<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) TOTAL
RETURN SERIES
<PAGE>
<TABLE>
MFS(R) TOTAL RETURN SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST\S/\M/
<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.
David M. Calabro*
Kenneth J. Enright* CUSTODIAN
Geoffrey L. Kurinsky* State Street Bank and Trust Company
Constantinos Mokas*
Lisa B. Nurme* WORLD WIDE WEB
www.mfs.com
TREASURER
W. Thomas London*
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
5.12% (including the reinvestment of any distributions), which compares to a
return of 12.23% for the Standard & Poor's 500 Composite Index (the S&P 500),
a popular, unmanaged index of common stock total return performance, for the
same period. Over the same period, the Series' return also compares to -2.28%
for the Lehman Brothers Government/Corporate Bond Index (the Lehman Index), an
unmanaged, market-value-weighted index of U.S. Treasury and government-agency
securities, excluding mortgage-backed securities, and to 5.57% for the average
balanced fund tracked by Lipper Analytical Services, Inc., an independent firm
that reports mutual fund performance.
In the first three months of 1999, the Series was hurt by the continued
underperformance of value stocks compared to growth stocks. Prices of value
stocks reflect the underlying value of companies' assets and earnings, while
prices of growth stocks tend to reflect investors' earnings growth
expectations. Late in March, however, value stocks began to recover, due in
part to second-quarter concerns about inflation. Investors trying to
anticipate the effects of rising inflation and interest rates have bought
value stocks and moved out of growth companies, which have been trading at
very high prices relative to their earnings. Because interest rates help
determine the value of future earnings, any interest-rate increase lowers
future earnings value. Therefore, stocks trading at high prices relative to
future earnings become less attractive.
Among industries, we think the energy sector looks particularly attractive.
The price of oil has gone from $12 per barrel to around $17. Also, the major
oil companies cut spending on drilling last year, so we believe any increase
in supply this year should be modest, creating a good supply/demand picture.
Two oil companies we like are BP Amoco, which continues to be a big holding,
and Mobil. We believe these companies are benefiting from the consolidation of
the industry. In addition, the supply/demand picture for natural gas appears
to be quite favorable. Two companies that we think could benefit from
consolidation and rising gas prices are Apache and Coastal Corp.
Another important sector is financial services. Life insurance companies such
as Lincoln National and Hartford Financial Services Group are benefiting from
the growing popularity of annuities. On the property/casualty side of the
business, premiums are beginning to increase after years of decline. We
believe this should benefit companies such as Chubb and St. Paul.
Companies that have performed well for the Series include AlliedSignal, a
diversified industrial company, and those in the paper industry. AlliedSignal
had some earnings problems last year, but with its planned acquisition of
Honeywell, another diversified industrial company, we believe its future
appears bright. Paper companies have reduced their excess supply and, because
global economies have strengthened, demand for paper has been better than
expected. As a result, we've seen higher prices for such holdings as
Weyerhaeuser, Champion, and International Paper.
In February, we began increasing the Series' stock allocation to around 60% of
assets because we felt prices of value stocks had become attractive,
especially given the big gains in growth stocks over the previous year or so.
This increase has helped the portfolio because the market began turning toward
value stocks in April and May. We also have increased the Series' holdings of
bonds maturing in less than two years in an attempt to limit the impact of
interest rate increases. When interest rates rose, prices of bonds maturing in
10 years or more fell farther than prices of shorter-maturity bonds. However,
we have not changed the basic makeup of the bond portfolio, keeping about 45%
of fixed-income assets in investment-grade corporates and 30% in U.S.
Treasuries to help limit price volatility.
Respectfully,
/s/ David M. Calabro
David M. Calabro
Portfolio Manager
(On behalf of the MFS Total Return Series team)
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 MANAGERS' PROFILES
David M. Calabro, Senior Vice President; Kenneth J. Enright, Senior Vice
President; Geoffrey L. Kurinsky, Senior Vice President; Constantinos Mokas,
Vice President; and Lisa B. Nurme, Senior Vice President, are the Series'
portfolio managers. Mr. Calabro is the head of the portfolio management team
and a manager of the common stock portion of the Series' portfolio. Mr.
Calabro has been employed by MFS since 1992. Mr. Enright, a manager of the
common stock portion of the Series' portfolio, has been employed by MFS since
1986. Mr. Kurinsky, the manager of the Series' fixed-income securities, has
been employed by MFS since 1987. Mr. Mokas, the manager of the Series'
convertible securities, has been employed by MFS since 1990. Ms. Nurme, a
manager of the common stock portion of the Series' portfolio, has been
employed by MFS since 1987.
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 above-average income (compared to a
portfolio invested entirely in equity securities) consistent with the prudent
employment of capital, and secondarily to provide a reasonable opportunity for
growth of capital and income.
Commencement of investment operations: January 3, 1995
Size: $225.2 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.)
<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 +5.12% +8.65% +55.68% +108.61%
- --------------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +8.65% +15.90% + 17.80%
- --------------------------------------------------------------------------------------------------------------------
* For the period from the commencement of the Series' investment operations, January 3, 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.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - June 30, 1999
Stocks - 56.7%
<CAPTION>
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ISSUER SHARES VALUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 51.3%
Aerospace - 2.5%
AlliedSignal, Inc. 51,700 $ 3,257,100
Lockheed-Martin Corp. 11,000 409,750
Raytheon Co., "A" 17,179 1,183,204
Raytheon Co., "B" 5,050 355,394
United Technologies Corp. 6,360 455,932
------------
$ 5,661,380
- --------------------------------------------------------------------------------------------------------
Automotive - 1.5%
Delphi Automotive Systems Corp. 37,500 $ 696,094
Ford Motor Co. 19,600 1,106,175
TRW, Inc. 30,800 1,690,150
------------
$ 3,492,419
- --------------------------------------------------------------------------------------------------------
Banks and Credit Companies - 3.5%
Bank of New York Co., Inc. 51,420 $ 1,886,471
Mellon Bank Corp. 65,200 2,371,650
National City Corp. 2,000 131,000
PNC Bank Corp. 31,100 1,792,138
Washington Mutual, Inc. 4,000 141,500
Wells Fargo Co. 36,400 1,556,100
------------
$ 7,878,859
- --------------------------------------------------------------------------------------------------------
Business Machines - 1.7%
International Business Machines Corp. 13,240 $ 1,711,270
Xerox Corp. 35,100 2,073,094
------------
$ 3,784,364
- --------------------------------------------------------------------------------------------------------
Cellular Telephones - 0.5%
Telephone & Data Systems, Inc. 15,000 $ 1,095,938
- --------------------------------------------------------------------------------------------------------
Chemicals - 1.4%
Dow Chemical Co. 7,100 $ 900,812
Engelhard Corp. 39,000 882,375
Rohm & Haas Co. 29,800 1,277,675
------------
$ 3,060,862
- --------------------------------------------------------------------------------------------------------
Coal - 0.2%
CONSOL Energy, Inc.* 35,200 $ 422,400
- --------------------------------------------------------------------------------------------------------
Computer Hardware - Systems - 0.7%
Hewlett-Packard Co. 16,000 $ 1,608,000
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Conglomerates - 0.5%
Eastern Enterprises 28,400 $ 1,128,900
- --------------------------------------------------------------------------------------------------------
Consumer Goods and Services - 1.4%
Fortune Brands, Inc. 29,000 $ 1,199,875
Kimberly-Clark Corp. 16,400 934,800
Philip Morris Cos., Inc. 12,230 491,493
Tyco International Ltd. 5,251 497,532
------------
$ 3,123,700
- --------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.9%
Emerson Electric Co. 30,500 $ 1,917,687
General Electric Co. 2,000 226,000
------------
$ 2,143,687
- --------------------------------------------------------------------------------------------------------
Entertainment - 1.9%
Disney (Walt) Co. 21,400 $ 659,388
MediaOne Group, Inc.* 15,500 1,152,812
Time Warner, Inc. 33,140 2,435,790
------------
$ 4,247,990
- --------------------------------------------------------------------------------------------------------
Financial Institutions - 2.4%
American Express Co. 14,190 $ 1,846,474
Citigroup, Inc. 33,550 1,593,625
Edwards (A.G.), Inc. 30,850 994,912
Federal Home Loan Mortgage Corp. 15,140 878,120
------------
$ 5,313,131
- --------------------------------------------------------------------------------------------------------
Food and Beverage Products - 1.6%
Archer-Daniels-Midland Co. 86,085 $ 1,328,937
General Mills, Inc. 16,450 1,322,169
Hershey Foods Corp. 5,000 296,875
McCormick & Co., Inc. 8,500 268,281
Quaker Oats Co. 1,900 126,113
Seagram Limited* 7,400 369,537
------------
$ 3,711,912
- --------------------------------------------------------------------------------------------------------
Forest and Paper Products - 1.5%
Bowater, Inc. 21,700 $ 1,025,325
Champion International Corp. 22,000 1,053,250
International Paper Co. 8,800 444,400
Weyerhaeuser Co. 12,400 852,500
------------
$ 3,375,475
- --------------------------------------------------------------------------------------------------------
Insurance - 6.9%
Allstate Corp. 32,800 $ 1,176,700
American International Group, Inc. 4,100 479,956
Chubb Corp. 28,600 1,987,700
CIGNA Corp. 21,600 1,922,400
Equitable Cos., Inc. 40,000 2,680,000
Hartford Financial Services Group, Inc. 35,800 2,087,588
Jefferson Pilot Corp. 12,300 814,106
Lincoln National Corp. 47,600 2,490,075
ReliaStar Financial Corp. 20,800 910,000
St. Paul Cos., Inc. 30,400 967,100
------------
$ 15,515,625
- --------------------------------------------------------------------------------------------------------
Medical and Health Products - 1.1%
American Home Products Corp. 15,160 $ 871,700
Baxter International, Inc. 3,480 210,975
Bristol-Myers Squibb Co. 4,000 281,750
Pharmacia & Upjohn, Inc. 18,200 1,033,987
------------
$ 2,398,412
- --------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 0.3%
Columbia/HCA Healthcare Corp. 26,000 $ 593,125
- --------------------------------------------------------------------------------------------------------
Metals and Minerals - 0.3%
Alcoa, Inc. 9,700 $ 600,188
- --------------------------------------------------------------------------------------------------------
Oil Services - 1.0%
Halliburton Co. 16,400 $ 742,100
Noble Drilling Corp.* 72,100 1,419,469
------------
$ 2,161,569
- --------------------------------------------------------------------------------------------------------
Oils - 2.9%
Apache Corp. 7,000 $ 273,000
Chevron Corp. 9,800 932,838
Conoco, Inc., "A" 34,700 967,262
Exxon Corp. 7,400 570,725
Mobil Corp. 18,460 1,827,540
Texaco, Inc. 13,000 812,500
Unocal Corp. 28,000 1,109,500
------------
$ 6,493,365
- --------------------------------------------------------------------------------------------------------
Photographic Products
Eastman Kodak Co. 1,000 $ 67,750
- --------------------------------------------------------------------------------------------------------
Printing and Publishing - 1.1%
Gannett Co., Inc. 23,600 $ 1,684,450
New York Times Co. 23,200 854,050
------------
$ 2,538,500
- --------------------------------------------------------------------------------------------------------
Railroads - 0.5%
Burlington Northern Santa Fe Railway Co. 18,100 $ 561,100
Norfolk Southern Corp. 20,100 605,513
------------
$ 1,166,613
- --------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts - 0.2%
TriNet Corporate Realty Trust, Inc. 18,800 $ 520,525
- --------------------------------------------------------------------------------------------------------
Restaurants and Lodging - 1.2%
McDonald's Corp. 64,898 $ 2,681,099
- --------------------------------------------------------------------------------------------------------
Special Products and Services - 0.1%
Stanley Works 9,000 $ 289,688
- --------------------------------------------------------------------------------------------------------
Stores - 0.9%
Dayton Hudson Corp. 32,700 $ 2,125,500
- --------------------------------------------------------------------------------------------------------
Supermarkets - 0.5%
Albertsons, Inc. 20,286 $ 1,045,997
Kroger Co.* 1,800 50,287
------------
$ 1,096,284
- --------------------------------------------------------------------------------------------------------
Telecommunications - 5.9%
AT&T Corp. 20,150 $ 1,124,622
Bell Atlantic Corp. 11,700 764,888
GTE Corp. 60,750 4,601,812
Motorola, Inc. 25,900 2,454,025
SBC Communications, Inc. 44,244 2,566,152
Sprint Corp. 34,600 1,827,312
------------
$ 13,338,811
- --------------------------------------------------------------------------------------------------------
Utilities - Electric - 3.6%
Carolina Power & Light Co. 30,200 $ 1,292,938
CMS Energy Corp. 23,000 963,125
Duke Energy Corp. 15,000 815,625
FirstEnergy Corp. 17,000 527,000
GPU, Inc. 21,900 923,906
Pinnacle West Capital Corp. 27,400 1,102,850
Sempra Energy 16,600 375,575
Sierra Pacific Resources 15,000 545,625
Southern Co. 34,700 919,550
Texas Utilities Co. 13,000 536,250
------------
$ 8,002,444
- --------------------------------------------------------------------------------------------------------
Utilities - Gas - 2.6%
Coastal Corp. 72,060 $ 2,882,400
Columbia Energy Group 26,000 1,629,875
Sonat, Inc. 26,000 861,250
UGI Corp. 5,900 119,106
Washington Gas Light Co. 16,300 423,800
------------
$ 5,916,431
- --------------------------------------------------------------------------------------------------------
Total U.S. Stocks $115,554,946
- --------------------------------------------------------------------------------------------------------
Foreign Stocks - 5.4%
Canada - 0.2%
Canadian National Railway Co. (Railroads) 5,000 $ 335,000
- --------------------------------------------------------------------------------------------------------
France - 0.1%
Axa (Insurance) 1,600 $ 195,053
- --------------------------------------------------------------------------------------------------------
Netherlands - 1.8%
Akzo Nobel N.V. (Chemicals) 27,000 $ 1,135,198
ING Groep N.V. (Financial Services)* 35,034 1,895,383
Royal Dutch Petroleum Co., ADR (Oils) 17,780 1,071,245
------------
$ 4,101,826
- --------------------------------------------------------------------------------------------------------
Switzerland - 0.7%
Nestle S.A. (Food and Beverage Products) 925 $ 1,666,618
- --------------------------------------------------------------------------------------------------------
United Kingdom - 2.6%
BP Amoco PLC, ADR (Oils) 41,438 $ 4,496,023
SmithKline-Beecham PLC, ADR (Medical and Health
Products) 18,560 1,226,120
------------
$ 5,722,143
- --------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 12,020,640
- --------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $112,478,066) $127,575,586
- --------------------------------------------------------------------------------------------------------
Bonds - 35.6%
- --------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- --------------------------------------------------------------------------------------------------------
U.S. Bonds - 35.3%
Aerospace - 0.1%
BE Aerospace, Inc., 8s, 2008 $ 250 $ 233,750
- --------------------------------------------------------------------------------------------------------
Airlines - 0.3%
Continental Airlines, Inc., 9.5s, 2001 $ 10 $ 10,425
Delta Airlines, Inc., 6.65s, 2004 360 353,019
Northwest Airlines, Inc., 7.625s, 2005 132 120,771
Northwest Airlines, Inc., 8.52s, 2004 141 135,572
Northwest Airlines, Inc., 8.7s, 2007 55 52,457
------------
$ 672,244
- --------------------------------------------------------------------------------------------------------
Apparel and Textiles - 0.1%
Jones Apparel Group, Inc., 6.25s, 2001 $ 88 $ 87,665
Jones Apparel Group, Inc., 7.875s, 2006 197 196,726
------------
$ 284,391
- --------------------------------------------------------------------------------------------------------
Automotive - 1.0%
Federal Mogul Corp., 7.5s, 2004 $ 472 $ 442,085
Federal Mogul Corp., 7.75s, 2006 317 303,531
Ford Motor Credit Co., 5.8s, 2009 1,320 1,206,348
General Motors Corp., 6.75s, 2028 157 143,415
TRW, Inc., 7.125s, 2009 201 195,211
------------
$ 2,290,590
- --------------------------------------------------------------------------------------------------------
Banks and Credit Companies - 1.2%
Aristar, Inc., 5.85s, 2004 $ 264 $ 255,201
Aristar, Inc., 7.25s, 2006 310 312,012
Beaver Valley Funding Corp. II, 9s, 2017 300 329,190
Capital One Financial Corp., 7.25s, 2003 50 49,574
Colonial Bank, 8s, 2009 621 589,279
Providian National Bank, 6.65s, 2004 250 241,683
Riggs National Corp., 8.5s, 2006 20 20,849
Riggs National Corp., 9.65s, 2009 650 692,816
Washington Mutual Capital I, 8.375s, 2027 210 212,209
------------
$ 2,702,813
- --------------------------------------------------------------------------------------------------------
Chemicals - 0.4%
Lyondell Chemical Co., 9.625s, 2007 $ 777 $ 795,454
- --------------------------------------------------------------------------------------------------------
Conglomerates - 0.1%
Amerco, 7.85s, 2003 $ 281 $ 270,513
- --------------------------------------------------------------------------------------------------------
Construction Services - 0.2%
Georgia Pacific Corp., 9.5s, 2022 $ 500 $ 552,450
- --------------------------------------------------------------------------------------------------------
Consumer Goods and Services - 0.3%
Hilfiger (Tommy) USA, Inc., 6.5s, 2003 $ 105 $ 102,422
Hilfiger (Tommy) USA, Inc., 6.85s, 2008 80 75,130
Kindercare Learning Centers, Inc., 9.5s, 2009 150 142,125
Protection One Alarm Monitoring, 7.375s, 2005 265 256,878
------------
$ 576,555
- --------------------------------------------------------------------------------------------------------
Corporate Asset Backed - 1.6%
Beneficial Home Equity Loan Trust, 5.038s, 2037 $ 229 $ 228,069
Continental Airlines Pass-Through Trust, Inc., 6.648s, 2017 119 113,530
Continental Airlines Pass-Through Trust, Inc., 7.256s, 2020 800 805,640
Continental Airlines, Inc., 9.5s, 2013 23 24,677
Criimi Mae Commercial Mortgage Trust, 7s, 2011 100 87,988
Northwest Airlines Pass Through Trust, 7.575s, 2019 245 240,360
Residential Accredit Loans, Inc., 6.75s, 2028 615 598,088
Time Warner Pass-Through Asset Trust, 6.1s, 2001## 1,467 1,460,824
------------
$ 3,559,176
- --------------------------------------------------------------------------------------------------------
Entertainment - 1.1%
Hearst Argyle Television, Inc., 7.5s, 2027 $ 1,099 $ 1,033,159
News America Holdings, Inc., 6.703s, 2004 378 370,243
Time Warner, Inc., 8.375s, 2023 640 693,229
Time Warner, Inc., 10.15s, 2012 240 295,147
------------
$ 2,391,778
- --------------------------------------------------------------------------------------------------------
Finance - 0.2%
Countrywide Funding Corp., 6.25s, 2009 $ 190 $ 174,900
Green Tree Financial Corp., 10.25s, 2002 301 316,276
------------
$ 491,176
- --------------------------------------------------------------------------------------------------------
Financial Institutions - 2.7%
Ahold Finance, Inc., 6.25s, 2009 $ 434 $ 408,776
Associates Corp., 5.5s, 2004 497 473,551
Associates Corp., 5.75s, 2003 1,920 1,867,546
AT & T Capital Corp., 6.25s, 2001 160 158,184
Finova Capital Corp., 6.125s, 2004 248 241,361
First Empire Capital Trust I, 8.234s, 2027 10 9,636
General Motors Acceptance Corp., 6.15s, 2007 322 306,618
Goldman Sachs Group LP, 5.9s, 2003 1,300 1,269,944
GS Escrow Corp., 6.75s, 2001 461 455,359
GS Escrow Corp., 7.125s, 2005 589 567,286
Sunamerica Institutional, 5.75s, 2009 295 272,745
------------
$ 6,031,006
- --------------------------------------------------------------------------------------------------------
Food and Beverage Products - 0.4%
Nabisco, Inc., 6.375s, 2035 $ 70 $ 67,030
Seagram (Joseph E) & Sons, Inc., 5.79s, 2001 388 380,876
Seagram (Joseph E) & Sons, Inc., 6.4s, 2003 505 494,102
------------
$ 942,008
- --------------------------------------------------------------------------------------------------------
Forest and Paper Products - 0.1%
Georgia Pacific Corp., 7.25s, 2028 $ 307 $ 287,536
U.S. Timberlands, 9.625s, 2007 30 30,225
------------
$ 317,761
- --------------------------------------------------------------------------------------------------------
Insurance - 0.6%
Aflac, Inc., 6.5s, 2009 $ 964 $ 925,430
Atlantic Mutual Insurance Co., 8.15s, 2028 149 129,219
Conseco, Inc., 1s, 2001 160 156,350
Providian Capital I, 9.525s, 2027 109 103,391
------------
$ 1,314,390
- --------------------------------------------------------------------------------------------------------
Medical and Health Products
Bausch & Lomb, Inc., 6.5s, 2005 $ 105 $ 99,414
- --------------------------------------------------------------------------------------------------------
Oil Services - 0.1%
McDermott, Inc., 9.375s, 2002 $ 245 $ 255,145
Ultramar Diamond Shamrock Corp., 7.2s, 2017 20 18,868
------------
$ 274,013
- --------------------------------------------------------------------------------------------------------
Oils - 0.6%
Husky Oil Ltd., 8.9s, 2028 $ 172 $ 162,191
Occidental Petroleum Corp., 6.5s, 2005 289 278,931
Occidental Petroleum Corp., 6.75s, 2002 341 338,061
Occidental Petroleum Corp., 10.125s, 2001 209 224,198
Oryx Energy Corp., 8.375s, 2004 350 366,982
Seagull Energy Corp., 7.5s, 2027 53 44,765
------------
$ 1,415,128
- --------------------------------------------------------------------------------------------------------
Railroads - 0.4%
Union Pacific Corp., 6.34s, 2003 $ 823 $ 810,408
- --------------------------------------------------------------------------------------------------------
Stores - 1.2%
Dillards, Inc., 7.13s, 2018 $ 105 $ 97,247
Federated Department Stores, Inc., 6.3s, 2009 375 351,409
Federated Department Stores, Inc., 8.5s, 2003 601 636,272
Rite Aid Corp., 6s, 2003 358 340,626
Rite Aid Corp., 6.7s, 2001 80 79,606
Saks, Inc., 7.25s, 2004 252 252,530
Saks, Inc., 8.25s, 2008 801 842,123
------------
$ 2,599,813
- --------------------------------------------------------------------------------------------------------
Telecommunications - 1.6%
Cable & Wireless Communication, 6.625s, 2005 $ 415 $ 408,140
Lear Corp., 7.96s, 2005 293 284,204
Qwest Communications International, Inc., 7.5s, 2008 377 376,955
Sprint Capital Corp., 5.875s, 2004 279 267,374
Sprint Capital Corp., 6.375s, 2009 300 281,679
Sprint Capital Corp., 6.9s, 2019 839 776,897
TCI Communications Financing III, 9.65s, 2027 635 718,579
Telecomunicaciones De Puerto, 6.65s, 2006 182 175,690
WorldCom, Inc., 6.95s, 2028 328 310,928
WorldCom, Inc., 8.875s, 2006 20 21,292
------------
$ 3,621,738
- --------------------------------------------------------------------------------------------------------
U.S. Federal Agencies - 3.6%
Federal National Mortgage Association - 1.1%
FNMA, 5.722s, 2009 $ 465 $ 429,544
FNMA, 6.5s, 2027 - 2029 974 939,461
FNMA, 7s, 2029 1,178 1,164,854
------------
$ 2,533,859
- --------------------------------------------------------------------------------------------------------
Federal Home Loan Bank - 2.5%
Federal Home Loan Bank, 5.7s, 2009 $ 1,320 $ 1,238,737
Federal Home Loan Bank, 6.5s, 2029 4,393 4,240,812
------------
$ 5,479,549
- --------------------------------------------------------------------------------------------------------
Total U.S. Federal Agencies $ 8,013,408
- --------------------------------------------------------------------------------------------------------
U.S. Government Guaranteed - 13.4%
Government National Mortgage Association - 3.0%
GNMA, 7.5s, 2025 - 2027 $ 3,198 $ 3,227,649
GNMA, 8s, 2025 - 2027 345 353,883
GNMA, 6.5s, 2028 1,409 1,354,931
GNMA, 7s, 2028 1,825 1,800,360
------------
$ 6,736,823
- --------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 10.4%
U.S. Treasury Bonds, 9.875s, 2015 $ 4,128 $ 5,633,440
U.S. Treasury Bonds, 6.125s, 2027 320 317,850
U.S. Treasury Bonds, 5.25s, 2028 - 2029 3,976 3,548,691
U.S. Treasury Bonds, 5.5s, 2028 2,117 1,938,368
U.S. Treasury Notes, 4.875s, 2001 3,600 3,563,424
U.S. Treasury Notes, 5.25s, 2001 - 2004 8,162 8,121,671
U.S. Treasury Notes, 7.5s, 2001 300 312,516
U.S. Treasury Notes, 6.5s, 2005 95 97,924
------------
$ 23,533,884
- --------------------------------------------------------------------------------------------------------
Total U.S. Government Guaranteed $ 30,270,707
- --------------------------------------------------------------------------------------------------------
Utilities - Electric - 3.0%
CalEnergy Co., Inc., 7.23s, 2005 $ 15 $ 14,883
CalEnergy Co., Inc., 7.52s, 2008 15 15,071
CalEnergy Co., Inc., 8.48s, 2028 330 352,170
Cleveland Electric Illuminating Co., 7.88s, 2017 120 122,240
CMS Energy Corp., 6.75s, 2004 600 574,002
CMS Energy Corp., 7.5s, 2009 775 736,180
CMS Energy Corp., 8s, 2001 235 234,088
Connecticut Light & Power Co., 7.875s, 2024 70 73,051
Connecticut Light & Power Co., 8.59s, 2003 400 422,604
Edison Mission Energy, 7.73s, 2009 103 104,277
Entergy Mississippi, Inc., 6.2s, 2004 253 245,843
GGIB Funding Corp., 7.43s, 2011 128 124,887
Illinois Power Special Purpose Trust, 5.26s, 2003 122 120,628
Long Island Lighting Co., 8.2s, 2023 800 797,016
Midamerican Funding LLC, 5.85s, 2001 275 273,171
Midamerican Funding LLC, 6.927s, 2029 155 145,833
Midland Cogeneration Venture Corp., 10.33s, 2002 37 39,188
Niagara Mohawk Power Corp., 7.75s, 2006 110 114,148
Niagara Mohawk Power Corp., 0s to 2003, 8.5s to 2010 900 666,378
Niagara Mohawk Power Corp., 8.5s, 2023 50 53,654
Niagara Mohawk Power Corp., 8.75s, 2022 100 106,440
Niagara Mohawk Power Corp., 8.77s, 2018 126 131,622
Northeast Utilities, 8.58s, 2006 67 66,202
Salton Sea Funding Corp., 7.84s, 2010 325 339,362
Toledo Edison Co., 7.875s, 2004 400 406,740
Waterford 3 Funding Entergy Corp., 8.09s, 2017 381 383,266
------------
$ 6,662,944
- --------------------------------------------------------------------------------------------------------
Utilities - Gas - 1.0%
Coastal Corp., 6.2s, 2004 $ 468 $ 457,400
Marlin Water Trust & Capital, 7.09s, 2001 1,037 1,041,301
Tennessee Gas Pipeline Co., 7.625s, 2037 260 258,326
Texas Gas Transmission Corp., 7.25s, 2027 600 567,150
------------
$ 2,324,177
- --------------------------------------------------------------------------------------------------------
Total U.S. Bonds $ 79,517,805
- --------------------------------------------------------------------------------------------------------
Foreign Bonds - 0.3%
Chile - 0.3%
Empresa Electric Guacolda S.A., 7.6s, 2001 (Utilities
- Electric)## $ 760 $ 722,023
- --------------------------------------------------------------------------------------------------------
Finland
UPM-Kymmene Corp., 7.45s, 2027 (Forest and Paper
Products)## $ 20 $ 18,852
- --------------------------------------------------------------------------------------------------------
Total Foreign Bonds $ 740,875
- --------------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $82,492,784) $ 80,258,680
- --------------------------------------------------------------------------------------------------------
Convertible Preferred Stocks - 1.8%
- --------------------------------------------------------------------------------------------------------
SHARES
- --------------------------------------------------------------------------------------------------------
Consumer Goods and Services - 0.6%
Newell Financial Trust I, 5.25% 13,300 $ 745,631
Newell Financial Trust I, 5.25%*## 10,000 560,625
------------
$ 1,306,256
- --------------------------------------------------------------------------------------------------------
Containers - 0.1%
Owens Illinois, Inc., 4.75% 5,100 $ 223,125
- --------------------------------------------------------------------------------------------------------
Insurance - 0.4%
Lincoln National Corp., 7.75% 31,600 $ 859,125
- --------------------------------------------------------------------------------------------------------
Oils
Apache Corp., 6.5%* 3,900 $ 142,506
- --------------------------------------------------------------------------------------------------------
Utilities - Electric - 0.3%
Texas Utilities Co., 9.25% 11,000 $ 605,000
- --------------------------------------------------------------------------------------------------------
Utilities - Gas - 0.4%
El Paso Energy Capital Trust I, 4.75% 17,800 $ 881,100
- --------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks (Identified Cost, $3,820,098) $ 4,017,112
- --------------------------------------------------------------------------------------------------------
Preferred Stocks - 0.5%
- --------------------------------------------------------------------------------------------------------
Banks and Credit Companies
NB Capital Corp., 8.35% 4,000 $ 100,500
- --------------------------------------------------------------------------------------------------------
Railroads - 0.5%
Union Pacific Capital Trust, 6.25% 19,600 $ 1,009,400
- --------------------------------------------------------------------------------------------------------
Total Preferred Stocks (Identified Cost, $1,044,791) $ 1,109,900
- --------------------------------------------------------------------------------------------------------
Convertible Bonds - 1.3%
- --------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- --------------------------------------------------------------------------------------------------------
Business Machines - 0.3%
Xerox Corp., 0s, 2018## $ 1,170 $ 734,275
- --------------------------------------------------------------------------------------------------------
Conglomerates - 0.2%
Loews Corp., 3.125s, 2007 $ 500 $ 401,875
- --------------------------------------------------------------------------------------------------------
Financial Services - 0.7%
Bell Atlantic Financial Services, Inc., 4.25s, 2005## $ 1,470 $ 1,503,075
- --------------------------------------------------------------------------------------------------------
Insurance - 0.4%
Lincoln National Corp., 7.75%, 0s $ 32 $ 859,125
- --------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 0.1%
HealthSouth Corp., 3.25s, 2003 $ 250 $ 209,375
- --------------------------------------------------------------------------------------------------------
Total Convertible Bonds (Identified Cost, $2,945,781) $ 2,848,600
- --------------------------------------------------------------------------------------------------------
Short-Term Obligations - 4.0%
- --------------------------------------------------------------------------------------------------------
Federal Home Loan Bank, due 7/01/99, at Amortized Cost $ 9,100 $ 9,100,000
- --------------------------------------------------------------------------------------------------------
Other Short-Term Obligations - 9.5%
- --------------------------------------------------------------------------------------------------------
SHARES
- --------------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost 21,341,067 21,341,067
- --------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $233,222,587) $246,250,945
Other Assets, Less Liabilities - (9.4)% (21,076,581)
- --------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $225,174,364
- --------------------------------------------------------------------------------------------------------
* Non-income producing security.
## 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, $233,222,587) $246,250,945
Cash 46,123
Receivable for Series shares sold 580,947
Receivable for investments sold 926,199
Interest and dividends receivable 1,222,360
Deferred organization expenses 950
Other assets 1,394
------------
Total assets $249,028,918
------------
Liabilities:
Payable for Series shares reacquired $ 18,509
Payable for investments purchased 2,438,567
Collateral for securities loaned, at value 21,341,067
Payable to affiliates -
Management fee 4,585
Shareholder servicing agent fee 214
Administrative fee 93
Accrued expenses and other liabilities 51,519
------------
Total liabilities $ 23,854,554
------------
Net assets $225,174,364
============
Net assets consist of:
Paid-in capital $205,251,377
Unrealized appreciation on investments and translation of
assets and liabilities in
foreign currencies 13,026,045
Accumulated undistributed net realized gain on investments
and foreign
currency transactions 4,098,376
Accumulated undistributed net investment income 2,798,566
------------
Total $225,174,364
============
Shares of beneficial interest outstanding 12,445,118
==========
Net asset value per share
(net assets / shares of beneficial interest outstanding) $18.09
======
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 $ 2,512,976
Dividends 1,189,279
Foreign taxes withheld (19,906)
-----------
Total investment income $ 3,682,349
-----------
Expenses -
Management fee $ 728,629
Trustees' compensation 1,123
Shareholder servicing agent fee 24,434
Administrative fee 10,542
Custodian fee 32,020
Printing 11,105
Legal fees 1,760
Amortization of organization expenses 911
Miscellaneous 5,906
-----------
Total expenses $ 816,430
Fees paid indirectly (7,264)
Reimbursement of expenses to investment adviser 86,550
-----------
Net expenses $ 895,716
-----------
Net investment income $ 2,786,633
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 4,154,834
Foreign currency transactions (687)
-----------
Net realized gain on investments and foreign currency
transactions $ 4,154,147
-----------
Change in unrealized appreciation (depreciation) -
Investments $ 3,305,540
Translation of assets and liabilities in foreign currencies (2,298)
-----------
Net unrealized gain on investments and foreign currency
translation $ 3,303,242
-----------
Net realized and unrealized gain on investments and
foreign currency $ 7,457,389
-----------
Increase in net assets from operations $10,244,022
===========
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 income $ 2,786,633 $ 3,682,274
Net realized gain on investments and foreign currency
transactions 4,154,147 6,764,978
Net unrealized gain on investments and foreign currency
translation 3,303,242 3,522,255
------------ ------------
Increase in net assets from operations $ 10,244,022 $ 13,969,507
------------ ------------
Distributions declared to shareholders -
From net investment income $ (3,664,354) $ (1,465,065)
From net realized gain on investments and foreign
currency transactions (6,795,201) (1,722,619)
------------ ------------
Total distributions declared to shareholders $(10,459,555) $ (3,187,684)
------------ ------------
Net increase in net assets from Series share transactions $ 54,208,098 $ 84,787,846
------------ ------------
Total increase in net assets $ 53,992,565 $ 95,569,669
Net assets:
At beginning of period 171,181,799 75,612,130
------------ ------------
At end of period (including accumulated undistributed
net investment income of $2,798,566 and $3,676,287,
respectively) $225,174,364 $171,181,799
============ ============
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 $18.12 $16.63 $13.71 $12.25 $10.00
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.26 $ 0.53 $ 0.52 $ 0.46 $ 0.41
Net realized and unrealized gain on
investments and foreign currency 0.66 1.49 2.40 1.30 2.32
------ ------ ------ ------ ------
Total from investment operations $ 0.92 $ 2.02 $ 2.92 $ 1.76 $ 2.73
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.33) $(0.24) $ -- $(0.21) $(0.25)
From net realized gain on investments
and foreign currency transactions (0.62) (0.29) -- (0.09) (0.23)
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.95) $(0.53) $ -- $(0.30) $(0.48)
------ ------ ------ ------ ------
Net asset value - end of period $18.09 $18.12 $16.63 $13.71 $12.25
====== ====== ====== ====== ======
Total return 5.12%++ 12.33% 21.30% 14.37% 27.34%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.93%+ 1.00% 1.00% 1.00% 1.00%+
Net investment income 2.87%+ 3.05% 3.25% 3.59% 3.83%+
Portfolio turnover 62% 100% 93% 76% 16%
Net assets at end of period (000
omitted) $225,174 $171,182 $75,612 $19,250 $2,797
(S) Subject to reimbursement by the Series, the investment adviser agreed to maintain the expenses of the
Series, exclusive of management fees, at not more than 0.25% of average daily net assets. To the extent
actual expenses were over/under this limitation, the net investment income per share and the ratios would
have been:
Net investment income $ 0.26 $ 0.54 $ 0.52 $ 0.32 $ 0.22
Ratios (to average net assets):
Expenses## 0.84%+ 0.91% 1.02% 2.10% 2.49%+
Net investment income 2.95%+ 3.14% 3.23% 2.49% 2.09%+
* For the period from the commencement of the Series' investment operations, January 3, 1995, through
December 31, 1995.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## 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 Total Return 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(R) 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 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 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 49 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. Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues, 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.
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.
At June 30, 1999, the value of securities loaned was $20,779,275. These loans
were collateralized by cash of $21,341,067. Cash collateral is invested in
short-term securities, which are included in the Portfolio of Investments. On
loans collateralized by U.S. Treasury securities, a fee is received from the
borrower, and is allocated between the Series and State Street. A portion of
the income generated upon investment of the collateral is remitted to the
Borrowers, and the remainder is allocated between the Series and State Street
in its capacity as lending agent. 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.
Forward Foreign Currency Exchange Contracts - The Series may enter into
forward foreign currency exchange contracts for the purchase or sale of a
specific foreign currency at a fixed price on a future date. Risks may arise
upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar. The
Series may enter into forward contracts for hedging purposes as well as for
non-hedging purposes. For hedging purposes, the Series may enter into
contracts to deliver or receive foreign currency it will receive from or
require for its normal investment activities. The Series may also use
contracts in a manner intended to protect foreign currency-denominated
securities from declines in value due to unfavorable exchange rate movements.
For non-hedging purposes, the Series may enter into contracts with the intent
of changing the relative exposure of the Series's portfolio of securities to
different currencies to take advantage of anticipated changes. The forward
foreign currency exchange contracts are adjusted by the daily exchange rate of
the underlying currency and any gains or losses are recorded as unrealized
until the contract settlement date. On contract settlement date, the gains or
losses are recorded as realized gains or losses on foreign currency
transactions.
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 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. Prior to January 29, 1999, the Series
had a temporary expense reimbursement agreement whereby MFS voluntarily agreed
to pay all of the Series' operating expenses, exclusive of management fees.
The Series in turn paid MFS an expense reimbursement fee not greater than
0.25% of average daily 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 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's 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 $ 55,269,272 $ 42,118,877
------------ ------------
Investments (non-U.S. government securities) $107,773,302 $ 71,910,962
------------ ------------
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 $233,222,587
------------
Gross unrealized appreciation $ 17,303,112
Gross unrealized depreciation (4,274,754)
------------
Net unrealized appreciation $ 13,028,358
============
(5) Shares of Beneficial Interest
The Series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. 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 3,175,151 $57,357,304 5,510,683 $95,333,122
Shares issued to shareholders in
reinvestment of distributions 577,556 10,459,550 186,754 3,187,885
Shares reacquired (752,410) (13,608,756) (799,224) (13,733,161)
--------- ----------- --------- -----------
Net increase 3,000,297 $54,208,098 4,898,213 $84,787,846
========= =========== ========= ===========
</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 Series for the six months ended June 30, 1999, was $796. The Series had
no borrowings during the period.
<PAGE>
(C)1999 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
VTR-3 8/99 17M
