<PAGE>
[Logo] M F S(R)
INVESTMENT MANAGEMENT SEMIANNUAL REPORT
75 YEARS JUNE 30, 1999
WE INVENTED THE MUTUAL FUND(R)
[graphic omitted]
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
MFS(R) BOND SERIES
<PAGE>
<TABLE>
MFS(R) BOND SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
<S> <C>
TRUSTEES INVESTMENT ADVISER
Jeffrey L. Shames* Massachusetts Financial Services Company
Chairman, Chief Executive Officer, and 500 Boylston Street
Director, MFS Investment Management(R) Boston, MA 02116-3741
Nelson J. Darling, Jr. DISTRIBUTOR
Professional trustee MFS Fund Distributors, Inc.
500 Boylston Street
William R. Gutow Boston, MA 02116-3741
Vice Chairman, Capitol Entertainment
Management Company; SHAREHOLDER SERVICE CENTER
Private investor and real estate consultant MFS Service Center, Inc.
P.O. Box 2281
CHAIRMAN AND PRESIDENT Boston, MA 02107-9906
Jeffrey L. Shames*
For additional information,
PORTFOLIO MANAGER contact your financial adviser.
Geoffrey L. Kurinsky*
CUSTODIAN
TREASURER State Street Bank and Trust Company
W. Thomas London*
WORLD WIDE WEB
ASSISTANT TREASURERS www.mfs.com
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
- --------------------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Contract Owners,
It has been almost two years since financial turmoil began to rock markets in
Asia, Russia, and Latin America. Even developed markets such as Europe and the
United States were not immune. In the U.S. equity market, for example, investors
focused on a narrow group of 50 of the largest-company growth stocks because
they seemed to offer less volatility in uncertain times. Fixed-income investors
also became more concerned about risk, moving money into U.S. Treasury
securities and out of corporate and municipal bonds and mortgage- backed
securities.
The narrowness of the market was just one of three broad issues that dominated
the U.S. equity market until recently. The other two were a slowdown in
corporate earnings growth and high valuations, with stocks of many companies
selling at extremely high prices relative to their earnings.
Although these have been challenging issues, we now see signs that we feel
demonstrate each one is changing for the better. Today, we believe the markets
are presenting more opportunities for investors to diversify, for our portfolio
managers to find good values, and for us to show the benefits of staying with
our long-term objectives and strategies. Investors seem to be regaining
confidence in a wider range of companies. Stocks of some small and mid-sized
companies, as well as some large industrial companies, have begun to perform
better in the past few months than they had for the previous year or so. These
companies appear to have benefited from early signs of stability in emerging
markets and a continuation of economic growth in the United States.
U.S. companies also have produced better earnings. Corporate earnings were, on
average, relatively flat in 1998. However, we expect earnings to grow 12% to 14%
this year because more companies have benefited from the strong economy and from
aggressive consolidation and cost-cutting measures they have taken over the past
several years.
Based on their earnings projections, our analysts estimate that the U.S. stock
market is still about 30% overvalued. While there has been some shift to a wider
group of stocks, many investors are still focusing on the large-company stocks.
As a result, most of the overvaluation is in the 50 largest stocks in the
Standard & Poor's 500 Composite Index (the S&P 500), a popular, unmanaged index
of common stock total return performance. That means about 450 stocks are
selling at more attractive prices, particularly given what we see as the
improved earnings outlooks for these and many small and mid-sized companies not
in the S&P 500. These companies also benefit from consolidation, cost cutting,
and global growth. Because they are smaller, they may be able to respond to
these changes more quickly, and thus they have the potential to grow faster than
the big companies.
The fixed-income markets, meanwhile, seem to be approaching the level of
relative stability they enjoyed before the Asian turmoil. Some credit for this
stability goes to the Federal Reserve Board (the Fed), which has reassured
investors that it will act to prevent rapid economic growth from causing higher
inflation and reduced purchasing power. Also, once investors saw that the
overseas turmoil had little, if any, effect on the financial strength of most
domestic bond issuers, the major non-Treasury markets -- corporate, municipal,
and mortgage -- began to rebound. Our portfolio managers are now finding more
opportunities to buy bonds with relatively stable prices and attractive yields.
The past two years have challenged investors. However, we believe we are well
positioned for the current environment because our analysts and portfolio
managers continue to rely on MFS(R) Original Research(SM) to help evaluate the
long-term investment potential of each holding being considered for our
portfolios. Also, we believe our discipline of staying with our clearly defined
investment strategies can help us offer investment products with the potential
to sustain returns over a variety of market cycles.
We appreciate your confidence and welcome any questions or comments you may
have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
July 15, 1999
MANAGEMENT REVIEW AND OUTLOOK
Dear Contract Owners,
For the six months ended June 30, 1999, the Series provided a total return of
- -1.20% (including the reinvestment of any distributions), which compares to a
- -2.28% return for the Lehman Brothers Government/Corporate Bond Index (the
Lehman Index). The Lehman Index is an unmanaged, market-value-weighted index
that includes U.S. Treasury and government-agency securities (excluding
mortgage-backed securities) and investment-grade debt obligations of U.S.
corporations.
At the beginning of 1999, ongoing turmoil in emerging markets and the lingering
effects of last summer's Russian bond default hurt performance. Because of these
events, investors moved money into what they saw as the safest securities --
U.S. Treasuries. (Principal value and interest on Treasury securities are
guaranteed by the U.S. government if held to maturity.) As a result of the
higher demand, interest rates on Treasuries fell, while rates on everything
else, including emerging market and corporate debt, increased. This sequence of
events hurt the Series because we had relatively heavy positions in corporate
bonds. (Bonds, if held to maturity, provide a fixed rate of return and a fixed
principal value. Bond funds will fluctuate and, when redeemed, may be worth more
or less than their original cost.)
In recent months, however, emerging markets have begun to rebound, and the
continuing strength of the U.S. economy, along with low U.S. inflation, has
supported corporate bonds. The Series' largest positions are in securities of
U.S. corporations that we believe have strong and improving credit fundamentals,
and we have added to those positions recently. We also have begun to re-enter
emerging markets, but we are investing only in countries that we think have made
the most progress toward economic reform, such as Mexico and South Korea.
The Series is at its maximum exposure of 20% to high-yield securities, and we
are maintaining this weighting. Many U.S. high-yield issuers, such as Building
Materials Corp. and Lyondell Chemical, have seen increased sales as a result of
the strong economy, which has helped them maintain healthy balance sheets and
meet their debt payments. We have decreased the Series' weightings in
mortgage-backed and U.S. government-agency securities because we felt there were
better opportunities in the corporate market.
At roughly 25% of the portfolio, our position in cyclical industries --
businesses that can benefit from strengthening economic cycles -- is at its
highest in five years. We are adding selectively to holdings in transportation
and paper that we think will perform well if the economy remains strong. One
example is Union Pacific Corp. Not only is this company increasing shipments
because of general economic growth, but it is also a turnaround story. When
Union Pacific acquired Southern Pacific a few years ago, it had a lot of
logistical problems integrating the two systems. But we think the company seems
to have fixed most of its operational problems and has regained any business it
had lost to truckers and other railroads. We added paper and packaging companies
to the portfolio because businesses need more boxes to ship their products to
customers. New holdings in this sector include UPM- Kymmene in Finland and
Georgia Pacific in the United States.
The Series also has a relatively large position in media and telecommunications,
a sector in which several companies' bond ratings have moved up from the
high-yield to the investment-grade category. These companies took on a lot of
debt in the early and mid-1990s to build networks and make acquisitions. Now,
their networks are providing revenue, and they have reaped the benefits of their
acquisitions by cutting costs, generating more cash flow, and paying off debt.
Examples include Time Warner, which bought Turner Broadcasting, and MCI
WorldCom, the result of the takeover of MCI by WorldCom.
Looking ahead, we think the fixed-income environment could become a little more
difficult as the year progresses. The economy grew strongly in the fourth
quarter of 1998 and the first quarter of 1999, and it will be hard to sustain
such a rapid growth rate. If there is an economic slowdown, we think revenues
could decrease and some companies could have trouble meeting their debt
payments. Therefore, if we see any signs of slowing in the economy, we will
reduce our exposure to corporate and cyclical issuers.
Respectfully,
/s/ Geoffrey L. Kurinsky
Geoffrey L. Kurinsky
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and are
current only through the end of the period of the report as stated on the cover.
The manager's views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
It is not possible to invest directly in an index.
The portfolio is actively managed, and current holdings may be different.
<PAGE>
PORTFOLIO MANAGER'S PROFILE
Geoffrey L. Kurinsky is Senior Vice President and a member of the Advisory Board
of MFS Investment Management(R). He is portfolio manager of MFS(R) Bond Fund,
MFS(R) Institutional Core Fixed Income Fund, MFS(R) Bond Series (part of MFS(R)
Variable Insurance Trust(SM)), and the Bond Series offered through MFS(R)/Sun
Life annuity products.
He joined the MFS Fixed Income Department in 1987 and was named portfolio
manager in 1989, Vice President in 1989, and Senior Vice President in 1993.
Mr. Kurinsky is a graduate of the University of Massachusetts and earned an
M.B.A. degree in finance from Boston University.
All portfolio managers at MFS Investment Management(R) are supported by an
investment staff of over 100 professionals utilizing MFS(R) Original
Research(SM), a company- oriented, bottom-up process of selecting securities.
SERIES FACTS
Objective: Seeks primarily to provide as high a level of current income as is
believed to be consistent with prudent investment risk and secondarily to
protect shareholders' capital.
Commencement of investment operations: October 24, 1995
Size: $23.0 million net assets as of June 30, 1999
This report is prepared for the general information of contract owners. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus. A prospectus containing more information,
including the exchange privilege and all charges and expenses, for any other MFS
product is available from your financial adviser, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
<PAGE>
PERFORMANCE SUMMARY
Because the Series is designed for investors with long-term goals, we have
provided the cumulative as well as the average annual total returns for the
applicable time periods. (See Notes to Performance Summary for more
information.)
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN THROUGH JUNE 30, 1999
6 Months 1 Year 3 Years Life*
- -----------------------------------------------------------------------------
Cumulative Total Return -1.20% +1.84% +22.37% +22.19%
- -----------------------------------------------------------------------------
Average Annual Total Return -- +1.84% + 6.96% + 5.59%
- -----------------------------------------------------------------------------
* For the period from the commencement of the Series' investment operations,
October 24, 1995, through June 30, 1999.
NOTES TO PERFORMANCE SUMMARY
All results are historical and assume the reinvestment of dividends and capital
gains. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND UNITS, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS. Performance results reflect any applicable
expense subsidies and waivers, without which the results would have been less
favorable. Subsidies and waivers may be rescinded at any time. See the
prospectus for details.
RETURNS SHOWN DO NOT REFLECT THE DEDUCTION OF THE MORTALITY AND EXPENSE RISK
CHARGES AND ADMINISTRATION FEES. PLEASE REFER TO THE ANNUITY PRODUCT'S ANNUAL
REPORT FOR PERFORMANCE THAT REFLECTS THE DEDUCTION OF THE FEES AND CHARGES
IMPOSED BY INSURANCE COMPANY SEPARATE ACCOUNTS.
<PAGE>
PORTFOLIO OF INVESTMENTS (Unaudited) - June 30, 1999
<TABLE>
Bonds - 92.3%
<CAPTION>
- --------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Bonds - 89.0%
Aerospace - 0.2%
BE Aerospace, Inc., 8s, 2008 $ 40 $ 37,400
- --------------------------------------------------------------------------------------------------
Airlines - 3.9%
Atlas Air, Inc., 7.2s, 2019 $ 58 $ 51,824
Continental Airlines Pass-Through Trust, Inc., 6.545s, 2019 100 94,284
Continental Airlines Pass-Through Trust, Inc., 6.648s, 2017 5 4,730
Continental Airlines Pass-Through Trust, Inc., 7.256s, 2020 200 201,410
Continental Airlines, Inc., 9.5s, 2013 5 4,936
Delta Air Lines, Inc., 6.65s, 2004 384 376,554
Jet Equipment Trust, 8.64s, 2012## 5 4,827
Jet Equipment Trust, 9.41s, 2010## 5 5,533
Northwest Airlines Pass-Through Trust, 7.575s, 2019 65 63,769
Northwest Airlines, Inc., 7.625s, 2005 20 18,299
Northwest Airlines, Inc., 8.52s, 2004 67 64,420
Northwest Airlines, Inc., 8.7s, 2007 8 7,630
-----------
$ 898,216
- --------------------------------------------------------------------------------------------------
Apparel and Textiles - 0.7%
Hilfiger (Tommy) USA, Inc., 6.5s, 2003 $ 15 $ 14,632
Hilfiger (Tommy) USA, Inc., 6.85s, 2008 11 10,330
Jones Apparel Group, Inc., 6.25s, 2001 14 13,947
Jones Apparel Group, Inc., 7.875s, 2006## 119 118,834
-----------
$ 157,743
- --------------------------------------------------------------------------------------------------
Auto Parts - 2.2%
Lear Corp., 7.96s, 2005## $ 350 $ 339,493
TRW Inc., 6.625s, 2004## 168 164,391
-----------
$ 503,884
- --------------------------------------------------------------------------------------------------
Automotive - 1.4%
Federal Mogul Corp., 7.5s, 2004 $ 193 $ 187,075
Federal Mogul Corp., 7.5s, 2004## 15 13,843
Federal Mogul Corp., 7.75s, 2006 130 124,476
-----------
$ 325,394
- --------------------------------------------------------------------------------------------------
Banks and Credit Companies - 5.9%
Bank United, 8s, 2009 $ 250 $ 242,420
Bayerische Landesbank NY, 5.875s, 2008 47 43,612
Capital One Financial Corp., 7.25s, 2003 435 427,267
Criimi Mae Commercial Mortgage Trust, 7s, 2011 250 219,971
GS Escrow Corp., 6.75s, 2001 83 81,985
GS Escrow Corp., 7.125s, 2005 295 284,124
Riggs National Corp., 8.5s, 2006 5 5,212
Washington Mutual Capital I, 8.375s, 2027 50 50,526
-----------
$ 1,355,117
- --------------------------------------------------------------------------------------------------
Building - 1.5%
Building Materials Corp., 8s, 2008 $ 340 $ 317,050
Nortek, Inc., 9.25s, 2007 20 20,050
-----------
$ 337,100
- --------------------------------------------------------------------------------------------------
Chemicals - 2.1%
Dow Capital BV, 9s, 2010 $ 80 $ 90,726
Lyondell Chemical Co., 9.625s, 2007## 340 348,075
Lyondell Chemical Co., 9.875s, 2007## 36 36,675
-----------
$ 475,476
- --------------------------------------------------------------------------------------------------
Consumer Goods and Services - 1.0%
Ahold Finance USA, Inc., 6.25s, 2009 $ 34 $ 32,024
Kindercare Learning Centers, Inc., 9.5s, 2009 25 23,688
Protection One Alarm Monitoring, Inc., 7.375s, 2005 50 48,467
RJR Nabisco, Inc., 7.75s, 2006## 133 131,795
-----------
$ 235,974
- --------------------------------------------------------------------------------------------------
Corporate Asset Backed - 0.8%
Amresco Residential Securities Mortgage Loan, 5.94s, 2015 $ 61 $ 60,657
Contimortgage Home Equity Loan Trust, 6.19s, 2014 125 123,241
-----------
$ 183,898
- --------------------------------------------------------------------------------------------------
Entertainment - 2.7%
Time Warner Entertainment Co., 8.375s, 2023 $ 307 $ 333,666
Time Warner Entertainment Co., 10.15s, 2012 240 295,147
-----------
$ 628,813
- --------------------------------------------------------------------------------------------------
Financial Institutions - 6.1%
Associates Corp., 5.75s, 2003 $ 400 $ 389,072
Contifinancial Corp., 7.5s, 2002 12 9,930
Donaldson Lufkin & Jenrette, 6.15s, 2004 69 67,275
First Empire Capital Trust I, 8.234s, 2027 5 4,818
General Motors Acceptance Corp., 6.85s, 2004 254 253,566
Goldman Sachs Group Inc., 6.65s, 2009 114 109,927
Goldman Sachs Group LP, 5.9s, 2003 160 156,301
Goldman Sachs Group LP, 6.625s, 2004## 60 59,576
Green Tree Financial Corp., 10.25s, 2002 80 84,060
Lehman Brothers Holdings Inc., 7s, 2003 261 259,369
-----------
$ 1,393,894
- --------------------------------------------------------------------------------------------------
Food and Beverage Products - 0.5%
Coca-Cola Bottling Co., 6.375s, 2009 $ 119 $ 111,988
Nabisco, Inc., 6.375s, 2035 10 9,576
-----------
$ 121,564
- --------------------------------------------------------------------------------------------------
Forest and Paper Products - 2.2%
Georgia Pacific Corp., 7.25s, 2028 $ 83 4 77,738
Georgia Pacific Corp., 9.5s, 2022 50 55,245
Georgia Pacific Corp., 9.95s, 2002 305 331,965
Riverwood International Corp., 10.25s, 2006 35 35,350
U.S. Timberlands, 9.625s, 2007 10 10,075
-----------
$ 510,373
- --------------------------------------------------------------------------------------------------
Gaming and Hotels - 0.5%
Harrahs Operating Co., Inc., 7.5s, 2009 $ 129 $ 125,019
- --------------------------------------------------------------------------------------------------
Government National Mortgage Association - 5.0%
GNMA, 6.5s, 2028 $ 56 $ 54,068
GNMA, 7s, 2027 - 2028 371 366,083
GNMA, 7.5s, 2025 - 2027 369 372,829
GNMA, 8s, 2025 6 5,728
GNMA, TBA, 7s, 2028 134 132,433
GNMA, TBA, 7.5s, 2026 211 212,491
-----------
$ 1,143,632
- --------------------------------------------------------------------------------------------------
Industrial - 0.6%
Natexis Ambs Co. LLC, 8.44s, 2049## $ 143 $ 137,995
- --------------------------------------------------------------------------------------------------
Insurance - 0.9%
Aflac, Inc., 6.5s, 2009 $ 123 $ 118,079
Atlantic Mutual Insurance Co., 8.15s, 2028## 24 20,814
Conseco, Inc., 6.4s, 2001 25 24,430
Providian Capital I, 9.525s, 2027## 42 39,838
-----------
$ 203,161
- --------------------------------------------------------------------------------------------------
Media - 0.7%
Chancellor Media Corp., 8.75s, 2007 $ 10 $ 9,950
Frontiervision Operating Partnership LP, 11s, 2006 20 22,000
Liberty Media Corp., 7.875s, 2009## 115 114,315
Outdoor Systems, Inc., 8.875s, 2007 10 10,450
-----------
$ 156,715
- --------------------------------------------------------------------------------------------------
Medical and Health Products - 0.1%
Bausch & Lomb, Inc., 6.5s, 2005 $ 15 $ 14,202
- --------------------------------------------------------------------------------------------------
Metals and Minerals - 0.1%
Kaiser Aluminum & Chemical Corp., 10.875s, 2006 $ 25 $ 26,000
- --------------------------------------------------------------------------------------------------
Oil Services - 1.3%
McDermott, Inc., 9.375s, 2002 $ 283 $ 294,719
Ultramar Diamond Shamrock Corp., 7.2s, 2017 5 4,717
-----------
$ 299,436
- --------------------------------------------------------------------------------------------------
Oils - 0.8%
Husky Oil Ltd., 8.9s, 2028 $ 36 $ 33,947
Petroleum Geo-Services, 6.25s, 2003 140 135,702
Seagull Energy Corp., 7.5s, 2027 9 7,601
-----------
$ 177,250
- --------------------------------------------------------------------------------------------------
Railroads - 0.2%
Union Pacific Corp., 6.34s, 2003 $ 44 $ 43,327
- --------------------------------------------------------------------------------------------------
Retail - 4.5%
Dillards, Inc., 7.13s, 2018 $ 20 $ 18,523
Kohl's Corp., 7.25s, 2029## 134 130,014
Rite Aid Corp., 6.5s, 2003## 83 78,972
Rite Aid Corp., 7.125s, 2007 135 131,501
Saks, Inc., 7.25s, 2004 269 269,566
Saks, Inc., 8.25s, 2008 381 400,560
-----------
$ 1,029,136
- --------------------------------------------------------------------------------------------------
Supermarkets - 1.7%
Safeway, Inc., 5.875s, 2001 $ 400 $ 395,732
- --------------------------------------------------------------------------------------------------
Telecommunications - 8.1%
Cable & Wireless Communications, 6.75s, 2008 $ 86 $ 82,784
Cable & Wireless Communications, 8.125s, 2009## 100 101,190
Century Communications Corp., 0s, 2008 200 88,000
Charter Communications Holdings LLC, 8.25s, 2007 500 476,250
Comcast Cable Communications, 6.2s, 2008 72 66,969
Comcast Cable Communications, 8.375s, 2007 98 104,956
Global Crossing Holdings Ltd., 9.625s, 2008 351 379,080
Hyperion Telecommunications, Inc., 12s, 2007 30 30,300
MCI WorldCom, Inc., 6.95s, 2028 34 32,230
MCI WorldCom, Inc., 8.875s, 2006 5 5,323
Qwest Communications International, Inc., 7.5s, 2008 35 34,996
Sprint Capital Corp., 6.9s, 2019 103 95,376
TCI Communications Financing III, 9.65s, 2027 280 316,854
Telecomunicaciones de Puerto, 6.65s, 2006## 45 43,440
-----------
$ 1,857,748
- --------------------------------------------------------------------------------------------------
U.S. Federal Agencies - 3.3%
Federal Home Loan Banks, 5.7s, 2009 $ 300 $ 281,531
Federal Home Loan Mortgage Corp. Gold PCS, TBA, 6.5s, 2029 340 327,974
Federal National Mortgage Assn., TBA, 7s, 2029 158 156,536
-----------
$ 766,041
- --------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 17.8%
U.S. Treasury Bonds, 5.25s, 2028 $1,862 $ 1,662,465
U.S. Treasury Bonds, 5.5s, 2028 252 230,736
U.S. Treasury Bonds, 6.125s, 2027 510 506,573
U.S. Treasury Notes, 4.25s, 2003 750 708,165
U.S. Treasury Notes, 5.25s, 2004 493 484,451
U.S. Treasury Notes, 5.5s, 2009 261 254,963
U.S. Treasury Notes, 6.5s, 2005 40 41,231
U.S. Treasury Notes, 7.25s, 2004 190 201,972
-----------
$ 4,090,556
- --------------------------------------------------------------------------------------------------
Utilities - Electric - 8.8%
AEP Generating, 9.81s, 2022 $ 200 $ 238,749
Beaver Valley Funding Corp. II, 9s, 2017 350 384,055
CalEnergy Co., Inc., 7.52s, 2008 10 10,048
CalEnergy Co., Inc., 8.48s, 2028 36 38,418
Cleveland Electric Illuminating Co., 7.88s, 2017 20 20,373
Cleveland Electric Illuminating Co., 9s, 2023 182 196,773
CMS Energy Corp., 7.5s, 2009 200 189,982
CMS Energy Corp., 8s, 2001 62 61,759
Connecticut Light & Power Co., 7.875s, 2001 135 138,046
Connecticut Light & Power Co., 8.59s, 2003 100 105,651
Entergy Mississippi, Inc., 6.2s, 2004 71 68,991
GGIB Funding Corp., 7.43s, 2011 43 42,030
Gulf States Utilities Co., 8.21s, 2002 53 54,388
Midland Cogeneration Venture Corp., 10.33s, 2002 10 10,450
Niagara Mohawk Power Corp., 7.75s, 2006 20 20,754
Niagara Mohawk Power Corp., 8.5s, 2023 10 10,731
Northeast Utilities, 8.58s, 2006 12 11,683
Salton Sea Funding Corp., 7.84s, 2010 145 151,408
Seabrook Station - Unit 1, 7.83s, 2019 9 8,810
Toledo Edison Co., 7.875s, 2004 125 127,106
TXU Eastern Funding Co., 6.45s, 2005## 43 41,539
Waterford 3 Funding Entergy Corp., 8.09s, 2017 96 96,971
-----------
$ 2,028,715
- --------------------------------------------------------------------------------------------------
Utilities - Gas - 3.4%
CE Generation LLC, 7.416s, 2018## $ 220 $ 210,254
Marlin Water Trust & Capital, 7.09s, 2001## 197 197,817
Northern Natural Gas Co. of Delaware, 7s, 2011## 280 272,723
Texas Gas Transmission Corp., 7.25s, 2027 100 94,525
-----------
$ 775,319
- --------------------------------------------------------------------------------------------------
Total U.S. Bonds $20,434,830
- --------------------------------------------------------------------------------------------------
Foreign Bonds - 3.3%
Brazil - 0.4%
Federal Republic of Brazil, 5s, 2014 $ 72 $ 46,257
Federal Republic of Brazil, 11.625s, 2004 50 46,565
-----------
$ 92,822
- --------------------------------------------------------------------------------------------------
Chile - 1.0%
Empresa Electric Guacolda S.A., 7.6s, 2001 (Utilities
- Electric)## $ 250 $ 237,508
Empresa Nacional de Electric, 7.325s, 2037 (Utilities
- Electric) 5 4,438
-----------
$ 241,946
- --------------------------------------------------------------------------------------------------
Costa Rica - 0.3%
Republic of Costa Rica, 9.335s, 2009## $ 63 $ 61,425
- --------------------------------------------------------------------------------------------------
Finland - 0.4%
UPM Kymmene Corp., 7.45s, 2027 (Forest and Paper Products)## $ 100 $ 94,262
- --------------------------------------------------------------------------------------------------
Mexico - 0.4%
United Mexican States, 9.75s, 2005 $ 25 $ 25,375
United Mexican States, 10.375s, 2009 55 56,100
-----------
$ 81,475
- --------------------------------------------------------------------------------------------------
Panama - 0.1%
Republic of Panama, 4s, 2014 $ 25 $ 18,312
- --------------------------------------------------------------------------------------------------
Philippines - 0.3%
Republic of Philippines, 9.875s, 2019 $ 72 $ 70,560
- --------------------------------------------------------------------------------------------------
South Korea - 0.4%
Export Import Bank Korea, 7.1s, 2007 (Banks and Credit Cos.) $ 80 $ 79,080
Republic of South Korea, 8.875s, 2008 20 20,880
-----------
$ 99,960
- --------------------------------------------------------------------------------------------------
Total Foreign Bonds $ 760,762
- --------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $21,751,079) $21,195,592
- --------------------------------------------------------------------------------------------------
Short-Term Obligations - 8.8%
- --------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- --------------------------------------------------------------------------------------------------
Federal Farm Credit Bank, due 7/01/99, at Amortized Cost $2,025 $ 2,025,000
- --------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $23,776,079) $23,220,592
Other Assets, Less Liabilities - (1.1)% (247,879
- --------------------------------------------------------------------------------------------------
Net Assets - 100.0% $22,972,713
- --------------------------------------------------------------------------------------------------
## SEC Rule 144A restriction.
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- -------------------------------------------------------------------------------
JUNE 30, 1999
- -------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $23,776,079) $23,220,592
Cash 4,381
Receivable for Series shares sold 86,073
Receivable for investments sold 665,197
Interest receivable 285,696
Deferred organization expenses 2,425
Other assets 25
-----------
Total assets $24,264,389
-----------
Liabilities:
Payable for Series shares reacquired $ 2,337
Payable for investments purchased 1,287,295
Payable to affiliates -
Management fee 374
Shareholder servicing agent fee 22
Administrative fee 9
Accrued expenses and other liabilities 1,639
-----------
Total liabilities $ 1,291,676
-----------
Net assets $22,972,713
===========
Net assets consist of:
Paid-in capital $23,155,887
Unrealized depreciation on investments and translation of
assets and liabilities in foreign currencies (555,487)
Accumulated distributions in excess of net realized gains on
investments and foreign currency transactions (138,345)
Accumulated undistributed net investment income 510,658
-----------
Total $22,972,713
===========
Shares of beneficial interest outstanding 2,093,541
=========
Net asset value per share
(net assets / shares of beneficial interest outstanding) $10.97
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations (Unaudited)
- -------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1999
- -------------------------------------------------------------------------------
Net investment income (loss):
Interest income $ 597,450
----------
Expenses -
Management fee $ 51,179
Trustees' compensation 1,246
Shareholder servicing agent fee 2,985
Administrative fee 1,279
Auditing fee 20,129
Printing 14,577
Custodian fee 3,722
Legal fee 1,042
Amortization or organization expenses 910
Miscellaneous 1,709
----------
Total expenses $ 98,778
Fees paid indirectly (390)
Reduction of expenses by investment adviser (13,089)
----------
Net expenses $ 85,299
----------
Net investment income $ 512,151
----------
Realized and unrealized gain (loss) on investments:
Realized loss (identified cost basis) -
Investment transactions $ (135,143)
Foreign currency transactions (565)
----------
Net realized loss on investments and foreign currency
transactions $ (135,708)
----------
Change in unrealized appreciation (depreciation) -
Investments $ (650,465)
Translation of assets and liabilities in foreign currencies 75
----------
Net unrealized depreciation on investments and foreign
currency translation $ (650,390)
----------
Net realized and unrealized loss on investments and
foreign currency $ (786,098)
----------
Decrease in net assets from operations $ (273,947)
==========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 512,151 $ 424,123
Net realized gain (loss) on investments and foreign
currency transactions (135,708) 28,852
Net unrealized gain (loss) on investments and foreign
currency translation (650,390) 37,309
----------- -----------
Increase (decrease) in net assets from operations $ (273,947) $ 490,284
----------- -----------
Distributions declared to shareholders -
From net investment income $ (424,158) $ (139,107)
From net realized gain on investments and foreign
currency transactions (29,276) (68,528)
In excess of net realized gain on investments and
foreign currency transactions (2,637) --
----------- -----------
Total distributions declared to shareholders $ (456,071) $ (207,635)
----------- -----------
Increase in net assets from Series share transactions $11,538,210 $ 7,878,318
----------- -----------
Total increase in net assets $10,808,192 $ 8,160,967
Net assets:
At beginning of period 12,164,521 4,003,554
----------- -----------
At end of period (including accumulated undistributed
net investment income of $510,658 and $422,665,
respectively) $22,972,713 $12,164,521
=========== ===========
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED -------------------------------------------------------------
JUNE 30, 1999 1998 1997 1996 1995*
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $11.38 $11.08 $10.06 $10.19 $10.00
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.33 $ 0.64 $ 0.64 $ 0.58 $ 0.09
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (0.46) 0.09 0.38 (0.36) 0.21
------ ------ ------ ------ ------
Total from investment operations $(0.13) $ 0.73 $ 1.02 $ 0.22 $ 0.30
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.26) $(0.29) $ -- $(0.35) $(0.09)
From net realized gain on investments and
foreign currency transactions (0.02) (0.14) -- -- (0.02)
In excess of net realized gain on
investments and foreign currency
transactions (0.00)+++ -- -- -- --
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.28) $(0.43) $ -- $(0.35) $(0.11)
------ ------ ------ ------ ------
Net asset value - end of period $10.97 $11.38 $11.08 $10.06 $10.19
====== ====== ====== ====== ======
Total return (1.20)%++ 6.79% 10.14% 2.09% 3.02%++
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 1.01%+ 1.02% 1.01% 1.03% 1.00%+
Net investment income 6.01%+ 5.76% 6.04% 5.84% 4.89%+
Portfolio turnover 157% 244% 219% 231% 55%
Net assets at end of period (000 omitted) $22,973 $12,165 $4,004 $853 $228
(S) Subject to reimbursement by the Series, the investment adviser agreed to maintain the expenses of the Series, exclusive of
management fee, at not more than 0.40% of average daily net assets. To the extent that actual expenses were over this
limitation, the net investment income (loss) per share and the ratios would have been:
Net investment income (loss)# $0.32 $ 0.61 $ 0.37 $(0.26) $(0.70)
Ratios (to average net assets):
Expenses## 1.16% 1.23% 3.58% 9.45% 43.85%+
Net investment income (loss) 5.86% 5.55% 3.46% (2.61)% (37.96)%+
* For the period from the commencement of the Series' investment operations, October 24, 1995, through December 31, 1995.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## The 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. The Series' expenses are calculated without reduction for this
expense offset arrangement.
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS Bond Series (the Series) is a diversified series of MFS(R) Variable
Insurance Trust(SM) (the Trust) which is comprised of the following 15 Series:
MFS Bond Series, MFS(R) Capital Opportunities Series (formerly MFS(R) Value
Series), MFS(R) Emerging Growth Series, MFS(R)/Foreign & Colonial Emerging
Markets Equity Series, MFS(R) Global Equity Series, MFS(R) Global Government
Series (formerly MFS(R) World Governments Series), MFS(R) Growth Series, MFS(R)
Growth with Income Series, MFS(R) High Income Series, MFS(R) Limited Maturity
Series, MFS(R) Money Market Series, MFS(R) New Discovery Series, MFS(R) Research
Series, MFS(R) Total Return Series, and MFS(R) Utilities Series. The Trust is
organized as a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company.
The shareholders of the Series of the Trust are separate accounts of insurance
companies which offer variable annuity and/or life insurance products. As of
June 30, 1999, there were 16 shareholders in the Series.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Investments
in foreign securities are vulnerable to the effects of changes in the relative
values of the local currency and the U.S. dollar and to the effects of changes
in each country's legal, political, and economic environment.
Investment Valuations - Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues and forward contracts are
valued on the basis of valuations furnished by dealers or by a pricing service
with consideration to factors such as institutional-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics, and other market data, without exclusive reliance upon
exchange or over-the-counter prices. Short- term obligations, which mature in 60
days or less, are valued at amortized cost, which approximates market value.
Securities for which there are no such quotations or valuations are valued at
fair value as determined in good faith by the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates of
such transactions. Gains and losses attributable to foreign currency exchange
rates on sales of securities are recorded for financial statement purposes as
net realized gains and losses on investments. Gains and losses attributable to
foreign exchange rate movements on income and expenses are recorded for
financial statement purposes as foreign currency transaction gains and losses.
That portion of both realized and unrealized gains and losses on investments
that results from fluctuations in foreign currency exchange rates is not
separately disclosed.
Deferred Organization Expenses - Costs incurred by the Series in connection with
its organization have been deferred and are being amortized on a straight-line
basis over a five-year period beginning on the date of commencement of Series
operations.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All discount is
accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Interest payments received in additional
securities are recorded on the ex-interest date in an amount equal to the value
of the security on such date.
Fees Paid Indirectly - The Series' custody fee is calculated as a percentage of
the Series' month end net assets. The fee is reduced according to an arrangement
that measures the value of cash deposited with the custodian by the Series. This
amount is shown as a reduction of expenses on the Statement of Operations.
Tax Matters and Distributions - The Series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The Series
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits are reported in the financial statements as distributions from paid-in
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains.
(3) Transactions with Affiliates
Investment Adviser - The Series has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.60% of
the Series' average daily net assets. The Series has a temporary expense
reimbursement agreement whereby MFS has voluntarily agreed to pay all of the
Series' operating expenses, exclusive of management fees. The Series in turn
will pay MFS an expense reimbursement fee not greater than 0.40% of average
daily net assets. To the extent that the expense reimbursement fee exceeds the
Series' actual expenses, the excess will be applied to amounts paid by MFS in
prior years. At June 30, 1999, the aggregate unreimbursed expenses owed to MFS
by the Series amounted to $146,688.
Administrator - The Series has an administrative services agreement with MFS to
provide the Series with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Series pays MFS an administrative fee
at the following annual percentages of the Series' average daily net assets:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the Series' average daily net assets at an effective annual rate
of 0.035%.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions and
short-term obligations, were as follows:
PURCHASES SALES
- -----------------------------------------------------------------------------
U.S. government securities $14,134,332 $11,208,680
----------- -----------
Investments (non-U.S. government securities) $21,620,129 $14,625,228
----------- -----------
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the Series, as computed on a federal income tax basis, are
as follows:
Aggregate cost $23,778,243
-----------
Gross unrealized depreciation $ (596,005)
Gross unrealized appreciation 38,354
-----------
Net unrealized depreciation $ (557,651)
===========
(5) Shares of Beneficial Interest
The Series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
Series shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999 YEAR ENDED DECEMBER 31, 1998
------------------------------ ----------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,122,349 $12,626,103 890,572 $9,947,215
Shares issued to shareholders in
reinvestment of distributions 40,576 456,070 19,405 207,633
Shares reacquired (137,856) (1,543,963) (202,741) (2,276,530)
--------- ----------- -------- ----------
Net increase 1,025,069 $11,538,210 707,236 $7,878,318
========= =========== ======== ==========
</TABLE>
(6) Line of Credit
The Series and other affiliated Series participate in a $820 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made to temporarily finance the repurchase of
Series shares. Interest is charged to each Series, based on its borrowings, at a
rate equal to the bank's base rate. In addition, a commitment fee, based on the
average daily unused portion of the line of credit, is allocated among the
participating Series at the end of each quarter. The commitment fee allocated to
the Fund for the six months ended June 30, 1999, was $66. The Fund had no
significant borrowings during the period.
<PAGE>
(C)1999 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
VFB-3 8/99 9M
