prospectus, has been filed
with the Securities and Exchange Commission (the "SEC"). The SEC maintains an
Internet World Wide Web site (http://www.sec.gov) that contains the SAI,
materials that are incorporated by reference into this Prospectus and the SAI,
and other information regarding the Series. This Prospectus is available on the
Adviser's Internet World Wide Web site at http://www.mfs.com.
----------------
SHARES OF THE TRUST ARE AVAILABLE AND ARE BEING MARKETED AS A POOLED FUNDING
VEHICLE FOR LIFE INSURANCE COMPANIES WRITING ALL TYPES OF CONTRACTS.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
----------------
THE EMERGING GROWTH SERIES AND THE GROWTH WITH INCOME SERIES ARE INTENDED FOR
INVESTORS WHO UNDERSTAND AND ARE WILLING TO ACCEPT THE RISKS ENTAILED IN
SEEKING LONG-TERM GROWTH OF CAPITAL OR CAPITAL APPRECIATION. BECAUSE OF THEIR
INVESTMENT POLICIES PERMITTING INVESTMENT IN FOREIGN SECURITIES, INVESTMENTS IN
EACH SERIES MAY BE SUBJECT TO A GREATER DEGREE OF RISK THAN INVESTMENTS IN
OTHER INVESTMENT COMPANIES WHICH INVEST ENTIRELY IN DOMESTIC SECURITIES.
Investors should read this Prospectus and retain it for future reference.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
1. Expense Summary ............................................... 3
2. Condensed Financial Information ............................... 4
3. Investment Concept of the Trust ............................... 8
4. Investment Objectives and Policies ............................ 8
MFS Emerging Growth Series ................................ 9
MFS Growth With Income Series ............................. 9
MFS Total Return Series ................................... 9
MFS Bond Series ........................................... 10
5. Certain Securities and Investment Techniques .................. 11
6. Additional Risk Factors ....................................... 18
7. Management of the Series ...................................... 21
8. Information Concerning Shares of Each Series .................. 23
Purchases and Redemptions ................................. 23
Net Asset Value ........................................... 24
Distributions ............................................. 24
Tax Status ................................................ 25
Description of Shares, Voting Rights and Liabilities ...... 25
Performance Information ................................... 25
Expenses .................................................. 26
Shareholder Communications ................................ 26
Appendix A--Description of Bond Ratings ........................... A-1
Appendix B--Portfolio Composition Charts .......................... B-1
</TABLE>
<PAGE>
1. EXPENSE SUMMARY
Annual Operating Expenses (as a percentage of average net assets):
<TABLE>
<CAPTION>
MFS MFS MFS
Emerging Growth Total MFS
Growth With Income Return Bond
Series Series Series Series
---------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Management Fee .............................................. 0.75% 0.75% 0.75% 0.60%
Other Expenses (after expense limitation)(1) ................ 0.12% 0.25%(2) 0.25%(2) 0.40%(2)
---- ------- ------- -------
Total Operating Expenses (after expense limitation) ......... 0.87% 1.00%(2) 1.00%(2) 1.00%(2)
</TABLE>
- --------------------
(1) Each Series has an expense offset arrangement which reduces the Series'
custodian fee based upon the amount of cash maintained by the Series with
its custodian and dividend disbursing agent, and may enter into other such
arrangements and directed brokerage arrangements (which would also have
the effect of reducing the Series' expenses). Any such fee reductions are
not reflected under "Other Expenses."
(2) The Adviser has agreed to bear expenses for these Series, subject to
reimbursement by these Series, such that each such Series' "Other
Expenses" shall not exceed the following percentages of the average daily
net assets of the Series during the current fiscal year: 0.40% for the
Bond Series and 0.25% for each remaining Series. See "Information
Concerning Shares of Each Series--Expenses." Otherwise, "Other Expenses"
and "Total Operating Expenses" for each such Series would be:
<TABLE>
<CAPTION>
"Other Expenses" "Total Operating Expenses"
Without Expense Without Expense
Series Limitation Limitation
- ----------------------------------- ------------------ ---------------------------
<S> <C> <C>
Growth With Income ......... 0.35% 1.10%
Total Return ............... 0.27% 1.02%
Bond ....................... 2.98% 3.58%
</TABLE>
Example of Expenses
An investor would pay the following dollar amounts of expenses on a $1,000
investment in each Series, assuming (a) 5% annual return and (b) redemption at
the end of each of the time periods indicated:
<TABLE>
<CAPTION>
Period
--------------------------------------------
Series 1 Year 3 Years 5 Years 10 Years
- ----------------------------------- -------- --------- --------- ---------
<S> <C> <C> <C> <C>
Emerging Growth ............ $ 9 $29 $50 $111
Growth With Income ......... 10 32 55 122
Total Return ............... 10 32 55 122
Bond ....................... 10 32 55 122
</TABLE>
The purpose of the expense table above is to assist investors in
understanding the various costs and expenses that a shareholder of the Series
will bear directly or indirectly. The Series' annual operating expenses do not
reflect expenses imposed by separate accounts of Participating Insurance
Companies through which an investment in a Series is made or their related
Contracts. A separate account's expenses are disclosed in the prospectus
through which the Contract relating to that separate account is offered for
sale.
The "Example" set forth above should not be considered a representation of
past or future expenses of any Series; actual expenses may be greater or less
than those shown.
3
<PAGE>
2. CONDENSED FINANCIAL INFORMATION
The following financial information has been audited since the
commencement of investment operations of each Series and should be read in
conjunction with the financial statements included in the Series' Annual
Reports to Shareholders. These financial statements are incorporated by
reference into the SAI in reliance upon the report of the Series' independent
auditors given upon their authority as experts in accounting and auditing. The
Series' current independent auditors are Deloitte & Touche LLP.
Emerging Growth Series
<TABLE>
<CAPTION>
Year Ended Year Ended Period Ended
December 31, 1997 December 31, 1996 December 31, 1995*
------------------- ------------------- -------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout
each period):
Net asset value--beginning of period .................... $ 13.24 $ 11.41 $10.00
-------- -------- ------
Income from investment operations#--
Net investment income (loss)[sec] ...................... $ (0.06) $ (0.01) $ 0.01
Net realized and unrealized gain on investments and
foreign currency transactions ........................ 2.95 1.95 1.74
-------- -------- ------
Total from investment operations ..................... $ 2.89 $ 1.94 $ 1.75
-------- -------- ------
Less distributions declared to shareholders--
From net investment income ............................. $ -- $ -- $(0.01)
From net realized gain on investments and foreign
currency transactions ................................ -- (0.06) (0.26)
In excess of net realized gain on investments and
foreign currency transactions ........................ -- (0.05) --
From capital ........................................... -- -- (0.07)
-------- -------- ------
Total distributions declared to shareholders ......... $ -- $ (0.11) $(0.34)
-------- -------- ------
Net asset value--end of period .......................... $ 16.13 $ 13.24 $11.41
======== ======== ======
Total return ............................................ 21.90% 17.02% 17.41%++
Ratios (to average net assets)/Supplemental data[sec]:
Expenses ............................................... 0.90% 1.00% 1.00%+
Net investment income (loss) ........................... (0.38)% (0.08)% 0.10%+
Portfolio turnover ...................................... 112% 96% 73%
Average commission rate### .............................. $ 0.0616 $ 0.0401 --
Net assets at end of period (000 omitted) ............... $384,480 $104,956 $3,869
</TABLE>
- --------------------
* For the period from the commencement of the Series' investment
operations, July 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.
### Average commission rate is calculated for Series' with fiscal years
beginning on or after September 1, 1995.
[sec] The investment adviser voluntarily agreed to maintain, subject to
reimbursement by the Series, the expenses of the Series at no more than
1.00% of average daily net assets. To the extent actual expenses were over
or under this limitation, the net investment loss per share and the ratios
would have been:
<TABLE>
<S> <C> <C> <C>
Net investment loss ........... $(0.05) $(0.03) $(0.18)
Ratios (to average net assets):
Expenses## ................... 0.87% 1.16% 2.91%+
Net investment loss .......... (0.35)% (0.23)% (1.78)%+
</TABLE>
4
<PAGE>
Growth With Income Series
<TABLE>
<CAPTION>
Year Ended Year Ended Period Ended
December 31, 1997 December 31, 1996 December 31, 1995*
------------------- ------------------- -------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout
each period):
Net asset value--beginning of period .................... $ 12.98 $ 10.61 $10.00
------- ------- ------
Income from investment operations#--
Net investment income[sec] ............................. $ 0.16 $ 0.18 $ 0.05
Net realized and unrealized gain on investments and
foreign currency transactions ........................ 3.70 2.42 0.61
------- ------- ------
Total from investment operations ..................... $ 3.86 $ 2.60 $ 0.66
------- ------- ------
Less distributions declared to shareholders--
From net investment income ............................. $ (0.07) $ (0.09) $(0.05)
From net realized gain on investments and foreign
currency transactions ................................ (0.29) (0.13) --
In excess of net realized gain on investments and
foreign currency transactions ........................ (0.04) (0.01) --
------- ------- ------
Total distributions declared to shareholders ......... $ (0.40) $ (0.23) $(0.05)
------- ------- ------
Net asset value--end of period .......................... $ 16.44 $ 12.98 $10.61
======= ======= ======
Total return ............................................ 29.78% 24.46% 6.64%++
Ratios (to average net assets)/Supplemental data[sec]:
Expenses ............................................... 1.00% 1.00% 1.00%+
Net investment income .................................. 0.93% 1.52% 2.20%+
Portfolio turnover ...................................... 42% 41% 2%
Average commission rate### .............................. $0.0455 $0.0351 --
Net assets at end of period (000 omitted) ............... $58,045 $ 9,174 $ 365
</TABLE>
- --------------------
* For the period from the commencement of the Series' investment
operations, October 9, 1995, through December 31, 1995.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, expenses are
calculated without reduction for fees paid indirectly.
### Average commission rate is calculated for Series with fiscal years
beginning on or after September 1, 1995.
[sec] 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 this limitation, the net investment income (loss) per
share and the ratios would have been:
<TABLE>
<S> <C> <C> <C>
Net investment income (loss) .......... $0.13 $0.05 $(0.41)
Ratios (to average net assets):
Expenses## ........................... 1.10% 2.07% 21.44%+
Net investment income (loss) ......... 0.82% 0.46% (18.24)%+
</TABLE>
5
<PAGE>
Total Return Series
<TABLE>
<CAPTION>
Year Ended Year Ended Period Ended
December 31, 1997 December 31, 1996 December 31, 1995*
------------------- ------------------- -------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout
each period):
Net asset value--beginning of period .................... $ 13.71 $ 12.25 $10.00
------- ------- ------
Income from investment operations#--
Net investment income[sec] ............................. $ 0.52 $ 0.46 $ 0.41
Net realized and unrealized gain on investments and
foreign currency transactions ........................ 2.40 1.30 2.32
------- ------- ------
Total from investment operations ..................... $ 2.92 $ 1.76 $ 2.73
------- ------- ------
Less distributions declared to shareholders--
From net investment income ............................. $ -- $ (0.21) $(0.25)
From net realized gain on investments and foreign
currency transactions ................................ -- (0.09) (0.23)
------- ------- ------
Total distributions declared to shareholders ......... $ -- $ (0.30) $(0.48)
------- ------- ------
Net asset value--end of period .......................... $ 16.63 $ 13.71 $12.25
======= ======= ======
Total return ............................................ 21.30% 14.37% 27.34%++
Ratios (to average net assets)/Supplemental data[sec]:
Expenses ............................................... 1.00% 1.00% 1.00%+
Net investment income .................................. 3.25% 3.59% 3.83%+
Portfolio turnover ...................................... 93% 76% 16%
Average commission rate### .............................. $0.0554 $0.0485 --
Net assets at end of period (000 omitted) ............... $75,612 $19,250 $2,797
</TABLE>
- --------------------
* For the period from the commencement of the Series' investment
operations, January 3, 1995, through December 31, 1995.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, expenses are
calculated without reduction for fees paid indirectly.
### Average commission rate is calculated for funds with fiscal years
beginning on or after September 1, 1995.
[sec] 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 this limitation, the net investment income per share
and the ratios would have been:
<TABLE>
<S> <C> <C> <C>
Net investment income .......... $0.52 $0.32 $0.22
Ratios (to average net assets):
Expenses## .................... 1.02% 2.10% 2.49%+
Net investment income ......... 3.23% 2.49% 2.09%+
</TABLE>
6
<PAGE>
Bond Series
<TABLE>
<CAPTION>
Year Ended Year Ended Period Ended
December 31, 1997 December 31, 1996 December 31, 1995*
------------------- ------------------- -------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout
each period):
Net asset value--beginning of period ..................... $10.06 $10.19 $10.00
------ ------ ------
Income from investment operations#--
Net investment income[sec] .............................. $ 0.64 $ 0.58 $ 0.09
Net realized and unrealized gain (loss) on
investments and foreign currency transactions ......... 0.38 (0.36) 0.21
------ ------ ------
Total from investment operations ...................... $ 1.02 $ 0.22 $ 0.30
------ ------ ------
Less distributions declared to shareholders--
From net investment income .............................. $ -- $(0.35) $(0.09)
From net realized gain on investments and foreign
currency transactions ................................. -- -- (0.02)
------ ------ ------
Total distributions declared to shareholders .......... $ 0.00 $(0.35) $(0.11)
------ ------ ------
Net asset value--end of period ........................... $11.08 $10.06 $10.19
====== ====== ======
Total return ............................................. 10.14% 2.09% 3.02%++
Ratios (to average net assets)/Supplemental data[sec]:
Expenses ................................................ 1.00% 1.00% 1.00%+
Net investment income ................................... 6.04% 5.84% 4.89%+
Portfolio turnover ....................................... 219% 231% 55%
Net assets at end of period (000 omitted) ................ $4,004 $ 853 $ 228
</TABLE>
- --------------------
* For the period from the commencement of 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.
[sec] 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 income per share and the ratios would have been:
<TABLE>
<S> <C> <C> <C>
Net investment income (loss)# ......... $0.37 $(0.26) $(0.70)
Ratios (to average net assets):
Expenses## ........................... 3.58% 9.45% 43.85%+
Net investment income (loss) ......... 3.46% (2.61)% (37.96)%+
</TABLE>
7
<PAGE>
3. INVESTMENT CONCEPT OF THE TRUST
The Trust is an open-end, registered management investment company
comprised of the following thirteen series: Emerging Growth Series, Value
Series, Research Series, Growth With Income Series, Total Return Series,
Utilities Series, High Income Series, World Governments Series, Emerging
Markets Equity Series, Bond Series, Limited Maturity Series, Money Market
Series and New Discovery Series. Each Series is a segregated, separately
managed portfolio of securities. All of the Series, except the Utilities Series
and the World Governments Series, are diversified. Additional series may be
created from time to time. The Trust was organized as a business trust under
the laws of The Commonwealth of Massachusetts by a Declaration of Trust dated
February 1, 1994.
The Trust currently offers shares of each Series to insurance company
separate accounts that fund Contracts. Separate accounts may purchase or redeem
shares at net asset value without any sales or redemption charge. Fees and
charges imposed by a separate account, however, will affect the actual return
to the holder of a Contract. A separate account may also impose certain
restrictions or limitations on the allocation of purchase payments or Contract
value to one or more Series, and not all Series may be available in connection
with a particular Contract. Prospective investors should consult the applicable
Contract prospectus for information regarding fees and expenses of the Contract
and separate account and any applicable restrictions or limitations. The Trust
assumes no responsibility for such prospectuses.
Shares of the Series are offered to the separate accounts of Participating
Insurance Companies that are affiliated or unaffiliated ("shared funding").
Shares of the Series may serve as the underlying investments for both variable
annuity and variable life insurance contracts ("mixed funding"). Due to
differences in tax treatment or other considerations, the interests of various
Contract owners might at some time be in conflict. The Trust currently does not
foresee any such conflict. Nevertheless, the Trust's Trustees intend to monitor
events in order to identify any material irreconcilable conflicts which may
possibly arise and to determine what action, if any, should be taken in
response thereto. If such a conflict were to occur, one or more separate
accounts of the Participating Insurance Companies might be required to withdraw
its investments in one or more Series. This might force a Series to sell
securities at disadvantageous prices.
Individual Contract holders are not the "shareholders" of the Trust.
Rather, the Participating Insurance Companies and their separate accounts are
the shareholders or investors, although such companies may pass through voting
rights to their Contract holders.
The Trust's Board of Trustees provides broad supervision over the affairs
of the Trust and the Series. Massachusetts Financial Services Company, a
Delaware corporation ("MFS" or the "Adviser"), is the investment adviser to
each Series. A majority of the Trustees of the Trust are not affiliated with
the Adviser. The Adviser is responsible for the management of the assets of
each Series and the officers of the Trust are responsible for the operations.
The Adviser manages the Series' portfolios from day to day in accordance with
the investment objectives and policies of each Series. The selection of
investments and the way they are managed depend on the conditions and trends in
the economy and the financial marketplaces.
4. INVESTMENT OBJECTIVES AND POLICIES
Each Series has different investment objectives which it pursues through
separate investment policies, as described below. The differences in objectives
and policies among the Series can be expected to affect the degree of market
and financial risk to which each Series is subject and the return of each
Series. The investment objectives and policies of each Series may, unless
otherwise specifically stated, be changed by the Trustees of the Trust without
a vote of the shareholders. Any investment involves risk and there is no
assurance that the objectives of any Series will be achieved.
In addition to the specific investment practices described below, each
Series may also engage in certain investment techniques as described under the
caption "Certain Securities and Investment Techniques" below and in the SAI
under the caption "Certain Securities and Investment Techniques." The Series'
investments are subject to certain risks, as
8
<PAGE>
described in the above-referenced sections of this Prospectus and the SAI and
as described below under the caption "Additional Risk Factors."
MFS Emerging Growth Series -- The Series seeks to provide long-term growth of
capital. Dividend and interest income from portfolio securities, if any, is
incidental to the Series' investment objective of long-term growth of capital.
The Series' policy is to invest primarily (i.e., at least 80% of its
assets under normal circumstances) in common stocks of companies that MFS
believes are early in their life cycle but which have the potential to become
major enterprises (emerging growth companies). Such companies generally would
be expected to show earnings growth over time that is well above the growth
rate of the overall economy and the rate of inflation, and would have the
products, technologies, management and market and other opportunities which are
usually necessary to become more widely recognized as growth companies.
Emerging growth companies can be of any size, and the Series may invest in
larger or more established companies whose rates of earnings growth are
expected to accelerate because of special factors, such as rejuvenated
management, new products, changes in consumer demand, or basic changes in the
economic environment. While the Series will invest primarily in common stocks,
the Series may, to a limited extent, seek appreciation in other types of
securities such as fixed income securities (which may be unrated), convertible
securities and warrants when relative values make such purchases appear
attractive either as individual issues or as types of securities in certain
economic environments. The Series may invest in non-convertible fixed income
securities rated lower than "investment grade" (rated Ba or lower by Moody's
Investors Service, Inc. ("Moody's") or BB or lower by Standard & Poor's Ratings
Services ("S&P"), Fitch IBCA ("Fitch") or Duff & Phelps Credit Rating Co.
("Duff & Phelps")) (commonly known as "junk bonds") or in comparable unrated
securities, when, in the opinion of the Adviser, such an investment presents a
greater opportunity for appreciation with comparable risk to an investment in
"investment grade" securities. Under normal market conditions, the Series will
invest not more than 5% of its net assets in these securities. For a
description of these ratings, see Appendix A to this Prospectus.
The nature of investing in emerging growth companies involves greater risk
than is customarily associated with investments in more established companies.
Emerging growth companies often have limited product lines, markets or
financial resources, and they may be dependent on one-person management. In
addition, there may be less research available on many promising small and
medium sized emerging growth companies, making it more difficult to find and
analyze these companies. The securities of emerging growth companies may have
limited marketability and may be subject to more abrupt or erratic market
movements than securities of larger, more established growth companies or the
market averages in general. Shares of the Series, therefore, are subject to
greater fluctuation in value than shares of a conservative equity fund or of a
growth fund which invests entirely in proven growth stocks.
Consistent with its investment objective and policies described above, the
Series may also invest up to 25% (and generally expects to invest not more than
15%) of its net assets in foreign securities (including emerging market
securities and Brady Bonds) which are not traded on a U.S. exchange.
MFS Growth With Income Series -- The Growth With Income Series' investment
objectives are to provide reasonable current income and long-term growth of
capital and income.
Under normal market conditions, the Growth With Income Series will invest
at least 65% of its assets in equity securities of companies that are believed
to have long-term prospects for growth and income.
Consistent with its investment objective and policies described above, the
Series may also invest up to 75% (and generally expects to invest not more than
15%) of its net assets in foreign securities (including emerging market
securities and Brady Bonds) which are not traded on a U.S. exchange.
MFS Total Return Series -- The Total Return Series' primary investment
objective is to provide above-average income (compared to a portfolio invested
entirely in equity securities) consistent with the prudent employment of
capital, and
9
<PAGE>
its secondary objective is to provide a reasonable opportunity for growth of
capital and income, since many securities offering a better than average yield
may also possess growth potential. Thus, in selecting securities for its
portfolio, the Series considers each of these objectives. Under normal market
conditions, at least 25% of the Total Return Series' assets will be invested in
non-convertible fixed income securities, and at least 40% and no more than 75%
of the Series' assets will be invested in equity securities.
The Series' policy is to invest in a broad list of securities, including
short-term obligations. The list may be diversified not only by companies and
industries, but also by type of security. The Total Return Series may vary the
percentage of assets invested in any one type of security in accordance with
the Adviser's interpretation of economic and money market conditions, fiscal
and monetary policy and underlying security values. The Series' non-convertible
fixed income investments may consist of both "investment grade" securities
(rated Baa or better by Moody's or BBB or better by S&P or by Fitch) and
securities that are unrated or are in the lower rating categories (rated Ba or
lower by Moody's or BB or lower by S&P, by Fitch or by Duff & Phelps) (commonly
known as "junk bonds") including up to 20% of its assets in non-convertible
fixed income securities that are in these lower rating categories and
comparable unrated securities (see "Additional Risk Factors" below). Generally,
most of the Series' long-term non-convertible fixed income investments will
consist of "investment grade" securities. See Appendix A to this Prospectus for
a description of these ratings.
The Series may also invest in United States government securities,
including: (1) U.S. Treasury obligations, which differ only in their interest
rates, maturities and times of issuance: U.S. Treasury bills (maturities of one
year or less); U.S. Treasury notes (maturities of one to ten years); and U.S.
Treasury bonds (generally maturities of greater than ten years), all of which
are backed by the full faith and credit of the U.S. Government; and (2)
obligations issued or guaranteed by U.S. Government agencies, authorities or
instrumentalities, some of which are backed by the full faith and credit of the
U.S. Treasury, e.g., direct pass-through certificates of the Government
National Mortgage Association ("GNMA"); some of which are supported by the
right of the issuer to borrow from the U.S. Government, e.g., obligations of
Federal Home Loan Banks; and some of which are backed only by the credit of the
issuer itself, e.g., obligations of the Student Loan Marketing Association
(collectively, "U.S. Government Securities"). The term "U.S. Government
Securities" also includes interests in trusts or other entities representing
interests in obligations that are backed by the full faith and credit of the
U.S. Government or are issued or guaranteed by the U.S. Government, its
agencies, authorities or instrumentalities.
Consistent with its investment objective and policies described above, the
Series may also invest up to 20% of its net assets in foreign securities
(including emerging market securities and Brady Bonds) which are not traded on
a U.S. exchange.
MFS Bond Series -- The Bond Series' primary investment objective is to provide
as high a level of current income as is believed to be consistent with prudent
investment risk. The Series' secondary objective is to protect shareholders'
capital.
The Series seeks to achieve its investment objectives by investing, under
normal market conditions, at least 65% of its total assets in:
(1) convertible and non-convertible debt securities and preferred stocks;
(2) U.S. Government Securities, as defined in "Investment Objectives and
Policies--MFS Total Return Series" above; and
(3) commercial paper, repurchase agreements and cash or cash equivalents
(such as certificates of deposit and bankers' acceptances).
Not more than 20% of the Series' net assets will be invested in
convertible and non-convertible securities rated below the four highest grades
of S&P, Fitch or Duff & Phelps (AAA, AA, A or BBB) or Moody's (Aaa, Aa, A or
Baa) and comparable
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unrated securities. For a description of these ratings see Appendix A to this
Prospectus and Appendix B for a chart showing the Series' holdings of fixed
income securities broken down by rating category as of the end of its most
recent fiscal year. For a discussion of the risks of investing in these
securities see "Additional Risk Factors" below.
Although the Bond Series may purchase Canadian and other foreign
securities, under normal market conditions, it may not invest more than 10% of
its assets in non-dollar denominated non-Canadian foreign securities, including
emerging market securities and Brady Bonds. The Series may hold foreign
currency received in connection with investments in foreign securities or in
anticipation of purchasing foreign securities. (See "Certain Securities and
Investment Techniques" and "Additional Risk Factors" below.)
The Bond Series may not directly purchase common stocks. However, the
Series may retain up to 10% of its total assets in common stocks which were
acquired either by conversion of fixed income securities or by the exercise of
warrants attached thereto.
5. CERTAIN SECURITIES AND INVESTMENT TECHNIQUES
Equity Securities: Each of the Series may invest in all types of equity
securities, including the following: common stocks, preferred stocks and
preference stocks; securities such as bonds, warrants or rights that are
convertible into stocks; and depository receipts for those securities. These
securities may be listed on securities exchanges, traded in various
over-the-counter markets or have no organized markets.
Lending of Portfolio Securities: Each of the Series may seek to increase
its income by lending portfolio securities. Such loans will usually be made to
member firms (and subsidiaries thereof) of the New York Stock Exchange (the
"Exchange") and to member banks of the Federal Reserve System, and would be
required to be secured continuously by collateral in cash, U.S. Treasury
securities or an irrevocable letter of credit maintained on a current basis at
an amount at least equal to the market value of the securities loaned. If the
Adviser determines to make securities loans, it is intended that the value of
the securities loaned would not exceed 10% of the value of the net assets of the
Series making the loans.
Emerging Market Securities: Consistent with their respective objectives,
each of the Series may invest in securities of issuers whose principal
activities are located in emerging market countries. Emerging market countries
include any country determined by the Adviser or Sub-Adviser, as applicable, to
have an emerging market economy, taking into account a number of factors,
including whether the country has a low- to middle-income economy according to
the International Bank for Reconstruction and Development, the country's foreign
currency debt rating, its political and economic stability and the development
of its financial and capital markets. The Adviser or Sub-Adviser, as applicable,
determines whether an issuer's principal activities are located in an emerging
market country by considering such factors as its country of organization, the
principal trading market for its securities and the source of its revenues and
location of its assets. The issuer's principal activities generally are deemed
to be located in a particular country if: (a) the security is issued or
guaranteed by the government of that country or any of its agencies, authorities
or instrumentalities; (b) the issuer is organized under the laws of, and
maintains a principal office in that country; (c) the issuer has its principal
securities trading market in that country; (d) the issuer derives 50% or more of
its total revenues from goods sold or services performed in that country; or (e)
the issuer has 50% or more of its assets in that country.
Brady Bonds: Each of the Series may invest in Brady Bonds, which are
securities created through the exchange of existing commercial bank loans to
public and private entities in certain emerging markets for new bonds in
connection with debt restructurings under a debt restructuring plan introduced
by former U.S. Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan").
Brady Plan debt restructurings have been implemented to date in Argentina,
Brazil, Bulgaria, Costa Rica, Croatia, Dominican Republic, Ecuador, Jordan,
Mexico, Morocco, Nigeria, Panama, Peru, the Philippines, Poland, Slovenia,
Uruguay and Venezuela. Brady Bonds have been issued only recently, and for that
reason do not have a long payment history. Brady Bonds may be collateralized or
uncollateralized, are issued in various currencies (but pri-
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marily the U.S. dollar) and are actively traded in over-the-counter secondary
markets. U.S. dollar-denominated, collateralized Brady Bonds, which may be
fixed-rate bonds or floating-rate bonds, are generally collateralized in full
as to principal by U.S. Treasury zero coupon bonds having the same maturity as
the bonds. Brady Bonds are often viewed as having three or four valuation
components: the collateralized repayment of principal at final maturity; the
collateralized interest payments; the uncollateralized interest payments; and
any uncollateralized repayment of principal at maturity (these uncollateralized
amounts constituting the "residual risk"). In light of the residual risk of
Brady Bonds and the history of defaults of countries issuing Brady Bonds with
respect to commercial bank loans by public and private entities, investments in
Brady Bonds may be viewed as speculative.
Repurchase Agreements: Each of the Series may enter into repurchase
agreements in order to earn income on available cash or as a temporary defensive
measure. Under a repurchase agreement, a Series acquires securities subject to
the seller's agreement to repurchase at a specified time and price. If the
seller becomes subject to a proceeding under the bankruptcy laws or its assets
are otherwise subject to a stay order, the Series' right to liquidate the
securities may be restricted (during which time the value of the securities
could decline). As discussed in the SAI, each Series has adopted certain
procedures intended to minimize risk.
"When-Issued" Securities: Each of the Series may purchase securities on a
"when-issued" or on a "forward delivery" basis, which means that the securities
will be delivered to the Series at a future date usually beyond customary
settlement time. The commitment to purchase a security for which payment will be
made on a future date may be deemed a separate security. In general, a Series
does not pay for such securities until received, and does not start earning
interest on the securities until the contractual settlement date. While awaiting
delivery of securities purchased on such bases, a Series will segregate liquid
assets sufficient to cover its commitments.
Mortgage "Dollar Roll" Transactions: Each of the Total Return Series and
the Bond Series may enter into mortgage "dollar roll" transactions with selected
banks and broker-dealers pursuant to which a Series sells mortgage-backed
securities for delivery in the future (generally within 30 days) and
simultaneously contracts to repurchase substantially similar (same type, coupon
and maturity) securities on a specified future date. The Series record these
transactions as sale and purchase transactions, rather than as borrowing
transactions. A Series will only enter into covered rolls. A "covered roll" is a
specific type of dollar roll for which there is an offsetting cash position or a
cash equivalent security position which matures on or before the forward
settlement date of the dollar roll transaction. In the event that the party with
whom the Series contracts to replace substantially similar securities on a
future date fails to deliver such securities, the Series may not be able to
obtain such securities at the price specified in such contract and thus may not
benefit from the price differential between the current sales price and the
repurchase price.
Restricted Securities: Each of the Series (except the Growth With Income
Series) may purchase securities that are not registered under the Securities Act
of 1933 (the "1933 Act") ("restricted securities"), including those that can be
offered and sold to "qualified institutional buyers" under Rule 144A under the
1933 Act ("Rule 144A securities"). A determination is made based upon a
continuing review of the trading markets for a specific Rule 144A security,
whether such security is liquid and thus not subject to the Series' limitation
on investing not more than 15% of its net assets in illiquid investments. The
Board of Trustees has adopted guidelines and delegated to MFS the daily function
of determining and monitoring the liquidity of Rule 144A securities. The Board,
however, retains oversight of the liquidity determinations, focusing on factors
such as valuation, liquidity and availability of information. Investing in Rule
144A securities could have the effect of decreasing the level of liquidity in a
Series to the extent that qualified institutional buyers become for a time
uninterested in purchasing Rule 144A securities held in the Series' portfolio.
Corporate Asset-Backed Securities: Each of the Emerging Growth Series, the
Total Return Series and the Bond Series may invest in corporate asset-backed
securities. These securities, issued by trusts and special purpose corporations,
are backed by a pool of assets, such as credit card and automobile loan
receivables, representing the obligations of a number of different parties.
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Corporate asset-backed securities present certain risks. For instance, in
the case of credit card receivables, these securities may not have the benefit
of any security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of automobile receivables permit the servicers to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there is
the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities. The underlying
assets (e.g., loans) are also subject to prepayments which shorten the
securities' weighted average life and may lower their return.
Corporate asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection; and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
resulting from ultimate default ensures payment through insurance policies or
letters of credit obtained by the issuer or sponsor from third parties. A Series
will not pay any additional or separate fees for credit support. The degree of
credit support provided for each issue is generally based on historical
information respecting the level of credit risk associated with the underlying
assets. Delinquency or loss in excess of that anticipated or failure of the
credit support could adversely affect the return on an investment in such a
security.
Zero Coupon Bonds, Deferred Interest Bonds and PIK Bonds: Each of the Total
Return Series, the Bond Series and the Growth With Income Series may invest in
zero coupon bonds. The Total Return Series and the Bond Series may also invest
in deferred interest bonds and PIK bonds. Zero coupon and deferred interest
bonds are debt obligations which are issued or purchased at a significant
discount from face value. The discount approximates the total amount of interest
the bonds will accrue and compound over the period until maturity or the first
interest payment date at a rate of interest reflecting the market rate of the
security at the time of issuance. While zero coupon bonds do not require the
periodic payment of interest, deferred interest bonds provide for a period of
delay before the regular payment of interest begins. PIK bonds are debt
obligations which provide that the issuer thereof may, at its option, pay
interest on such bonds in cash or in the form of additional debt obligations.
Such investments benefit the issuer by mitigating its need for cash to meet debt
service, but also require a higher rate of return to attract investors who are
willing to defer receipt of such cash. Such investments may experience greater
volatility in market value due to changes in interest rates than debt
obligations which make regular payments of interest. Each Series will accrue
income on such investments for tax and accounting purposes, as required, which
is distributable to shareholders and which, because no cash is received at the
time of accrual, may require the liquidation of other portfolio securities to
satisfy the Series' distribution obligations.
Collateralized Mortgage Obligations and Multiclass Pass-Through Securities:
The Bond Series may invest a portion of its assets in collateralized mortgage
obligations or "CMOs," which are debt obligations collateralized by mortgage
loans or mortgage pass-through securities. Typically, CMOs are collateralized by
certificates issued by GNMA, the Federal National Mortgage Association ("FNMA")
or the Federal Home Loan Mortgage Corporation ("FHLMC"), but also may be
collateralized by whole loans or private mortgage pass-through securities (such
collateral collectively referred to as "Mortgage Assets"). The Series may also
invest a portion of its assets in multiclass pass-through securities which are
interests in a trust composed of Mortgage Assets. CMOs (which include multiclass
pass-through securities) may be issued by agencies, authorities or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose sub-
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sidiaries of the foregoing. Payments of principal of and interest on the
Mortgage Assets, and any reinvestment income thereon, provide the funds to pay
debt service on the CMOs or make scheduled distributions on the multiclass
pass-through securities. In a CMO, a series of bonds or certificates are
usually issued in multiple classes with different maturities. Each class of
CMOs, often referred to as a "tranche," is issued at a specific fixed or
floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the Mortgage Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates,
resulting in a loss of all or part of the premium if any has been paid. Certain
classes of CMOs have priority over others with respect to the receipt of
prepayments on the mortgages. Therefore, depending on the type of CMOs in which
a Series invests, the investment may be subject to a greater or lesser risk of
prepayments than other types of mortgage-related securities.
The Bond Series may also invest in parallel pay CMOs and Planned
Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured to
provide payments of principal on each payment date to more than one class. PAC
Bonds generally require payments of a specified amount of principal on each
payment date. PAC Bonds are always parallel pay CMOs with the required principal
payment on such securities having the highest priority after interest has been
paid to all classes. For a further description of CMOs, parallel pay CMOs and
PAC Bonds and the risks related to transactions therein, see the SAI.
Stripped Mortgage-Backed Securities: The Bond Series may invest a portion
of its assets in stripped mortgage-backed securities ("SMBS"), which are
derivative multiclass mortgage securities usually structured with two classes
that receive different proportions of interest and principal distributions from
an underlying pool of mortgage assets. For a further description of SMBS and the
risks related to transactions therein, see the SAI.
Loan Participations and Other Direct Indebtedness: Each of the Emerging
Growth Series and the Total Return Series may invest a portion of its assets in
"loan participations" and other direct indebtedness. By purchasing a loan
participation, a Series acquires some or all of the interest of a bank or other
lending institution in a loan to a corporate borrower. Many such loans are
secured, and most impose restrictive covenants which must be met by the
borrower. These loans are made generally to finance internal growth, mergers,
acquisitions, stock repurchases, leveraged buy-outs and other corporate
activities. Such loans may be in default at the time of purchase. A Series may
also purchase other direct indebtedness such as trade or other claims against
companies, which generally represent money owed by the company to a supplier of
goods and services. These claims may also be purchased at a time when the
company is in default. Certain of the loan participations and other direct
indebtedness acquired by a Series may involve revolving credit facilities or
other standby financing commitments which obligate a Series to pay additional
cash on a certain date or on demand.
The highly leveraged nature of many such loans and other direct
indebtedness may make such loans especially vulnerable to adverse changes in
economic or market conditions. Loan participations and other direct indebtedness
may not be in the form of securities or may be subject to restrictions on
transfer, and only limited opportunities may exist to resell such instruments.
As a result, a Series may be unable to sell such investments at an opportune
time or may have to resell them at less than fair market value. For a further
discussion of loan participations, other direct indebtedness and the risks
related to transactions therein, see the SAI.
Mortgage Pass-Through Securities: Each of the Total Return Series and the
Bond Series may invest in mortgage pass-through securities. Mortgage
pass-through securities are securities representing interests in "pools" of
mortgage loans. Monthly payments of interest and principal by the individual
borrowers on mortgages are passed through to the holders of the securities (net
of fees paid to the issuer or guarantor of the securities) as the mortgages in
the underlying mortgage pools are paid off. Payment of principal and interest on
some mortgage pass-through securities (but not the market value of the
securities themselves) may be guaranteed by the full faith and credit of the
U.S. Government (in the case of securities guaranteed by GNMA); or guaranteed by
U.S. Government-sponsored corporations (such as FNMA or FHLMC, which are
supported only by the discretionary authority of the U.S. Government to purchase
the agency's obli-
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gations). Mortgage pass-through securities may also be issued by
non-governmental issuers (such as commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers and other
secondary market issuers). See the SAI for a further discussion of these
securities.
Foreign Growth Securities: The Emerging Growth Series, the Growth With
Income Series and the Total Return Series may invest in securities of foreign
growth companies, including established foreign companies, whose rates of
earnings growth are expected to accelerate because of special factors, such as
rejuvenated management, new products, changes in consumer demand, or basic
changes in the economic environment or which otherwise represent opportunities
for long-term growth. See "Risk Factors" below. It is anticipated that these
companies will primarily be in nations with more developed securities markets,
such as Japan, Australia, Canada, New Zealand and most Western European
countries, including Great Britain.
Depositary Receipts: Each of the Series may invest in American Depositary
Receipts ("ADRs"). ADRs are certificates issued by a U.S. depository (usually a
bank) and represent a specified quantity of shares of an underlying non-U.S.
stock on deposit with a custodian bank as collateral. Because ADRs trade on U.S.
securities exchanges, the Adviser generally does not treat them as foreign
securities. However, they are subject to many of the risks of foreign securities
such as changes in exchange rates and more limited information about foreign
issuers. ADRs are in registered form and are designed for use in U.S. securities
markets.
Indexed Securities: Each of the Total Return Series and the Bond Series may
invest in indexed securities whose value is linked to foreign currencies,
interest rates, commodities, indices or other financial indicators. Most indexed
securities are short- to intermediate-term fixed income securities whose values
at maturity (i.e., principal value) and/or interest rates rise or fall according
to changes in the value of one or more specified underlying instruments. Indexed
securities may be positively or negatively indexed (i.e., their principal value
or interest rates may increase or decrease if the underlying instrument
appreciates), and may have return characteristics similar to direct investments
in the underlying instrument or to one or more options on the underlying
instrument. Indexed securities may be more volatile than the underlying
instrument itself and could involve the loss of all or a portion of the
principal amount of or interest on the instrument.
Swaps and Related Transactions: As one way of managing its exposure to
different types of investments, the Bond Series may enter into interest rate
swaps, currency swaps and other types of available swap agreements, such as
caps, collars and floors. Swaps involve the exchange by a Series with another
party of cash payments based upon different interest rate indexes, currencies,
and other prices or rates, such as the value of mortgage prepayment rates. For
example, in the typical interest rate swap, a Series might exchange a sequence
of cash payments based on a floating rate index for cash payments based on a
fixed rate. Payments made by both parties to a swap transaction are based on a
notional principal amount determined by the parties.
The Bond Series may also purchase and sell caps, floors and collars. In a
typical cap or floor agreement, one party agrees to make payments only under
specified circumstances, usually in return for payment of a fee by the
counterparty. For example, the purchase of an interest rate cap entitles the
buyer, to the extent that a specified index exceeds a predetermined interest
rate, to receive payments of interest on a contractually-based principal amount
from the counterparty selling such interest rate cap. The sale of an interest
rate floor obligates the seller to make payments to the extent that a specified
interest rate falls below an agreed-upon level. A collar arrangement combines
elements of buying a cap and selling a floor.
Swap agreements could be used to shift the Series' investment exposure from
one type of investment to another. For example, if the Series agreed to exchange
payments in dollars for payments in foreign currency, in each case based on a
fixed rate, the swap agreement would tend to decrease the Series' exposure to
U.S. interest rates and increase its exposure to foreign currency and interest
rates. Caps and floors have an effect similar to buying or writing options.
Depend-
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ing on how they are used, swap agreements may increase or decrease the overall
volatility of the Series' investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks assumed,
or no investment of cash. As a result, swaps can be highly volatile and may have
a considerable impact on the Series' performance. Swap agreements are subject to
risks related to the counterparty's ability to perform, and may decline in value
if the counterparty's creditworthiness deteriorates. The Series may also suffer
losses if it is unable to terminate outstanding swap agreements or reduce its
exposure through offsetting transactions.
Swaps, caps, floors and collars are highly specialized activities which
involve certain risks. See the SAI for further information on, and the risks
involved in, these activities.
Options on Securities: Each of the Series may write (sell) covered put and
call options and purchase put and call options on securities. Each of the Series
will write options on securities for the purpose of increasing its return and/or
to protect the value of its portfolio. In particular, where a Series writes an
option that expires unexercised or is closed out by the Series at a profit, it
will retain the premium paid for the option which will increase its gross income
and will offset in part the reduced value of the portfolio security underlying
the option, or the increased cost of portfolio securities to be acquired.
However, the writing of options constitutes only a partial hedge, up to the
amount of the premium, less any transaction costs. In contrast, if the price of
the underlying security moves adversely to the Series' position, the option may
be exercised and the Series will be required to purchase or sell the underlying
security at a disadvantageous price, which may only be partially offset by the
amount of the premium. The Series may also write combinations of put and call
options on the same security, known as "straddles." Such transactions can
generate additional premium income but also present increased risk.
By writing a call option on a security, a Series limits its opportunity to
profit from any increase in the market value of the underlying security, since
the holder will usually exercise the call option when the market value of the
underlying security exceeds the exercise price of the call. However, the Series
retains the risk of depreciation in value of securities on which it has written
call options.
Each of the Series may also purchase put or call options in anticipation of
market fluctuations which may adversely affect the value of its portfolio or the
prices of securities that a Series wants to purchase at a later date. In the
event that the expected market fluctuations occur, the Series may be able to
offset the resulting adverse effect on its portfolio, in whole or in part,
through the options purchased. The premium paid for a put or call option plus
any transaction costs will reduce the benefit, if any, realized by the Series
upon exercise or liquidation of the option, and, unless the price of the
underlying security changes sufficiently, the option may expire without value to
the Series.
In certain instances, the Emerging Growth Series may enter into options on
Treasury securities that are "reset" options or "adjustable strike" options.
These options provide for periodic adjustment of the strike price and may also
provide for the periodic adjustment of the premium during the term of the
option. The SAI contains a further discussion of these investments.
Options on Stock Indices: Each of the Emerging Growth Series, the Total
Return Series and the Growth With Income Series may write (sell) covered call
and put options and purchase call and put options on stock indices. Each of
these Series may write options on stock indices for the purpose of increasing
its gross income and to protect its portfolio against declines in the value of
securities it owns or increases in the value of securities to be acquired. When
a Series writes an option on a stock index, and the value of the index moves
adversely to the holder's position, the option will not be exercised, and the
Series will either close out the option at a profit or allow it to expire
unexercised. A Series will thereby retain the amount of the premium, less
related transaction costs, which will increase its gross income and offset part
of the reduced value of portfolio securities or the increased cost of securities
to be acquired. Such transactions, however, will constitute only partial hedges
against adverse price fluctuations, since any such fluctuations will be offset
only to the extent of the
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premium received by a Series for the writing of the option, less related
transaction costs. Inaddition, if the value of an underlying index moves
adversely to a Series' option position, the option may be exercised, and the
Series will experience a loss which may only be partially offset by the amount
of the premium received.
Each of these Series may also purchase put or call options on stock indices
in order, respectively, to hedge its investments against a decline in value or
to attempt to reduce the risk of missing a market or industry segment advance. A
Series' possible loss in either case will be limited to the premium paid for the
option, plus related transaction costs.
"Yield Curve" Options: Each of the Total Return Series and the Bond Series
may enter into options on the yield "spread," or yield differential, between two
securities, a transaction referred to as a "yield curve" option, for hedging and
non-hedging (an effort to increase current income) purposes. In contrast to
other types of options, a yield curve option is based on the difference between
the yields of designated securities rather than the actual prices of the
individual securities, and is settled through cash payments. Accordingly, a
yield curve option is profitable to the holder if this differential widens (in
the case of a call) or narrows (in the case of a put), regardless of whether the
yields of the underlying securities increase or decrease. Yield curve options
written by a Series will be covered as described in the SAI. The trading of
yield curve options is subject to all the risks associated with trading other
types of options, as discussed below under "Additional Risk Factors" and in the
SAI. In addition, such options present risks of loss even if the yield on one of
the underlying securities remains constant, if the spread moves in a direction
or to an extent which was not anticipated.
Futures Contracts and Options on Futures Contracts: Each of the Total
Return Series and the Bond Series may purchase and sell futures contracts on
foreign or domestic fixed income securities or indices of such securities,
including municipal bond indices and any other indices of foreign or domestic
fixed income securities that may become available for trading ("Futures
Contracts"). Each of these Series may also purchase and write options on such
Futures Contracts ("Options on Futures Contracts"). Each of the Emerging Growth
Series, the Total Return Series and the Growth With Income Series may purchase
and sell Futures Contracts on stock indices, and on foreign currencies or
indices of foreign currencies. Each of these Series may also purchase and write
Options on such Futures Contracts.
Such transactions will be entered into for hedging purposes or for
non-hedging purposes to the extent permitted by applicable law. Each Series will
incur brokerage fees when it purchases and sells Futures Contracts, and will be
required to maintain margin deposits. In addition, Futures Contracts entail
risks. Although the Adviser believes that use of such Contracts will benefit a
Series, if its investment judgment about the general direction of exchange rates
or the stock market is incorrect, the Series' overall performance may be poorer
than if it had not entered into any such contract and the Series may realize a
loss.
Purchases of Options on Futures Contracts may present less risk in hedging
a Series' portfolio than the purchase or sale of the underlying Futures
Contracts since the potential loss is limited to the amount of the premium plus
related transaction costs, although it may be necessary to exercise the option
to realize any profit, which results in the establishment of a futures position.
The writing of Options on Futures Contracts, however, does not present less risk
than the trading of Futures Contracts and will constitute only a partial hedge,
up to the amount of the premium received. In addition, if an option is
exercised, a Series may suffer a loss on the transaction.
Futures Contracts and Options on Futures Contracts that are entered into by
a Series will be traded on U.S. and foreign exchanges.
Forward Contracts: Each of the Series may enter into forward foreign
currency exchange contracts for the purchase or sale of a fixed quantity of a
foreign currency at a future date ("Forward Contracts"). Each of these Series
may enter into Forward Contracts for hedging purposes and (except for the Bond
Series) for non-hedging purposes (i.e., speculative purposes). By entering into
transactions in Forward Contracts for hedging purposes, a Series may be required
to forego the benefits of advantageous changes in exchange rates and, in the
case of Forward Contracts entered into for non-hedging
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purposes, a Series may sustain losses which will reduce its gross income. Such
transactions, therefore, could be considered speculative. Forward Contracts are
traded over-the-counter and not on organized commodities or securities
exchanges. As a result, Forward Contracts operate in a manner distinct from
exchange-traded instruments, and their use involves certain risks beyond those
associated with transactions in Futures Contracts or options traded on
exchanges. A Series may choose to, or be required to, receive delivery of the
foreign currencies underlying Forward Contracts it has entered into. Under
certain circumstances, such as where the Adviser or Sub-Adviser, as applicable,
believes that the applicable exchange rate is unfavorable at the time the
currencies are received or the Adviser or Sub-Adviser, as applicable,
anticipates, for any other reason, that the exchange rate will improve, the
Series may hold such currencies for an indefinite period of time. A Series may
also enter into a Forward Contract on one currency to hedge against risk of
loss arising from fluctuations in the value of a second currency (referred to
as a "cross hedge") if, in the judgment of the Adviser or Sub-Adviser, as
applicable, a reasonable degree of correlation can be expected between
movements in the values of the two currencies. Each of these Series has
established procedures which require use of segregated assets or "cover" in
connection with the purchase and sale of such contracts.
Options on Foreign Currencies: Each of the Series may purchase and write
options on foreign currencies ("Options on Foreign Currencies") for the purpose
of protecting against declines in the dollar value of portfolio securities and
against increases in the dollar cost of securities to be acquired. As in the
case of other types of options, however, the writing of an Option on Foreign
Currency will constitute only a partial hedge, up to the amount of the premium
received, and a Series may be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
Option on Foreign Currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements adverse
to a Series' position, it may forfeit the entire amount of the premium paid for
the option plus related transaction costs. A Series may also choose to, or be
required to, receive delivery of the foreign currencies underlying Options on
Foreign Currencies it has entered into. Under certain circumstances, such as
where the Adviser believes that the applicable exchange rate is unfavorable at
the time the currencies are received or the Adviser anticipates, for any other
reason, that the exchange rate will improve, a Series may hold such currencies
for an indefinite period of time.
6. ADDITIONAL RISK FACTORS
Options, Futures Contracts and Forward Contracts: Although certain Series
will enter into transactions in options, Futures Contracts, Options on Futures
Contracts, Forward Contracts and Options on Foreign Currencies for hedging
purposes, such transactions nevertheless involve certain risks. For example, a
lack of correlation between the instrument underlying an option or Futures
Contract and the assets being hedged, or unexpected adverse price movements,
could render a Series' hedging strategy unsuccessful and could result in losses.
Certain Series also may enter into transactions in options, Futures Contracts,
Options on Futures Contracts and Forward Contracts for other than hedging
purposes, which involves greater risk. In particular, such transactions may
result in losses for a Series which are not offset by gains on other portfolio
positions, thereby reducing gross income. In addition, foreign currency markets
may be extremely volatile from time to time. There can be no assurance that a
liquid secondary market will exist for any contract purchased or sold, and a
Series may be required to maintain a position until exercise or expiration,
which could result in losses. The SAI contains a description of the nature and
trading mechanics of options, Futures Contracts, Options on Futures Contracts,
Forward Contracts and Options on Foreign Currencies, and includes a discussion
of the risks related to transactions therein.
Transactions in Forward Contracts may be entered into only in the
over-the-counter market. Futures Contracts and Options on Futures Contracts may
be entered into on U.S. exchanges regulated by the Commodity Futures Trading
Commission and on foreign exchanges. In addition, the securities and indexes
underlying options, Futures Contracts and Options on Futures Contracts traded by
the Series will include both domestic and foreign securities.
Lower Rated Bonds: Each of the Emerging Growth Series, the Total Return
Series and the Bond Series may invest in fixed income securities rated Baa by
Moody's or BBB by S&P, Fitch or Duff & Phelps and comparable unrated securities.
18
<PAGE>
These securities, while normally exhibiting adequate protection parameters,
have speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than in the case of higher grade securities.
Each of these Series may also invest in securities rated Ba or lower by
Moody's or BB or lower by S&P, Fitch or Duff & Phelps and comparable unrated
securities (commonly known as "junk bonds") to the extent described above. See
Appendix A to this Prospectus for a description of these ratings. These
securities are considered speculative and, while generally providing greater
income than investments in higher rated securities, will involve greater risk of
principal and income (including the possibility of default or bankruptcy of the
issuers of such securities) and may involve greater volatility of price
(especially during periods of economic uncertainty or change) than securities in
the higher rating categories. However, since yields vary over time, no specific
level of income can ever be assured. These lower rated high yielding fixed
income securities generally tend to reflect economic changes and short-term
corporate and industry developments to a greater extent than higher rated
securities which react primarily to fluctuations in the general level of
interest rates (although these lower rated fixed income securities are also
affected by changes in interest rates, the market's perception of their credit
quality, and the outlook for economic growth). In the past, economic downturns
or an increase in interest rates have, under certain circumstances, caused a
higher incidence of default by the issuers of these securities and may do so in
the future, especially in the case of highly leveraged issuers. During certain
periods, the higher yields on a Series' lower rated high yielding fixed income
securities are paid primarily because of the increased risk of loss of principal
and income, arising from such factors as the heightened possibility of default
or bankruptcy of the issuers of such securities. Due to the fixed income
payments of these securities, a Series may continue to earn the same level of
interest income while its net asset value declines due to portfolio losses,
which could result in an increase in the Series' yield despite the actual loss
of principal. The market for these lower rated fixed income securities may be
less liquid than the market for investment grade fixed income securities, and
judgment may at times play a greater role in valuing these securities than in
the case of investment grade fixed income securities. Changes in the value of
securities subsequent to their acquisition will not affect cash income or yield
to maturity to a Series but will be reflected in the net asset value of shares
of the Series. See the SAI for more information on lower rated securities.
Foreign Securities: Each of the Series may invest in dollar-denominated and
non-dollar-denominated foreign securities. Investing in securities of foreign
issuers generally involves risks not ordinarily associated with investing in
securities of domestic issuers. These include changes in currency rates,
exchange control regulations, governmental administration or economic or
monetary policy (in the U.S. or abroad) or circumstances in dealings between
nations. Costs may be incurred in connection with conversions between various
currencies. Special considerations may also include more limited information
about foreign issuers, higher brokerage costs, different accounting standards
and thinner trading markets. Foreign securities markets may also be less liquid,
more volatile and less subject to government supervision than in the United
States. Investments in foreign countries could be affected by other factors
including expropriation, confiscatory taxation and potential difficulties in
enforcing contractual obligations and could be subject to extended settlement
periods. All of the Series may hold foreign currency received in connection with
investments in foreign securities when, in the judgment of the Adviser, it would
be beneficial to convert such currency into U.S. dollars at a later date, based
on anticipated changes in the relevant exchange rate. Such Series may also hold
foreign currency in anticipation of purchasing foreign securities. See the SAI
for further discussion of foreign securities and the holding of foreign
currency, as well as the associated risks.
Emerging Market Securities: Each of the Series may invest in emerging
markets. In addition to the general risks of investing in foreign securities,
investments in emerging markets involve special risks. Securities of many
issuers in emerging markets may be less liquid and more volatile than securities
of comparable domestic issuers. These securities may be considered speculative
and, while generally offering higher income and the potential for capital
appreciation, may present significantly greater risk. Emerging markets may have
different clearance and settlement procedures, and in certain markets there have
been times when settlements have been unable to keep pace with the volume of
securities transactions,
19
<PAGE>
making it difficult to conduct such transactions. Delays in settlement could
result in temporary periods when a portion of the assets of a Series is
uninvested and no return is earned thereon. The inability of a Series to make
intended security purchases due to settlement problems could cause a Series to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result in losses to a Series due to
subsequent declines in value of the portfolio securities, a decrease in the
level of liquidity in a Series' portfolio, or if a Series has entered into a
contract to sell the security, possible liability to the purchaser. Certain
markets may require payment for securities before delivery, and in such markets
a Series bears the risk that the securities will not be delivered and that the
Series' payments will not be returned. Securities prices in emerging markets
can be significantly more volatile than in the more developed nations of the
world, reflecting the greater uncertainties of investing in less established
markets and economies. In particular, countries with emerging markets may have
relatively unstable governments, present the risk of nationalization of
businesses, restrictions on foreign ownership, or prohibitions of repatriation
of assets, and may have less protection of property rights than more developed
countries. The economies of countries with emerging markets may be
predominantly based on only a few industries, may be highly vulnerable to
changes in local or global trade conditions, and may suffer from extreme and
volatile debt burdens or inflation rates. Local securities markets may trade a
small number of securities and may be unable to respond effectively to
increases in trading volume, potentially making prompt liquidation of
substantial holdings difficult or impossible at times. Securities of issuers
located in countries with emerging markets may have limited marketability and
may be subject to more abrupt or erratic movements.
Certain emerging markets may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. A Series could be
adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the application
to the Series of any restrictions on investments.
Investment in certain foreign emerging market debt obligations may be
restricted or controlled to varying degrees. These restrictions or controls may
at times preclude investment in certain foreign emerging market debt obligations
and increase the expenses of a Series.
Short-Term Investments for Temporary Defensive Purposes -- During periods of
unusual market conditions when the Adviser or Sub-Adviser, as applicable,
believes that investing for temporary defensive purposes is appropriate, or in
order to meet anticipated redemption requests, a large portion or all of the
assets of each Series may be invested in cash (including foreign currency) or
cash equivalents including, but not limited to, obligations of banks (including
certificates of deposit, bankers' acceptances, time deposits and repurchase
agreements), commercial paper, short-term notes, U.S. Government Securities and
related repurchase agreements.
Portfolio Trading
Each Series intends to manage its portfolio by buying and selling
securities, as well as holding securities to maturity, to help attain its
investment objectives and policies.
Each Series will engage in portfolio trading if it believes a transaction,
net of costs (including custodian charges), will help in attaining its
investment objectives. In trading portfolio securities, a Series seeks to take
advantage of market developments, yield disparities and variations in the
creditworthiness of issuers. For a description of the strategies which may be
used by the Series in trading portfolio securities, see "Portfolio Transactions
and Brokerage Commissions" in the SAI. The Total Return Series' portfolio will
be managed actively with respect to the Series' fixed income securities and the
asset allocations modified as the Adviser deems necessary. Although the Series
does not intend to seek short-term profits, fixed income securities in its
portfolio will be sold whenever the Adviser believes it is appropriate to do so
without regard to the length of time the particular asset may have been held.
With respect to its equity securities, the Total Return Series does not intend
to trade in securities for short-term profits and anticipates that portfolio
securities ordinarily will
20
<PAGE>
be held for one year or longer. However, the Series will effect trades whenever
it believes that changes in its portfolio securities are appropriate.
Because each of the Emerging Growth Series and the Bond Series is expected
to have a portfolio turnover rate of over 100%, transaction costs incurred by
the Series and the realized capital gains and losses of the Series may be
greater than that of a fund with a lesser portfolio turnover rate.
The primary consideration in placing portfolio security transactions with
broker-dealers for execution is to obtain, and maintain the availability of,
execution at the most favorable prices and in the most effective manner
possible. Consistent with the foregoing primary consideration, the Conduct Rules
of the National Association of Securities Dealers, Inc. (the "NASD") and such
other policies as the Trustees of the Trust may determine, the Adviser may
consider sales of Contracts for which the Trust is an investment option,
together with sales of shares of other investment company clients of MFS Fund
Distributors, Inc., the distributor of shares of the Trust and of the MFS Family
of Funds, as a factor in the selection of broker-dealers to execute each Series'
portfolio transactions. From time to time the Adviser may direct certain
portfolio transactions to broker-dealer firms which, in turn, have agreed to pay
a portion of the Series' operating expenses (e.g., fees charged by the custodian
of the Series' assets). For a further discussion of portfolio trading, see the
SAI.
--------------------
The SAI includes a discussion of other investment policies and listing of
specific investment restrictions which govern the investment policies of each
Series. The specific investment restrictions listed in the SAI may be changed
without shareholder approval unless indicated otherwise (see the SAI). Except
with respect to the Series' policy on borrowing and investing in illiquid
securities, the Series' investment limitations, policies and rating standards
are adhered to at the time of purchase or utilization of assets; a subsequent
change in circumstances will not be considered to result in a violation of
policy.
7. MANAGEMENT OF THE SERIES
The Trust's Board of Trustees, as part of its overall management
responsibility, oversees various organizations responsible for each Series'
day-to-day management.
Investment Adviser -- MFS manages each Series pursuant to an Amended and
Restated Investment Advisory Agreement with the Trust on behalf of each Series
dated April 14, 1994, as amended and restated on April 30, 1998 (the "Advisory
Agreement"). Under the Advisory Agreement, MFS provides the Series with overall
investment advisory services. Subject to such policies as the Trustees may
determine, MFS makes investment decisions for each Series. For its services and
facilities, MFS receives a management fee, computed and paid monthly, in an
amount equal to the following annual rates of the average daily net assets of
each Series:
<TABLE>
<CAPTION>
Percentage of the average
daily net assets
Series of each Series
- ----------------------------------- --------------------------
<S> <C>
Emerging Growth Series ............ 0.75%
Growth With Income Series ......... 0.75%
Total Return Series ............... 0.75%
Bond Series ....................... 0.60%
</TABLE>
For the fiscal year ended December 31, 1997, MFS received the following
management fees from the Series under the Advisory Agreement and assumed the
following amounts of the Series' expenses (see "Expenses" below):
21
<PAGE>
<TABLE>
<CAPTION>
Management Fee Expenses Assumed
Series Paid to MFS by MFS
- ----------------------------------- --------------- ------------------
<S> <C> <C>
Emerging Growth Series ............ $1,887,980 $ 0
Growth With Income Series ......... 188,365 26,920
Total Return Series ............... 331,670 9,651
Bond Series ....................... 13,699 59,063
</TABLE>
MFS or its affiliates will pay a fee to The Guardian Insurance and Annuity
Company ("The Guardian") equal, on an annualized basis, to 0.20% of the
aggregate net assets of the Trust up to $300 million and 0.25% of the aggregate
net assets of the Trust over $300 million attributable to Contracts offered by
separate accounts of The Guardian or their affiliates. Such fees will not be
paid by the Series, their shareholders, or by the Contract holders.
The identity and background of the portfolio managers for each Series is
set forth below. Unless indicated otherwise, each portfolio manager has acted in
that capacity since the commencement of investment operations of each Series.
<TABLE>
<CAPTION>
Series Portfolio Managers
- --------------------------- -----------------------------------------------------------------------------------------------
<S> <C>
Emerging Growth Series John W. Ballen, an Executive Vice President of MFS, has been employed by the Adviser
as a portfolio manager since 1984. Toni Y. Shimura, a Vice President of MFS, has been
employed by the Adviser as a portfolio manager since 1987. Ms. Shimura became a
portfolio manager of the Series on November 30, 1995.
Growth With Income Series Kevin R. Parke, an Executive Vice President of MFS, has been employed by the Adviser
as a portfolio manager since 1985. John D. Laupheimer, a Senior Vice President of MFS,
has been employed by the Adviser as a portfolio manager since 1981.
Total Return Series David M. Calabro, a Senior Vice President of MFS, has been employed by the Adviser as a
portfolio manager since 1992. Mr. Calabro is the head of this portfolio management team and
a manager of the common stock portion of the Series' portfolio. Geoffrey L. Kurinsky, a Senior
Vice President of MFS, has been employed by the Adviser as a portfolio manager since 1987.
Mr. Kurinsky is the manager of the Series' fixed income securities. Constantinos G. Mokas,
a Vice President of MFS, has been a portfolio manager of the Series since April 1, 1998 and
has been employed by the Adviser as a portfolio manager since 1990. Mr. Mokas is the
manager of the Series' convertible securities. Lisa B. Nurme, a Senior Vice President of MFS,
has been employed by the Adviser as a portfolio manager since 1987. Ms. Nurme is a manager
of the common stock portion of the Series' portfolio. Maura A. Shaughnessy, a Senior Vice
President of MFS, has been employed by the Adviser as a portfolio manager since 1991. Ms.
Shaughnessy is a manager of the common stock portion of the Series' portfolio. Each
individual became a portfolio manager of the Series on July 19, 1995.
Bond Series Geoffrey L. Kurinsky, a Senior Vice President of the Adviser, has been employed by the
Adviser as a portfolio manager since 1987.
</TABLE>
MFS also serves as investment adviser to each of the other funds in the MFS
Family of Funds (the "MFS Funds") and to MFS[RegTM] Municipal Income Trust, MFS
Multimarket Income Trust, MFS Government Markets Income Trust, MFS Intermediate
Income Trust, MFS Charter Income Trust, MFS Special Value Trust, MFS
Institutional Trust, MFS/Sun Life Series Trust, and seven variable accounts,
each of which is a registered investment company established by Sun Life
Assurance Company of Canada (U.S.), a subsidiary of Sun Life Assurance Company
of Canada ("Sun Life"), in connection with the sale of various fixed/variable
annuity contracts. MFS and its wholly owned subsidiary, MFS Institutional
Advisors, Inc., provide investment advice to substantial private clients.
22
<PAGE>
MFS is America's oldest mutual fund organization. MFS and its predecessor
organizations have a history of money management dating from 1924 and the
founding of the first mutual fund in the United States, Massachusetts Investors
Trust. Net assets under the management of the MFS organization were
approximately $72.0 billion on behalf of approximately 2.8 million investor
accounts as of January 30, 1998. As of such date, the MFS organization managed
approximately $47.2 billion of assets invested in equity securities and
approximately $20.8 billion of assets invested in fixed income securities.
Approximately $4.2 billion of the assets managed by MFS are invested in
securities of foreign issuers and non-U.S. dollar-denominated securities of U.S.
issuers. MFS is a subsidiary of Sun Life of Canada (U.S.) Financial Services
Holdings, Inc., which in turn is an indirect wholly owned subsidiary of Sun
Life. The Directors of MFS are Jeffrey L. Shames, Arnold D. Scott, John W.
Ballen, John D. McNeil and Donald A. Stewart. Mr. Shames is the Chairman and
President and Mr. Scott is the Secretary and a Senior Executive Vice President
of MFS. Mr. Ballen is an Executive Vice President and Chief Equity Officer.
Messrs. McNeil and Stewart are the Chairman and President, respectively, of Sun
Life. Sun Life, a mutual life insurance company, is one of the largest
international life insurance companies and has been operating in the United
States since 1895, establishing a headquarters office here in 1973. The
executive officers of MFS report to the Chairman of Sun Life.
W. Thomas London, Stephen E. Cavan, James R. Bordewick, Jr., Ellen
Moynihan, Mark E. Bradley and James O. Yost, all of whom are officers of MFS,
are officers of the Trust.
From time to time, the Adviser may purchase, redeem and exchange shares of
any Series. The purchase by the Adviser of shares of a Series may have the
effect of lowering that Series' expense ratio, while the redemption by the
Adviser of shares of a Series may have the effect of increasing that Series'
expense ratio.
Distributor -- MFS Fund Distributors, Inc. ("MFD"), a wholly owned subsidiary
of MFS, is the distributor of shares of each Series and also serves as
distributor for each of the other mutual funds managed by MFS.
Administrator -- MFS provides each Series with certain financial, legal,
compliance, shareholder communications and other administrative services
pursuant to a Master Administrative Services Agreement dated March 1, 1997, as
amended. Under this Agreement, each Series pays MFS an administrative fee of up
to 0.015% per annum of the Series' average daily net assets. This fee
reimburses MFS for a portion of the costs it incurs to provide such services.
Shareholder Servicing Agent -- MFS Service Center, Inc. (the "Shareholder
Servicing Agent"), a wholly owned subsidiary of MFS, performs transfer agency,
certain dividend disbursing agency and other services for each Series.
8. INFORMATION CONCERNING SHARES OF EACH SERIES
Purchases and Redemptions
The separate accounts of the Participating Insurance Companies place orders
to purchase and redeem shares of each Series based on, among other things, the
amount of premium payments to be invested and surrender and transfer requests to
be effected on that day pursuant to Contracts. Orders received by the Trust are
effected on days on which the Exchange is open for trading. For orders received
by the Trust before the close of regular trading on the Exchange (normally 4
p.m. eastern time), such purchases and redemptions of the shares of each Series
are effected at the respective net asset values per share determined as of the
close of regular trading on the Exchange on that same day. Participating
Insurance Companies shall be the designee of the Trust for receipt of purchase
and redemption orders from Contract holders and receipt by such designee shall
constitute receipt by the Trust; provided that the Trust receives notice of such
order generally by 9:30 a.m. eastern time on the next following day on which the
Exchange is open for trading. Payment for shares shall be by federal funds
transmitted by wire and must be received by 2:00 p.m. eastern time on the next
following day on which the Exchange is open for trading after the purchase order
is received. Redemption proceeds shall be by federal funds transmitted by wire
and shall be sent by 2:00 p.m. eastern time on the next following day on which
the Exchange is open for trading after the redemption order is received. No fee
is charged the shareholders when they redeem Series shares.
23
<PAGE>
At the sole discretion of the Trust, each Series may pay redemptions either
totally or partially by a distribution in-kind of securities (instead of cash)
from such Series' portfolio. The securities distributed in such a distribution
would be valued at the same amount as that assigned to them in calculating the
net asset value for the shares being sold. Securities distributed by a Series
will be selected by the Adviser in light of the Series' objective and may not
generally represent a pro rata distribution of each security held in the Series'
portfolio. If a shareholder received a distribution in-kind, the shareholder
could incur brokerage or transaction charges when converting the securities to
cash.
Purchases and exchanges should be made for investment purposes only. The
Trust and MFD each reserves the right to reject or restrict any specific
purchase or exchange request. The Trust is not designed for professional market
timing organizations or other entities using programmed or frequent exchanges.
The Trust defines a "market timer" as an individual, or organization acting on
behalf of one or more individuals, if the individual or organization makes six
or more exchange requests out of any Series per calendar year. Accounts under
common ownership or control, including accounts administered by market timers,
will be aggregated for purposes of this definition.
As noted above, the Trust and MFD each reserves the right to reject or
restrict any specific purchase and exchange request and, in addition, may impose
specific limitations with respect to market timers, including delaying for up to
seven days the purchase side of an exchange request by market timers or
specifically rejecting or otherwise restricting purchase and exchange requests
by market timers. In the event that any individual or entity is determined
either by the Trust or MFD, in its sole discretion, to be a market timer with
respect to any calendar year, the Trust and/or MFD may reject all exchange
requests into the Series during the remainder of that year.
The Trust may suspend the right of redemption of shares of any Series and
may postpone payment for any period: (i) during which the Exchange is closed
other than customary weekend and holiday closings or during which trading on the
Exchange is restricted; (ii) when the SEC determines that a state of emergency
exists which may make payment or transfer not reasonably practicable; (iii) as
the SEC may by order permit for the protection of the security holders of the
Trust; or (iv) at any time when the Trust may, under applicable laws, rules and
regulations, suspend payment on the redemption of its shares.
Should any conflict between Contract holders arise which would require that
a substantial amount of net assets be withdrawn from any Series, orderly
portfolio management could be disrupted to the potential detriment of such
Contract.
Net Asset Value
The net asset value per share of each Series is determined each day during
which the Exchange is open for trading. This determination is made once during
each such day as of the close of regular trading on the Exchange by deducting
the amount of the Series' liabilities from the value of the Series' assets and
dividing the difference by the number of shares of the Series outstanding.
Values of assets in a Series' portfolio are determined on the basis of their
market or other fair value, as described in the SAI. All investments, assets and
liabilities are expressed in U.S. dollars based upon current currency exchange
rates.
Distributions
All of each Series' net investment income for any calendar year is declared
and paid to its shareholders as dividends on an annual basis. In addition, each
Series will make one or more distributions during the calendar year to its
shareholders from any net realized long-term and short-term capital gains.
Shareholders of any of the Series may elect to receive dividends and
capital gain distributions in either cash or additional shares.
24
<PAGE>
Tax Status
Each Series of the Trust is treated as a separate entity for federal income
tax purposes. In order to minimize the taxes each Series would otherwise be
required to pay, each Series intends to qualify each year as a RIC under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
Because each Series intends to distribute all of its net investment income and
net realized capital gains to its shareholders in accordance with the timing
requirements imposed by the Code, it is not expected that any of the Series will
be required to pay any federal income or excise taxes.
Shares of the Series are offered only to the Participating Insurance
Companies' separate accounts that fund Contracts. See the applicable Contract
prospectus for a discussion of the federal income tax treatment of (1) the
separate accounts that purchase and hold Series shares and (2) the holders of
the Contracts that are funded through those accounts. In addition to the
diversification requirements of Subchapter M of the Code, each Series also
intends to continue to diversify its assets as required by Code Section
817(h)(1) and the regulations thereunder. See also "Tax Status" in the SAI.
Description of Shares, Voting Rights and Liabilities
Each Series currently has one class of shares, entitled Shares of
Beneficial Interest (without par value). The Trust has reserved the right to
create and issue additional classes and series of shares, in which case each
class of shares of a series would participate equally in the earnings, dividends
and assets attributable to that class of that particular series. Shareholders
are entitled to one vote for each share held, and shares of each Series are
entitled to vote separately to approve investment advisory agreements or changes
in investment restrictions with respect to that Series, but shares of all Series
vote together in the election of Trustees and selection of accountants.
Additionally, each Series will vote separately on any other matter that affects
solely that Series, but will otherwise vote together with all other Series on
all other matters. The Trust does not intend to hold annual shareholder
meetings. The Declaration of Trust provides that a Trustee may be removed from
office in certain instances. See "Description of Shares, Voting Rights and
Liabilities" in the SAI.
Each share of a Series represents an equal proportionate interest in the
Series with each share, subject to the liabilities of the particular Series.
Shares have no pre-emptive or conversion rights. Shares are fully paid and
non-assessable. Should a Series be liquidated, shareholders are entitled to
share pro rata in the net assets available for distribution to shareholders.
Shares will remain on deposit with the Shareholder Servicing Agent and
certificates will not be issued.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed (e.g., fidelity bonding and omission insurance) and
the Trust itself was unable to meet its obligations.
As of February 27, 1998, Merrill Lynch Life Insurance Company,
Jacksonville, FL, owns of record 25.58% of the Emerging Growth Series' shares,
and, therefore, is a controlling entity of the Series; and First Citicorp Life
Insurance Company, Dover, DE, owns of record 42.62% of the Bond Series' Shares,
and, therefore, is a controlling entity of the Series.
Performance Information
Each Series' performance may be quoted in advertising in terms of yield and
total return. Performance is based on historical results and is not intended to
indicate future performance. Performance quoted for a Series includes the effect
of deducting that Series' expenses, but may not include charges and expenses
attributable to any particular insurance product. Excluding these charges from
quotations of a Series' performance has the effect of increasing the performance
quoted. Performance for a Series will vary based on, among other things, changes
in market conditions, the level of interest rates and the level of the Series'
expenses. For further information about the Series' performance for the fiscal
year ended December 31, 1997, please see the Series' Annual Reports. A copy of
these Annual Reports may be obtained without charge by contacting the
Shareholder Servicing Agent (see back cover for address and phone number).
25
<PAGE>
From time to time, quotations of a Series' total return and yield may be
included in advertisements, sales literature or reports to shareholders or
prospective investors. The total return of a Series refers to return assuming an
investment has been held in the Series for one year and for the life of the
Series (the ending date of which will be stated). The total return quotations
may be expressed in terms of average annual or cumulative rates of return for
all periods quoted. Average annual total return refers to the average annual
compound rate of return of an investment in a Series. Cumulative total return
represents the cumulative change in value of an investment in a Series. Both
will assume that all dividends and capital gains distributions were reinvested.
The yield of a Series refers to net investment income generated by a Series over
a specified 30-day (or one month) period. This income is then "annualized." That
is, the amount of income generated by the Series during that 30-day (or one
month) period is assumed to be generated over a 12-month period and is shown as
a percentage of net asset value.
Expenses
The Trust pays the compensation of the Trustees who are not officers of MFS
and all expenses of each Series (other than those assumed by MFS) including but
not limited to: advisory and administrative services; governmental fees;
interest charges; taxes; membership dues in the Investment Company Institute
allocable to each Series; fees and expenses of independent auditors, of legal
counsel, and of any transfer agent, registrar or dividend disbursing agent of
each Series; expenses of repurchasing and redeeming shares and servicing
shareholder accounts; expenses of preparing, printing and mailing prospectuses,
periodic reports, notices and proxy statements to shareholders and to
governmental officers and commissions; brokerage and other expenses connected
with the execution, recording and settlement of portfolio security transactions;
insurance premiums; fees and expenses of State Street Bank and Trust Company,
the Trust's Custodian, for all services to each Series, including safekeeping of
funds and securities and maintaining required books and accounts; expenses of
calculating the net asset value of shares of each Series; and expenses of
shareholder meetings. Expenses relating to the issuance, registration and
qualification of shares of each Series and the preparation, printing and mailing
of prospectuses are borne by each Series except that the Distribution Agreement
with MFD requires MFD to pay for prospectuses that are to be used for sales
purposes. Expenses of the Trust which are not attributable to a specific Series
are allocated between the Series in a manner believed by management of the Trust
to be fair and equitable.
Subject to termination or revision at the sole discretion of MFS, MFS has
agreed to bear expenses of each of the Series such that the respective Series'
"Other Expenses," which are defined to include all expenses of the Series (after
taking into effect any compensating balance and offset arrangements) except for
management fees, taxes, extraordinary expenses, and brokerage and transaction
costs, do not exceed the following percentages of the average daily net assets
of the Series (the "Maximum Percentage"): 0.40% for the Bond Series and 0.25%
for each remaining Series. The payments made by MFS on behalf of each Series
under this arrangement are subject to reimbursement by the Series to MFS, which
will be accomplished by the payment of an expense reimbursement fee by the
Series to MFS computed and paid monthly at a percentage of the Series' average
daily net assets for its then current fiscal year, with a limitation that
immediately after such payment the Series' "Other Expenses" will not exceed the
Maximum Percentage. The obligation of MFS to bear a Series' Other Expenses
pursuant to this arrangement, and the Series' obligation to pay the
reimbursement fee to MFS, terminates on the earlier of the date on which
payments made by the Series equal the prior payment of such reimbursable
expenses by MFS, or December 31, 2004.
The expense reimbursement arrangement has terminated for the Emerging
Growth Series.
Shareholder Communications
Owners of Contracts issued by Participating Insurance Companies for which
shares of one or more Series are the investment vehicle will receive from the
Participating Insurance Companies semi-annual financial statements and audited
year-end financial statements certified by the Trust's independent certified
public accountants. Each report will show the investments owned by the Trust and
the valuations thereof as determined by the Trustees and will provide other
information about the Trust and its operations.
26
<PAGE>
Participating Insurance Companies with inquiries regarding the Trust may
call the Trust's Shareholder Servicing Agent. (See back cover for address and
phone number.)
--------------------
The SAI for the Trust, dated May 1, 1998, as amended or supplemented from
time to time, contains more detailed information about each of the Series,
including information related to: (i) the investment policies and restrictions
of each Series; (ii) the Trustees, officers and investment adviser of the Trust;
(iii) portfolio transactions; (iv) the shares of each Series, including rights
and liabilities of shareholders; (v) the method used to calculate yield and
total rate of return quotations of each Series; (vi) the determination of net
asset value of shares of each Series; and (vii) certain voting rights of
shareholders of each Series.
27
<PAGE>
APPENDIX A
Description of Bond Ratings
The ratings of Moody's, S&P, Fitch and Duff & Phelps represent their
opinions as to the quality of various debt instruments. It should be emphasized,
however, that ratings are not absolute standards of quality. Consequently, debt
instruments with the same maturity, coupon and rating may have different yields
while debt instruments of the same maturity and coupon with different ratings
may have the same yield.
Moody's Investors Service, Inc.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Absence of Rating: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
A-1
<PAGE>
Should no rating be assigned, the reason may be one of the following:
1. an application for rating was not received or accepted;
2. the issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy;
3. there is a lack of essential data pertaining to the issue or issuer; or
4. the issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Standard & Poor's Ratings Services
AAA: An obligation rated 'AAA' has the highest rating assigned by Standard
& Poor's. The obligor's capacity to meet its financial commitment on the
obligation is EXTREMELY STRONG.
AA: An obligation rated 'AA' differs from the highest rated obligations
only in small degree. The obligor's capacity to meet its financial commitment on
the obligation is VERY STRONG.
A: An obligation rated 'A' is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still STRONG.
BBB: An obligation rated 'BBB' exhibits ADEQUATE protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
Obligations rated 'BB', 'B', 'CCC', 'CC', and 'C' are regarded as having
significant speculative characteristics. 'BB' indicates the least degree of
speculation and 'C' the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB: An obligation rated 'BB' is LESS VULNERABLE to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B: An obligation rated 'B' is MORE VULNERABLE to nonpayment than
obligations rated 'BB', but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC: An obligation rated 'CCC' is CURRENTLY VULNERABLE to nonpayment, and
is dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC: An obligation rated 'CC' is CURRENTLY HIGHLY VULNERABLE to nonpayment.
C: The 'C' rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments on this
obligation are being continued.
A-2
<PAGE>
D: An obligation rated 'D' is in payment default. The 'D' rating category
is used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The 'D' rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.
Plus (+) or minus (-): The ratings from 'AA' to 'CCC' may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk--such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
A-1 and P-1 Commercial Paper Ratings
Description of S&P, Fitch and Moody's highest commercial paper ratings:
The rating "A" is the highest commercial paper rating assigned by S&P and
Fitch, and issues so rated are regarded as having the greatest capacity for
timely payment. Issues in the "A" category are delineated with the numbers 1, 2
and 3 to indicate the relative degree of safety. The A-1 designation indicates
that the degree of safety regarding timely payment is either overwhelming or
very strong. Those A-1 issues determined to possess overwhelming safety
characteristics will be denoted with a plus (+) sign designation.
The rating P-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated P-1 have a superior ability for repayment. P-1 repayment capacity
will normally be evidenced by the following characteristics: (1) leading market
positions in well established industries; (2) high rates of return on funds
employed; (3) conservative capitalization structure with moderate reliance on
debt and ample asset protection; (4) broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and (5) well established
access to a range of financial markets and assured sources of alternate
liquidity.
Fitch IBCA
AAA: Highest credit quality. 'AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong capacity for
timely payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA: Very high credit quality. 'AA' ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A: High credit quality. 'A' ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is considered
strong. This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher ratings.
BBB: Good credit quality. 'BBB' ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
Speculative Grade
BB: Speculative. 'BB' ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse economic change
over time; however, business or financial alternatives may be available to allow
financial commitments to be met. Securities rated in this category are not
investment grade.
A-3
<PAGE>
B: Highly speculative. 'B' ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC, CC, C: High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A 'CC' rating indicates that default of some
kind appears probable. 'C' ratings signal imminent default.
DDD, DD, and D: Default. Securities are not meeting current obligations and
are extremely speculative. 'DDD' designates the highest potential for recovery
of amounts outstanding on any securities involved. For U.S. corporates, for
example, 'DD' indicates expected recovery of 50%-90% of such outstandings, and
'D' the lowest recovery potential, i.e. below 50%.
Duff & Phelps Credit Rating Co.
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA-: High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
A+, A, A-: Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
BBB+, BBB, BBB-: Below-average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB-: Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality may move
up or down frequently within this category.
B+, B, B-: Below investment grade and possession risk that obligations will
not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or into
a higher or lower rating grade.
CCC: Well below investment-grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with unfavorable
economic/ industry conditions, and/or with unfavorable company developments.
DD: Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP: Preferred stock with dividend arrearages.
A-4
<PAGE>
Duff & Phelps Short-Term Ratings
D-1+: Highest certainty of timely payment. Short-term liquidity, including
internal operation factors and/or access to alternative sources of funds, is
outstanding and safety is just below risk-free U.S. Treasury short-term
obligations.
D-1: Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
D-1: High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
D-2: Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
D-3: Satisfactory liquidity and other protection factors qualify issues as
to investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
D-4: Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service. Operating factors and market access
may be subject to a high degree of variation.
D-5: Issuer failed to meet scheduled principal and/or interest payments.
A-5
<PAGE>
APPENDIX B
MFS TOTAL RETURN SERIES
PORTFOLIO COMPOSITION CHART
For Fiscal Year Ended December 31, 1997
The table below shows the percentages of the Series' assets at December 31,
1997 invested in bonds assigned to the various rating categories by Moody's,
S&P, Fitch IBCA and Duff & Phelps and in unrated bonds determined by MFS to be
of comparable quality. The highest of the four rating services is used with
respect to each rating.
<TABLE>
<CAPTION>
Compiled Unrated Bonds
Rating Ratings of Comparable Quality Total
- ----------- ---------- ----------------------- ----------
<S> <C> <C> <C>
AAA/Aaa 22.81 22.81
AA/Aa
A/A 1.00 1.00
BBB/Baa 5.90 0.08 5.98
BB/Ba 2.62 0.40 3.02
B/B
CCC/Caa
CC/Ca
C/C
Default ----- ---- -----
Total 32.33 0.48 32.81
</TABLE>
The chart does not necessarily indicate what the composition of the
Series' portfolio will be in subsequent years. Rather, the Series' investment
objective, policies and restrictions indicate the extent to which the Series
may purchase securities in the various categories.
B-1
<PAGE>
MFS BOND SERIES
PORTFOLIO COMPOSITION CHART
For Fiscal Year Ended December 31, 1997
The table below shows the percentages of the Series' assets at December
31, 1997 invested in bonds assigned to the various rating categories by
Moody's, S&P, Fitch IBCA and Duff & Phelps and in unrated bonds determined by
MFS to be of comparable quality. The highest of the four rating services is
used with respect to each rating.
<TABLE>
<CAPTION>
Compiled Unrated Bonds
Rating Ratings of Comparable Quality Total
- ----------- ---------- ----------------------- ----------
<S> <C> <C> <C>
AAA/Aaa 47.50 47.50
AA/Aa
A/A 6.50 6.50
BBB/Baa 20.53 0.13 20.66
BB/Ba 8.64 1.02 9.66
B/B
CCC/Caa
CC/Ca
C/C
Default ----- ---- -----
Total 83.17 1.15 84.32
</TABLE>
The chart does not necessarily indicate what the composition of the
Series' portfolio will be in subsequent years. Rather, the Series' investment
objective, policies and restrictions indicate the extent to which the Series
may purchase securities in the various categories.
B-2
<PAGE>
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
(800) 637-8730
Distributor
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
(617) 954-5000
Custodian
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
Dividend Disbursing Agent
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
Shareholder Servicing Agent
MFS Service Center, Inc.
500 Boylston Street, Boston, MA 02116
Toll free: (800) 343-2829, ext. 3500
Mailing Address:
P.O. Box 1400, Boston, MA 02104-9985
Independent Auditors
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110
[MFS LOGO]
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MFS[RegTM] VARIABLE INSURANCE TRUST
500 Boylston Street, Boston, MA 02116
=======================================================
MFS[RegTM] EMERGING GROWTH SERIES
MFS[RegTM] GROWTH WITH INCOME SERIES
MFS[RegTM] TOTAL RETURN SERIES
MFS[RegTM] BOND SERIES
[MAN AND WOMAN IN OFFICE GRAPHIC]
PROSPECTUS
May 1, 1998
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