<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) EMERGING
GROWTH SERIES
<PAGE>
<TABLE>
MFS(R) EMERGING GROWTH 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 MANAGERS contact your financial adviser.
John W. Ballen*
Toni Y. Shimura* CUSTODIAN
State Street Bank and Trust Company
TREASURER
W. Thomas London* WORLD WIDE WEB
www.mfs.com
ASSISTANT TREASURERS
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
12.81% (including the reinvestment of any distributions). This compares to a
12.23% return over the same period for the Standard & Poor's 500 Composite
Index (the S&P 500), a popular, unmanaged index of common stock total return
performance, and to a 1.50% return for the Russell 2000 Total Return Index
(the Russell 2000), an unmanaged index comprised of 2,000 of the smallest
U.S.-domiciled company common stocks that are traded on the New York Stock
Exchange, the American Stock Exchange, and NASDAQ.
The Series' performance was impacted by three important factors. First, the
Series has holdings in small, mid-sized, and large companies. Until early
April, when the market began to broaden, its best-performing segment was made
up of a narrow group of about 50 of the largest-company growth stocks in the
S&P 500, as well as some Internet stocks. Prices of the large-company stocks,
relative to their earnings, reached excessive levels. Now, investors have
moved into a broader range of stocks that are selling at cheaper prices
relative to their earnings. We think the broadening of the market will
continue, and that should be a positive for the Series because it invests in
companies of all market capitalizations.
Second, the Series was affected by the fact that we have not invested in many
of the Internet stocks. While we have been reluctant to own Internet companies
that have unproven business models, we do own established companies such as
Cisco Systems, which provides systems to support Internet traffic, and Oracle,
which provides one of the leading enabling technologies for e-commerce. Many
of the Internet stocks, including new companies that have shown no profit,
performed very well in the early part of the year. However, when investors
became nervous over their valuations, they rushed out of them. Our investments
in stocks with proven business models helped to protect the portfolio from a
decline in Internet stock speculation.
The third factor has been our exposure to computer software companies. Many
software companies have faced uncertainty over the Year 2000 (Y2K) computer
issue. Earlier this year, it looked like many businesses would reduce their
spending on computer software and systems to give themselves time to ensure
their existing systems were Y2K ready. Although it now looks like spending
won't be cut as much as people feared, the stocks have been impacted. We think
the Y2K issue will be behind us by next spring. At that time, we think
companies such as BMC Software and Computer Associates, which are dominant in
their markets, should be among the best positioned in what we expect to be a
very rapidly growing industry.
Technology continues to be the Series' largest sector. Companies are still
increasing earnings growth by aggressively downsizing, restructuring, and
outsourcing many business functions. Technology allows these companies to be
more productive without necessarily hiring more people. We believe these
trends will continue both domestically and internationally, and they should
continue to benefit such holdings as Microsoft and Compuware.
Several of the Series' telecommunications and media holdings also have
performed well. MCI WorldCom is a dominant player in telecommunications and
the backbone of worldwide cellular traffic. MediaOne, which is being acquired
by AT&T, has been a big beneficiary of the growth of cable, both for
entertainment and for Internet access. Also, after several years of not being
able to increase prices, health maintenance organizations such as United
HealthCare have been raising their rates, which we think should make them more
profitable.
Respectfully,
/s/ John W. Ballen /s/ Toni Y. Shimura
John W. Ballen Toni Y. Shimura
Portfolio Manager Portfolio Manager
The opinions expressed in this report are those of the portfolio managers and
are current only through the end of the period of the report as stated on the
cover. The managers' 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 MANAGERS' PROFILES
John W. Ballen is President, Chief Investment Officer, and a member of the
Board of Directors of MFS Investment Management(R). He is portfolio manager of
MFS(R) Emerging Growth Fund. Mr. Ballen is also a portfolio manager of MFS(R)
Institutional Emerging Equities Fund, MFS(R) Emerging Growth Series (part of
MFS(R) Variable Insurance Trust(SM)), the Emerging Growth Series offered
through MFS(R)/Sun Life annuity products, MFS(R) Institutional Mid Cap Growth
Fund, MFS(R) Global Growth Fund, and the Global Growth Series offered through
MFS(R)/Sun Life annuity products. Mr. Ballen joined the MFS Research
Department in 1984 as a research analyst. He was named Investment Officer and
portfolio manager in 1986, Vice President in 1987, Director of Research in
1988, Senior Vice President in 1990, Director of Equity Portfolio Management
in 1993, Chief Equity Officer in 1995, Executive Vice President in 1997, and
President, Chief Investment Officer, and a member of the Board in 1998. Mr.
Ballen is a graduate of Harvard College and earned a Master of Commerce degree
from the University of New South Wales in Australia and an M.B.A. degree from
Stanford University.
Toni Y. Shimura is Senior Vice President of MFS Investment Management(R) and
portfolio manager of MFS(R) Managed Sectors Fund and the Managed Sectors
Series offered through MFS(R)/Sun Life annuity products. She is also a
portfolio manager of MFS(R) Global Growth Fund, MFS(R) Emerging Growth Series
(part of MFS(R) Variable Insurance Trust(SM)), and the Global Growth Series
and the Emerging Growth Series, both offered through MFS(R)/Sun Life annuity
products. Ms. Shimura joined MFS in 1987 as a research analyst. She was named
Investment Officer in 1990, Assistant Vice President in 1991, Vice President
in 1992, portfolio manager in 1993, and Senior Vice President in 1999. Ms.
Shimura is a graduate of Wellesley College and the Sloan School of Management
of the Massachusetts Institute of Technology.
All equity portfolio managers began their careers at MFS Investment
Management(R) as research analysts. Our portfolio managers 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 long-term growth of capital.
Commencement of investment operations: July 24, 1995
Size: $1.2 billion 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.)
<TABLE>
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN THROUGH JUNE 30, 1999
<CAPTION>
6 Months 1 Year 3 Years Life*
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return +12.81% +24.52% +87.62% +153.49%
- -------------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +24.52% +23.34% + 26.65%
- -------------------------------------------------------------------------------------------------------------------
* For the period from the commencement of the Series' investment operations, July 24, 1995, through June 30, 1999.
</TABLE>
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.
Investing in small or emerging growth companies involves greater risk than is
customarily associated with more-established companies. These risks may
increase unit price volatility. See the prospectus for details.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - June 30, 1999
Stocks - 93.9%
<CAPTION>
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ISSUER SHARES VALUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 87.7%
Advertising - 0.1%
Big Flower Holdings, Inc.* 2,000 $ 63,750
Lamar Advertising Co., "A"* 1,200 49,125
Omnicom Group, Inc. 12,200 976,000
Outdoor Systems, Inc.* 3,900 142,350
--------------
$ 1,231,225
- --------------------------------------------------------------------------------------------------------
Aerospace - 0.2%
Allied Signal, Inc. 27,900 $ 1,757,700
Gulfstream Aerospace Corp.* 1,400 94,588
--------------
$ 1,852,288
- --------------------------------------------------------------------------------------------------------
Airlines
Airborne Freight Corp. 1,700 $ 47,069
Atlas Air, Inc.* 1,950 62,887
Skywest, Inc. 1,800 44,888
--------------
$ 154,844
- --------------------------------------------------------------------------------------------------------
Agricultural Products
Case Corp. 9,300 $ 447,563
- --------------------------------------------------------------------------------------------------------
Automotive - 0.1%
AutoNation, Inc.* 7,400 $ 131,813
Dana Corp. 8,000 368,500
Dura Automotive Systems, Inc.* 1,100 36,575
Group 1 Automotive, Inc.* 2,200 46,475
--------------
$ 583,363
- --------------------------------------------------------------------------------------------------------
Banks and Credit Companies
First Tennessee National Corp. 1,700 $ 65,131
- --------------------------------------------------------------------------------------------------------
Biotechnology - 0.1%
Waters Corp.* 12,600 $ 669,375
- --------------------------------------------------------------------------------------------------------
Broadcasting - 0.2%
Hispanic Broadcasting Corp.* 1,800 $ 136,575
Infinity Broadcasting Corp.* 86,300 2,567,425
Source Media, Inc.* 2,900 49,300
Westwood One, Inc.* 2,000 71,375
--------------
$ 2,824,675
- --------------------------------------------------------------------------------------------------------
Building
Sherwin Williams Co. 2,400 $ 66,600
- --------------------------------------------------------------------------------------------------------
Business Machines - 1.8%
Affiliated Computer Services, Inc., "A"* 1,600 $ 81,000
Seagate Technology, Inc.* 2,800 71,750
Texas Instruments, Inc. 153,400 22,243,000
--------------
$ 22,395,750
- --------------------------------------------------------------------------------------------------------
Business Services - 1.7%
Abacus Direct Corp.* 800 $ 73,200
Affiliated Managers Group, Inc.* 1,800 54,338
BISYS Group, Inc.* 37,500 2,193,750
Building One Services Corp.* 1,176 16,317
Ceridian Corp.* 8,800 287,650
Computer Horizons Corp.* 7,600 104,975
Concord EFS, Inc.* 2,100 88,856
First Data Corp. 316,700 15,498,506
Fiserv, Inc.* 2,100 65,756
IMRglobal Corp.* 62,500 1,203,125
Insight Enterprises, Inc.* 1,650 40,838
Interim Services, Inc.* 3,350 69,094
Learning Tree International, Inc.* 98,300 1,075,156
Metamor Worldwide, Inc.* 3,800 91,437
Pegasus Systems, Inc.* 1,600 59,900
Professional Detailing, Inc.* 1,400 32,900
--------------
$ 20,955,798
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Computer Hardware - Systems
Maxtor Corp.* 4,200 $ 21,131
- --------------------------------------------------------------------------------------------------------
Computer Software - Personal Computers - 5.2%
Microsoft Corp.* 718,400 $ 64,790,700
Verity, Inc.* 1,600 86,700
--------------
$ 64,877,400
- --------------------------------------------------------------------------------------------------------
Computer Software - Services - 0.8%
EMC Corp.* 21,800 $ 1,199,000
Informatica Corp.* 900 32,062
Internet Commerce Corp.* 13,900 180,700
Sun Microsystems, Inc.* 126,400 8,705,800
--------------
$ 10,117,562
- --------------------------------------------------------------------------------------------------------
Computer Software - Systems - 8.9%
ACT Networks, Inc.* 3,600 $ 61,425
Adaptec, Inc.* 172,800 6,102,000
Adobe Systems, Inc. 1,100 90,372
Ariba, Inc.* 2,100 204,225
Aspen Technology, Inc.* 1,300 15,275
BMC Software, Inc.* 135,280 7,305,120
Business Objects S.A.* 2,000 73,000
Cadence Design Systems, Inc.* 295,300 3,765,075
Checkfree Holdings Corp.* 2,400 66,150
Clarify, Inc.* 2,500 103,125
Computer Associates International, Inc. 230,200 12,661,000
Compuware Corp.* 329,290 10,475,538
CSG Systems International, Inc.* 1,600 41,900
Etec Systems, Inc.* 1,300 43,225
Inktomi Corp.* 18,300 2,406,450
Keane, Inc. 13,600 307,700
Manugistics Group, Inc.* 19,000 275,500
NCR Corp.* 1,400 68,338
Oracle Corp.* 1,775,875 65,929,359
Redback Networks, Inc.* 600 75,338
SunGard Data Systems, Inc.* 18,000 621,000
Synopsys, Inc.* 2,200 121,412
Vantive Corp.* 9,600 109,800
--------------
$ 110,922,327
- --------------------------------------------------------------------------------------------------------
Conglomerates - 0.2%
Kansas City Southern Industries, Inc. 32,200 $ 2,054,762
- --------------------------------------------------------------------------------------------------------
Construction Services
Martin Marietta Materials, Inc. 1,600 $ 94,400
- --------------------------------------------------------------------------------------------------------
Consumer Goods and Services - 6.2%
Atwood Oceanics, Inc.* 2,100 $ 65,625
Callaway Golf Co. 5,200 76,050
Carson, Inc., "A"* 69,300 229,556
Dial Corp. 1,900 70,656
Galileo International, Inc. 18,400 983,250
Sotheby's Holdings, Inc. 2,200 83,875
The Mead Corp. 39,700 1,657,475
TV Guide, Inc.* 1,600 58,600
Tyco International Ltd. 776,179 73,542,961
Whittaker Corp.* 3,100 86,800
--------------
$ 76,854,848
- --------------------------------------------------------------------------------------------------------
Containers
Owens Illinois, Inc.* 3,600 $ 117,675
Sealed Air Corp.* 1,400 90,825
Smurfit-Stone Container Corp.* 3,500 71,969
U.S. Can Corp.* 300 6,675
--------------
$ 287,144
- --------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.4%
Honeywell, Inc. 44,100 $ 5,110,087
Jabil Circuit, Inc.* 1,600 72,200
Micrel, Inc.* 1,200 88,800
--------------
$ 5,271,087
- --------------------------------------------------------------------------------------------------------
Electronics - 5.5%
Altera Corp.* 353,200 $ 13,002,175
Analog Devices, Inc.* 197,550 9,914,541
Applied Materials, Inc.* 164,600 12,159,825
Applied Micro Circuits Corp.* 1,500 123,375
Atmel Corp.* 27,600 722,775
ATMI, Inc.* 2,300 68,425
Burr-Brown Corp.* 2,000 73,250
Conexant Systems, Inc.* 1,800 104,512
Credence Systems Corp.* 2,400 89,100
Flextronics International Ltd.* 1,400 77,700
GlobeSpan, Inc.* 1,500 59,625
Level One Communications, Inc.* 1,600 78,300
Linear Technology Corp. 40,600 2,730,350
LSI Logic Corp.* 39,700 1,831,162
LTX Corp.* 6,300 83,869
Maxim Integrated Products, Inc.* 1,200 79,800
Microchip Technology, Inc.* 1,500 71,063
Micron Technology, Inc.* 33,500 1,350,469
MIPS Technologies, Inc.* 1,800 86,288
Optical Coating Laboratory, Inc. 1,200 100,350
Parker-Hannifin Corp. 2,400 109,800
Photronics, Inc.* 2,400 58,800
PMC-Sierra, Inc.* 2,600 153,237
Quanta Services, Inc.* 2,600 114,400
Sanmina Corp.* 7,800 591,825
SCI Systems, Inc.* 1,000 47,500
SIPEX Corp.* 1,600 32,800
Solectron Corp.* 56,300 3,754,506
Teradyne, Inc.* 94,500 6,780,375
The DII Group, Inc.* 2,600 97,012
Xilinx, Inc.* 237,300 13,585,425
--------------
$ 68,132,634
- --------------------------------------------------------------------------------------------------------
Energy
BJ Services Co.* 2,800 $ 82,425
Rowan Cos., Inc.* 5,200 95,875
--------------
$ 178,300
- --------------------------------------------------------------------------------------------------------
Entertainment - 8.6%
CBS Corp.* 161,200 $ 7,002,125
Clear Channel Communications, Inc.* 239,765 16,528,800
Comcast Corp.,"A" 523,300 20,114,344
Cox Radio, Inc.,"A"* 51,800 2,810,150
Gemstar International Group Ltd.* 37,500 2,446,875
Harrah's Entertainment, Inc.* 3,200 70,400
Hearst-Argyle Television, Inc.* 1,900 45,600
International Speedway Corp. 1,300 61,750
MediaOne Group, Inc.* 313,100 23,286,812
Premier Parks, Inc.* 2,300 84,525
Readers Digest Assn., Inc., "A" 2,000 79,500
Time Warner, Inc. 453,700 33,346,950
Univision Communications, Inc., "A"* 18,400 1,214,400
USA Networks, Inc.* 3,000 120,375
--------------
$ 107,212,606
- --------------------------------------------------------------------------------------------------------
Financial Institutions - 0.2%
Hambrecht & Quist Group, Inc.* 1,900 $ 70,538
CIT Group, Inc., "A" 1,500 43,312
Morgan Stanley Dean Witter & Co. 22,000 2,255,000
Paine Webber Group, Inc. 1,200 56,100
U.S. Trust Corp. 5,000 462,500
Waddell & Reed Financial, Inc., "A" 2,100 57,619
--------------
$ 2,945,069
- --------------------------------------------------------------------------------------------------------
Financial Services
FiNet.com, Inc.* 8,400 $ 46,725
- --------------------------------------------------------------------------------------------------------
Forest and Paper Products - 1.1%
Bowater, Inc. 2,600 $ 122,850
International Paper Co. 98,300 4,964,150
Weyerhaeuser Co. 115,000 7,906,250
--------------
$ 12,993,250
- --------------------------------------------------------------------------------------------------------
Internet
Ask Jeeves, Inc. 800 $ 11,200
GoTo.com, Inc.* 1,800 50,400
Software.com, Inc.* 1,500 34,781
--------------
$ 96,381
- --------------------------------------------------------------------------------------------------------
Leisure
Penske Motorsports, Inc.* 1,900 $ 94,288
Speedway Motorsports, Inc.* 1,700 66,831
--------------
$ 161,119
- --------------------------------------------------------------------------------------------------------
Machinery - 0.6%
Caterpillar, Inc. 29,800 $ 1,788,000
Deere & Co., Inc. 9,000 356,625
Eaton Corp. 55,000 5,060,000
SI Handling Systems, Inc. 23,350 245,175
--------------
$ 7,449,800
- --------------------------------------------------------------------------------------------------------
Manufacturing - 0.2%
Illinois Tool Works, Inc. 35,200 $ 2,886,400
- --------------------------------------------------------------------------------------------------------
Medical and Health Products - 0.4%
Biomatrix, Inc.* 1,800 $ 38,925
Boston Scientific Corp.* 115,700 5,083,569
C.R. Bard, Inc. 1,100 52,594
King Pharmaceuticals, Inc.* 4,800 124,200
Respironics, Inc.* 4,200 63,525
The Liposome, Inc.* 4,500 86,062
--------------
$ 5,448,875
- --------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 1.2%
Alpharma, Inc. 1,600 $ 56,900
Biogen, Inc.* 39,500 2,540,344
Cyberonics, Inc.* 300 3,750
Enzon, Inc.* 4,700 97,231
Gentex Corp.* 2,900 81,200
HealthSouth Corp.* 7,400 110,537
Henry Schein, Inc.* 1,000 31,688
IDEXX Laboratories, Inc.* 2,900 67,606
Imclone Systems, Inc.* 1,750 44,406
LifePoint Hospitals, Inc.* 3,099 41,643
Mid Atlantic Medical Services, Inc.* 5,500 54,313
PacifiCare Health Systems, Inc., "B"* 1,000 71,937
Province Healthcare Co.* 1,625 31,688
Transkaryotic Therapies, Inc.* 2,000 66,000
Triad Hospitals, Inc.* 3,099 41,837
United HealthCare Corp. 177,900 11,140,987
Wellpoint Health Networks, Inc.* 600 50,925
--------------
$ 14,532,992
- --------------------------------------------------------------------------------------------------------
Metal Fabrication
The Timken Co. 3,500 $ 68,250
- --------------------------------------------------------------------------------------------------------
Mining
Cyprus Amax Minerals Co. 5,400 $ 82,013
- --------------------------------------------------------------------------------------------------------
Office Equipment
United Stationers, Inc. 3,600 $ 79,200
- --------------------------------------------------------------------------------------------------------
Oil Services - 1.8%
Baker Hughes, Inc. 60,700 $ 2,033,450
Cal Dive International, Inc.* 2,500 74,688
Diamond Offshore Drilling, Inc. 72,700 2,062,862
ENSCO International, Inc. 73,500 1,465,406
Global Industries, Inc.* 8,500 108,906
Global Marine, Inc.* 29,800 460,038
Halliburton Co. 265,700 12,022,925
Nabors Industries, Inc.* 23,200 566,950
Noble Drilling Corp.* 137,700 2,710,969
Smith International, Inc.* 17,800 773,187
Varco International, Inc.* 5,300 57,969
--------------
$ 22,337,350
- --------------------------------------------------------------------------------------------------------
Oils - 0.3%
Apache Corp. 65,900 $ 2,570,100
Santa Fe International Corp. 52,100 1,198,300
--------------
$ 3,768,400
- --------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.5%
Andrx Corp.* 1,600 $ 123,400
Millennium Pharmaceuticals, Inc.* 2,700 97,200
Sepracor, Inc.* 69,100 5,614,375
--------------
$ 5,834,975
- --------------------------------------------------------------------------------------------------------
Printing and Publishing
Electronics for Imaging, Inc.* 1,800 $ 92,475
- --------------------------------------------------------------------------------------------------------
Restaurants and Lodging - 2.2%
Applebee's International, Inc. 2,800 $ 84,350
Brinker International, Inc.* 2,100 57,094
CEC Entertainment, Inc.* 1,700 71,825
Cendant Corp.* 1,319,504 27,049,832
CKE Restaurants, Inc. 1,320 21,450
Four Seasons Hotels, Inc. 1,700 74,906
IHOP Corp.* 1,600 38,500
Papa John's International, Inc.* 1,300 58,094
Promus Hotel Corp.* 3,382 104,842
Starwood Hotels & Resorts 2,100 64,181
--------------
$ 27,625,074
- --------------------------------------------------------------------------------------------------------
Retail - 0.4%
bebe stores, inc.* 1,800 $ 61,200
Gap, Inc. 86,900 4,377,587
Intimate Brands, Inc. 5,040 238,770
Lands End, Inc.* 3,100 150,350
Quiksilver, Inc. 2,400 62,550
Tommy Hilfiger Corp.* 900 66,150
--------------
$ 4,956,607
- --------------------------------------------------------------------------------------------------------
Special Products and Services
Harmonic Lightwaves, Inc.* 1,700 $ 97,644
Millipore Corp. 2,000 81,125
Newport News Shipbuilding, Inc. 500 14,750
SPX Corp.* 2,900 242,150
Veritas DGC, Inc.* 4,200 76,912
--------------
$ 512,581
- --------------------------------------------------------------------------------------------------------
Stores - 2.5%
Abercrombie & Fitch Co.* 74,600 $ 3,580,800
AnnTaylor Stores Corp.* 1,500 67,500
Best Buy Co., Inc.* 35,700 2,409,750
Boise Cascade Office Products Corp.* 2,800 32,900
CompUSA, Inc.* 6,400 47,600
Consolidated Stores Corp.* 1,500 40,500
Corporate Express, Inc.* 11,400 79,800
Cost Plus, Inc. 1,800 81,900
CSK Auto Corp.* 1,700 45,900
General Nutrition Cos., Inc.* 3,400 79,263
Linens 'n Things, Inc.* 1,600 70,000
Micro Warehouse, Inc.* 94,800 1,694,550
Office Depot, Inc.* 796,700 17,577,194
Staples, Inc.* 44,825 1,386,773
Talbots, Inc. 2,400 91,500
Tiffany & Co. 6,500 627,250
Wal-Mart Stores, Inc. 53,300 2,571,725
--------------
$ 30,484,905
- --------------------------------------------------------------------------------------------------------
Technology
Galileo Technology Ltd.* 4,300 $ 194,844
- --------------------------------------------------------------------------------------------------------
Telecommunications - 33.8%
ADC Telecommunications, Inc.* 41,200 $ 1,877,175
Alltel Corp. 47,600 3,403,400
Amdocs Ltd.* 3,600 81,900
AT&T Corp.* 710,600 26,114,550
Aware, Inc.* 1,400 64,575
Cablevision Systems Corp.* 52,200 3,654,000
Centinal Cellular Corp.* 1,800 64,125
Century Communications Corp.* 20,600 947,600
CenturyTel, Inc. 95,025 3,777,244
Cincinnati Bell, Inc. 102,500 2,556,094
Cisco Systems, Inc.* 1,115,306 71,867,530
CommNet Cellular, Inc.* 3,500 91,875
CommScope, Inc.* 2,600 79,950
Copper Mountain Networks, Inc.* 1,100 84,975
Covad Communications Group, Inc.* 71,350 3,803,847
Cox Communications, Inc.* 63,600 2,341,275
Critical Path, Inc.* 400 22,125
DSP Communications, Inc.* 20,300 586,163
EchoStar Communications, Corp.* 700 107,406
Electro Scientific Industries, Inc.* 1,500 62,672
General Instrument Corp.* 65,000 2,762,500
General Motors Corp. 26,200 1,473,750
Global TeleSystems Group, Inc.* 327,380 26,517,780
Hyperion Telecommunications, Inc., "A"* 4,300 80,894
Intermedia Communications, Inc.* 49,400 1,482,000
ITC Deltacom, Inc.* 3,700 103,600
L-3 Communications Holding, Inc.* 1,600 77,300
Lucent Technologies, Inc. 185,500 12,509,656
MCI WorldCom, Inc.* 716,921 61,700,014
Metromedia Fiber Network, Inc., "A"* 116,600 4,190,312
Motorola, Inc. 245,850 23,294,287
NEXTEL Communications, Inc.* 183,800 9,224,462
Nortel Networks Corp. 231,900 20,131,819
Novell, Inc.* 2,700 71,550
NTL, Inc.* 80,900 6,972,569
Oak Industries, Inc. 9,300 406,294
Omnipoint Corp.* 6,500 188,094
Powerwave Technologies, Inc.* 2,400 77,400
Premiere Technologies, Inc.* 5,200 59,800
QUALCOMM, Inc.* 251,600 36,104,600
Qwest Communications International, Inc.* 695,800 23,004,887
RF Micro Devices, Inc.* 1,200 89,550
Rhythms NetConnections, Inc.* 31,500 1,838,812
Scientific-Atlanta, Inc. 55,000 1,980,000
Sprint Corp. 318,700 16,831,344
Sprint Corp. (PCS Group) 319,500 18,251,437
Talk.com, Inc.* 43,100 484,875
TCA Cable TV, Inc. 1,800 99,900
Tellabs, Inc.* 318,800 21,538,925
Time Warner Telecom, Inc.* 3,600 104,400
U.S. Satellite Broadcasting Co., Inc., "A"* 3,900 69,981
Uniphase Corp.* 31,445 5,219,870
Viatel, Inc.* 13,700 768,913
Voicestream Wireless Corp.* 1,900 54,031
Western Wireless Corp.* 16,800 453,600
Winstar Communications, Inc.* 10,400 507,000
Tekelec Co.* 12,800 156,000
--------------
$ 420,470,687
- --------------------------------------------------------------------------------------------------------
Transportation
Navistar International Corp. 1,500 $ 75,000
- --------------------------------------------------------------------------------------------------------
Utilities - Electric - 0.3%
AES Corp.* 65,400 $ 3,801,375
Calpine Corp. 1,500 81,000
--------------
$ 3,882,375
- --------------------------------------------------------------------------------------------------------
Utilities - Gas - 0.8%
Williams Cos., Inc. 246,200 $ 10,478,887
- --------------------------------------------------------------------------------------------------------
Utilities - Telephone - 1.4%
Frontier Corp. 293,700 $ 17,328,300
- --------------------------------------------------------------------------------------------------------
Total U.S. Stocks $1,092,103,347
- --------------------------------------------------------------------------------------------------------
Foreign Stocks - 6.2%
Bermuda
Ace Ltd. (Insurance) 2,300 $ 64,975
- --------------------------------------------------------------------------------------------------------
Brazil
Telecomunicacoes Brasileiras S.A
(Telecommunications) 117,100 $ 7,319
- --------------------------------------------------------------------------------------------------------
Canada
QLT Phototherapeutics (Medical and Health
Products)* 1,600 $ 88,000
- --------------------------------------------------------------------------------------------------------
Finland - 1.1%
Nokia Corp., ADR (Telecommunications) 151,800 $ 13,899,188
- --------------------------------------------------------------------------------------------------------
Germany - 0.6%
Mannesmann AG (Conglomerate) 51,275 $ 7,661,636
- --------------------------------------------------------------------------------------------------------
Japan - 0.4%
Hitachi (Electronics) 467,000 $ 4,383,435
- --------------------------------------------------------------------------------------------------------
Mexico - 0.1%
Grupo Television S.A. de C.V., GDR (Entertainment)* 22,300 $ 999,319
- --------------------------------------------------------------------------------------------------------
Netherlands - 1.6%
ASM Lithography Holding N.V. (Computer Software -
Systems)* 31,900 $ 1,894,063
Equant N.V. (Computer Software - Services)* 104,900 9,873,712
Koninklijke Philips Electronics N.V. (Electronics) 45,028 4,542,200
New Holland N.V. (Agricultural Products) 5,000 85,625
STMicroelectronics N.V. (Electronics) 51,000 3,538,125
--------------
$ 19,933,725
- --------------------------------------------------------------------------------------------------------
South Korea
SK Telecom Ltd., ADR (Telecommunications)* 28,900 $ 491,300
- --------------------------------------------------------------------------------------------------------
Spain
Telefonica Publicidad e Informacion, S.A
(Telephone) 8,200 $ 163,509
- --------------------------------------------------------------------------------------------------------
Sweden - 0.8%
Ericsson LM, ADR (Telecommunications) 304,700 $ 10,036,056
- --------------------------------------------------------------------------------------------------------
United Kingdom - 1.6%
ARM Holdings PLC, ADR (Computer Software -
Systems)* 147,740 $ 5,152,432
ICON PLC, ADR (Biotechnology)* 300 5,888
Vodafone Group PLC (Telecommunications) 75,400 14,853,800
--------------
$ 20,012,120
- --------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 77,740,582
- --------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $861,597,769) $1,169,843,929
- --------------------------------------------------------------------------------------------------------
Short-Term Obligations - 9.6%
- --------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- --------------------------------------------------------------------------------------------------------
Federal Home Loan Bank, due 7/01/99 - 7/07/99 $ 44,400 $ 44,383,267
Federal Home Loan Mortgage Corp., due 7/14/99 - 7/29/99 60,000 59,847,505
Federal National Mortgage Assn., due 7/15/99 16,000 15,969,760
- --------------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 120,200,532
- --------------------------------------------------------------------------------------------------------
Other Short-Term Obligations - 15.5%
- --------------------------------------------------------------------------------------------------------
SHARES
- --------------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio,
(Identified Cost, $192,673,277) 192,673,277 $ 192,673,277
- --------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,174,471,578) $1,482,717,738
Other Assets, Less Liabilities - (19.0)% (236,716,748)
- --------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $1,246,000,990
- --------------------------------------------------------------------------------------------------------
* Non-income producing security.
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- --------------------------------------------------------------------------------
JUNE 30, 1999
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $1,174,471,578) $1,482,717,738
Cash 396,629
Receivable for Series shares sold 1,876,082
Receivable for investments sold 22,322,475
Interest and dividends receivable 287,574
Deferred organization expenses 1,959
Other assets 6,736
--------------
Total assets $1,507,609,193
--------------
Liabilities:
Payable for Series shares reacquired $ 526,555
Collateral for securities loaned, at value 192,673,277
Payable for investments purchased 68,340,668
Payable to affiliates -
Management fee 25,378
Administrative fee 491
Shareholder servicing agent fee 1,186
Accrued expenses and other liabilities 40,648
--------------
Total liabilities $ 261,608,203
--------------
Net assets $1,246,000,990
==============
Net assets consist of:
Paid-in capital $ 880,379,854
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 308,247,303
Accumulated undistributed net realized gain on investments
and foreign currency transactions 58,458,396
Accumulated net investment loss (1,084,563)
--------------
Total $1,246,000,990
==============
Shares of beneficial interest outstanding 51,427,402
==========
Net asset value, offering price, and redemption price per share
(net assets / shares of beneficial interest outstanding) $24.23
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations (Unaudited)
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
Net investment income (loss):
Income -
Interest $ 2,141,352
Dividends 1,178,186
Foreign taxes withheld (22,052)
------------
Total investment income $ 3,297,486
------------
Expenses -
Management fee $ 3,931,164
Trustees' compensation 1,123
Shareholder servicing agent fee 183,454
Administrative fee 77,923
Custodian fee 153,214
Printing 37,936
Auditing fee 16,004
Legal fees 592
Amortization of organization expenses 914
Miscellaneous 25,115
------------
Total expenses $ 4,427,439
Fees paid indirectly (45,390)
------------
Net expenses $ 4,382,049
------------
Net investment loss $ (1,084,563)
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 74,850,437
Foreign currency transactions (2,099)
------------
Net realized gain on investments and foreign currency
transactions $ 74,848,338
------------
Change in unrealized appreciation -
Investments $ 58,023,516
Translation of assets and liabilities in foreign currency 1,150
------------
Net unrealized gain on investments and foreign currency
translation $ 58,024,666
------------
Net realized and unrealized gain on investments and
foreign currency $132,873,004
------------
Increase in net assets from operations $131,788,441
============
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
<CAPTION>
- ------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment loss $ (1,084,563) $ (1,809,425)
Net realized gain (loss) on investments and foreign
currency transactions 74,848,338 (13,218,942)
Net unrealized gain on investments and foreign
currency translation 58,024,666 205,575,737
-------------- ------------
Increase in net assets from operations $ 131,788,441 $190,547,370
-------------- ------------
Distributions declared to shareholders -
From net realized gain on investments and foreign
currency transactions $ -- $ (1,542,853)
In excess of net realized gain on investments and
foreign currency transactions -- (3,207,133)
From paid-in capital -- (24,649)
-------------- ------------
Total distributions declared to shareholders -- $ (4,774,635)
-------------- ------------
Net increase in net assets from Series share
transactions $ 205,226,010 $338,733,544
-------------- ------------
Total increase in net assets $ 337,014,451 $524,506,279
Net assets:
At beginning of period 908,986,539 384,480,260
-------------- ------------
At end of period (including accumulated net
investment loss of $1,084,563 and $0,
respectively) $1,246,000,990 $908,986,539
============== ============
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Financial Highlights
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, PERIOD ENDED
SIX MONTHS ENDED -------------------------------------------- DECEMBER 31,
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 $21.47 $16.13 $13.24 $11.41 $10.00
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income (loss) $(0.02) $(0.05) $(0.06) $(0.01) $ 0.01
Net realized and unrealized gain on
investments and foreign currency 2.78 5.55 2.95 1.95 1.74
------ ------ ------ ------ ------
Total from investment operations $ 2.76 $ 5.50 $ 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 -- (0.05) -- (0.06) (0.26)
In excess of net realized gain on
investments and foreign currency
transactions -- (0.11) -- (0.05) --
From paid-in capital -- -- -- -- (0.07)
------ ------ ------ ------ ------
Total distributions declared to
shareholders $ -- $(0.16) $ -- $(0.11) $(0.34)
------ ------ ------ ------ ------
Net asset value - end of period $24.23 $21.47 $16.13 $13.24 $11.41
====== ====== ====== ====== ======
Total return 12.81%++ 34.16% 21.90% 17.02% 17.41%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.85%+ 0.85% 0.90% 1.00% 1.00%+
Net investment income (loss) (0.21)%+ (0.29)% (0.38)% (0.08)% 0.10%+
Portfolio turnover 76% 71% 112% 96% 73%
Net assets at end of period (000
omitted) $1,246,001 $908,987 $384,480 $104,956 $3,869
(S) Prior to January 1, 1998, the investment adviser voluntarily agreed to maintain, subject to reimbursement by the Series,
the expenses of the Series at not 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:
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)%+
* 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 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.
See notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS Emerging Growth Series (the Series) is a diversified series of MFS(R)
Variable Insurance Trust(SM) (the Trust) which comprises the following 15
series: MFS(R) Bond Series, MFS(R) Capital Opportunities Series (formerly
MFS(R) Value Series), MFS Emerging Growth Series, MFS(R)/Foreign & Colonial
Emerging Markets Equity Series, MFS(R) Global Governments Series (formerly
MFS(R) World Governments Series), MFS(R) Global Equity 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 Series is organized as a Massachusetts business trust
and is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company. The shareholders of each Series of the
Trust are separate accounts of insurance companies which offer variable
annuity and/or life insurance products. As of June 30, 1999, there were 92
shareholders of 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 - Equity securities listed on securities exchanges or
reported through the NASDAQ system are reported at market value using last
sale prices. Unlisted equity securities or listed equity securities for which
last sale prices are not available are reported at market value using last
quoted bid 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.
Security Loans - The Series may lend its securities to member banks of the
Federal Reserve System and to member firms of the New York Stock Exchange or
subsidiaries thereof. State Street Bank and Trust Company ("State Street"), as
agent, loans the securities to certain brokers (the "Borrowers") approved by
the Series. The loans are collateralized at all times by cash and U.S.
Treasury securities in an amount at least equal to the market value of the
securities loaned. State Street provides the Series with indemnification
against Borrower default. The Series bears the risk of loss with respect to
the investment of cash collateral.
At June 30, 1999, the value of securities loaned was $192,682,781. These loans
were collateralized by cash of $192,673,277 and U.S. Treasury securities of
$9,504. Cash collateral is invested in short-term securities, which are
included in the Portfolio of Investments. A portion of the income generated
upon investment of the collateral is remitted to the Borrowers, and the
remainder is allocated between the Fund and State Street in its capacity as
lending agent. On loans collateralized by U.S. Treasury securities, a fee is
received from the Borrower, and is allocated between the Fund and State
Street. Income from securities lending is included in interest income on the
Statement of Operations. The dividend and interest income earned on the
securities loaned is accounted for in the same manner as other dividend and
interest income.
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. Dividends received in cash are recorded on the
ex-dividend date. Dividend and interest payments received in additional
securities are recorded on the ex-dividend or ex-interest date in an amount
equal to the value of the security on such date.
Fees Paid Indirectly - The Series' custody fee is calculated as a percentage
of the Series' month end net assets. The fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the Series. This amount is shown as a reduction of expenses on the Statement
of Operations.
Tax Matters and Distributions - The Series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
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 0.75%
of the Series' average daily net assets.
The Series pays no compensation directly to its Trustees who are officers of
the investment adviser, or to officers of the Series, all of whom receive
remuneration for their services to the Series from MFS. Certain officers and
Trustees of the Series are officers or directors of MFS, and MFS Service
Center, Inc. (MFSC).
Administrator - The Series has an administrative services agreement with MFS
to provide the Fund with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the 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 U.S. government securities, and
short-term obligations, aggregated $899,351,653 and $750,614,965,
respectively.
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 $1,174,471,578
--------------
Gross unrealized appreciation $ 332,219,910
Gross unrealized depreciation (23,973,750)
--------------
Net unrealized appreciation $ 308,246,160
==============
(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>
Class A Shares
SIX MONTHS ENDED JUNE 30, 1999 YEAR ENDED DECEMBER 31, 1998
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 15,914,173 $ 359,305,546 31,952,822 $ 583,212,135
Shares issued to shareholders
in reinvestment
of distributions -- -- 257,393 4,774,635
Shares reacquired (6,824,087) (154,079,536) (13,705,758) (249,253,226)
---------- ------------- ----------- -------------
Net increase 9,090,086 $ 205,226,010 18,504,457 $ 338,733,544
========== ============= =========== =============
</TABLE>
(6) Line of Credit
The Series and other affiliated funds participate in an $820 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made to temporarily finance the repurchase of
Fund shares. Interest is charged to each fund, based on its borrowings, at a
rate equal to the bank's base rate. In addition, a commitment fee, based on
the average daily unused portion of the line of credit, is allocated among the
participating funds at the end of each quarter. The commitment fee allocated
to the Series for the six months ended June 30, 1999, was $368. The Series had
no significant borrowings during the period.
<PAGE>
(C)1999 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
VEG-3 8/99 145M
