<PAGE>
[Logo] M F S(R) SEMIANNUAL REPORT
INVESTMENT MANAGEMENT JUNE 30, 1999
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
[graphic omitted]
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
MFS(R) GLOBAL
GOVERNMENTS SERIES
(FORMERLY MFS(R) WORLD GOVERNMENTS SERIES)
<PAGE>
MFS(R) GLOBAL GOVERNMENT SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
<TABLE>
<CAPTION>
<S> <C>
TRUSTEES INVESTMENT ADVISER
Jeffrey L. Shames* Massachusetts Financial Services Company
Chairman, Chief Executive Officer, and 500 Boylston Street
Director, MFS Investment Management(R) Boston, MA 02116-3741
Nelson J. Darling, Jr. DISTRIBUTOR
Professional trustee MFS Fund Distributors, Inc.
500 Boylston Street
William R. Gutow Boston, MA 02116-3741
Vice Chairman,
Capitol Entertainment Management Company; SHAREHOLDER SERVICE CENTER
Private investor and real estate consultant MFS Service Center, Inc.
P.O. Box 2281
CHAIRMAN AND PRESIDENT Boston, MA 02107-9906
Jeffrey L. Shames*
For additional information,
PORTFOLIO MANAGER contact your financial adviser.
James T. Swanson*
CUSTODIAN
TREASURER State Street Bank and Trust Company
W. Thomas London*
WORLD WIDE WEB
ASSISTANT TREASURERS www.mfs.com
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
</TABLE>
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
<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
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
Dear Contract Owners,
For the six months ended June 30, 1999, the Series provided a total return of
- -2.89% (including the reinvestment of any distributions), which compares to a
return of -7.19% for the J.P. Morgan Global Government Bond Index (the Morgan
Index), an aggregate index of actively traded government bonds issued by 13
countries, including the United States, with remaining maturities of at least
one year.
Over the past six months, we attribute the portfolio's strong performance to
its conservative positions on interest-rate risk and credit risk.
Second, we held more of our assets in cash during the period. We wanted to
ensure that if interest rates rose and bond prices fell, we would have
adequate cash with which to buy cheap issues. Because short-term positions
reduce volatility, we shortened the average duration of our U.S. Treasury
holdings to approximately 5.4 years versus approximately 5.7 years for the
last half of 1998, while maintaining the proportion of the portfolio invested
in these securities.
Investments outside the United States were modest in scope and conservative in
nature; we chose shorter durations and held most foreign bonds in U.S.
dollars. We believe this strategy reduced the Series' risk since foreign
currencies were volatile and the U.S. dollar was strong and stable during the
period. Generally, European government bonds compared unfavorably to the
better performing U.S. bonds. However, the United Kingdom, which is on the
fence about joining European monetary union (EMU), did offer some relatively
attractive values. Other countries outside EMU -- including Sweden, Denmark,
and Greece -- also provided opportunities. New Zealand and Australian bonds,
to a lesser degree, contributed to the portfolio's performance. Investing in
these two dollar-bloc countries was an additional safeguard against currency
risks.
In the emerging market countries, our investments were even more limited. In
fact, less than 5% of the portfolio was invested in these markets which can be
volatile. We focused mostly on Mexico. Mexico's proximity to a prosperous
United States convinced us that a small investment in its governments'
securities would contribute positively to the portfolio.
Looking forward, once the dislocations of EMU are resolved, we think we should
see a healthier corporate bond market in Europe. We will be watching for a
favorable entry point. Enterprises that thrive with the new cross-border
competition will be seeking money with which to finance market expansion and
restructuring. We believe they are likely to present some good buying
opportunities.
Overall, especially in the United States, we believe long-term interest rates
are likely to fall due to a gradual economic slowing and lowered inflation
concerns.
Respectfully,
/s/ James T. Swanson
James T. Swanson
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and
are current only through the end of the period of the report as stated on the
cover. The manager's views are subject to change at any time based on market
and other conditions, and no forecasts can be guaranteed.
It is not possible to invest directly in an index.
The portfolio is actively managed, and current holdings may be different.
PORTFOLIO MANAGER'S PROFILE
James T. Swanson is Senior Vice President of MFS Investment Management(R). He
is portfolio manager of MFS(R) Strategic Income Fund, MFS(R) Global
Governments Fund, MFS(R) Global Governments Series (part of MFS(R) Variable
Insurance Trust(SM)), the Strategic Income Series offered through MFS(R)/Sun
Life annuity products, and two closed-end funds, MFS(R) Charter Income Trust
and MFS(R) Multimarket Income Trust.
Mr. Swanson joined MFS in 1985 as Vice President and was named Senior Vice
President in 1989. He is a graduate of Colgate University and the Harvard
University Graduate School of Business Administration. Mr. Swanson is a
Chartered Financial Analyst.
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.
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>
SERIES FACTS
Objective: Seeks income and capital appreciation.
Commencement of investment operations: June 14, 1994
Size: $44.8 million net assets as of June 30, 1999
PERFORMANCE SUMMARY
Because the Series is designed for investors with long-term goals, we have
provided the cumulative as well as the average annual total returns for the
applicable time periods. (See Notes to Performance Summary for more
information.)
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
6 Months 1 Year 3 Years 5 Years Life*
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return -2.89% +2.58% +14.73% +24.27% +24.27%
- -----------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +2.58% + 2.76% + 4.40% + 4.40%
- -----------------------------------------------------------------------------------------------------------------
*For the period from the commencement of the Series' investment operations, June 14, 1994, 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.
Investments in foreign and emerging market securities may provide superior
returns but also involve greater risk than U.S. investments. Investments in
foreign and emerging market securities may be favorably or unfavorably
affected by changes in interest rates and currency exchange rates, market
conditions, and the economic and political conditions of the countries where
investments are made. These risks may increase unit price volatility. See the
prospectus for details.
<PAGE>
PORTFOLIO OF INVESTMENTS (Unaudited) - June 30, 1999
<TABLE>
<CAPTION>
Bonds - 91.2%
- ----------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Bonds - 59.7%
Automotive - 0.9%
Ford Motor Credit Company, 6.375s, 2008 $ 425 $ 405,777
- ----------------------------------------------------------------------------------------------
Broadcasting - 1.6%
Time Warner Entertainment Co. LP, 8.375s, 2033 $ 675 $ 733,941
- ----------------------------------------------------------------------------------------------
Consumer Goods and Services - 2.6%
General Motors Corporation, 6.75s, 2028 $ 836 $ 763,661
Tommy Hilfiger, 6.85s, 2008 436 409,456
-----------
$ 1,173,117
- ----------------------------------------------------------------------------------------------
Entertainment - 0.9%
Hearst Argyle Television, Inc., 7.5s, 2027 $ 418 $ 392,958
- ----------------------------------------------------------------------------------------------
Government National Mortgage Association - 7.1%
GNMA, 6.5s, 2027 - 2028 $ 3,317 $ 3,189,069
- ----------------------------------------------------------------------------------------------
Telecommunications - 0.5%
Worldcom, Inc., 6.95s, 2028 $ 229 $ 217,080
- ----------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 46.1%
U.S. Treasury Bonds, 5.25s, 2029 $ 4,000 $ 3,593,760
U.S. Treasury Bonds, 9.875s, 2015 440 600,464
U.S. Treasury Notes, 5.5s, 2003 5,459 5,424,181
U.S. Treasury Notes, 6.5s, 2005 4,850 4,998,507
U.S. Treasury Notes, 6.625s, 2002 4,900 5,030,144
U.S. Treasury Notes, 8.5s, 2000 1,000 1,020,470
-----------
$20,667,526
- ----------------------------------------------------------------------------------------------
Total U.S. Bonds $26,779,468
- ----------------------------------------------------------------------------------------------
Foreign Bonds - 31.5%
Australia - 0.7%
Commonwealth of Australia, 6.75s, 2006 AUD 450 $ 307,470
- ----------------------------------------------------------------------------------------------
Denmark - 2.8%
Danish Nykredit, 6s, 2029 DKK 4,784 $ 632,652
Kingdom of Denmark, 7s, 2007 3,912 624,383
-----------
$ 1,257,035
- ----------------------------------------------------------------------------------------------
Germany - 2.6%
Germany Federal Republic, 6s, 2007 EUR 595 $ 673,427
Treuhandanstalt, 6.625s, 2003 428 486,041
-----------
$ 1,159,468
- ----------------------------------------------------------------------------------------------
Greece - 1.9%
Hellenic Republic, 5.75s, 2008 EUR 357 $ 387,938
Hellenic Republic, 8.01s, 2003 GRD 143,000 487,433
-----------
$ 875,371
- ----------------------------------------------------------------------------------------------
Italy - 3.6%
Republic of Italy, 5s, 2008 EUR 1,562 $ 1,639,741
- ----------------------------------------------------------------------------------------------
Mexico - 2.0%
Petroleos Mexicanos, 9.5s, 2027 (Oils)## $ 50 $ 47,250
United Mexican States, 9.875s, 2007 840 847,392
-----------
$ 894,642
- ----------------------------------------------------------------------------------------------
New Zealand - 4.5%
Government of New Zealand, 8s, 2004 NZD 3,572 $ 2,023,186
- ----------------------------------------------------------------------------------------------
Norway - 0.7%
Union Bank of Norway, 7.35s, 2049(Banks and Credit
Companies)## $ 300 $ 297,851
- ----------------------------------------------------------------------------------------------
Spain - 2.8%
Government of Spain, 6s, 2008 ESP 1,122 $ 1,262,220
- ----------------------------------------------------------------------------------------------
Sweden - 3.9%
Kingdom of Sweden, 6s, 2005 SEK 7,000 $ 877,558
Kingdom of Sweden, 9s, 2009 5,700 872,401
-----------
$ 1,749,959
- ----------------------------------------------------------------------------------------------
United Kingdom - 6.0%
United Kingdom Treasury, 6.75s, 2004 GBP 924 $ 1,547,237
United Kingdom Treasury, 7s, 2002 687 1,129,810
-----------
$ 2,677,047
- ----------------------------------------------------------------------------------------------
Total Foreign Bonds $14,143,990
- ----------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $42,570,691) $40,923,458
- ----------------------------------------------------------------------------------------------
Call Options Purchased - 0.1%
- ----------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
OF CONTRACTS
ISSUER/EXPIRATION MONTH/STRIKE PRICE (000 OMITTED)
- ----------------------------------------------------------------------------------------------
Euro Dollars/July/1.0515 EUR 2,303 $ 46,685
Japanese Government Bonds/August/135.31 JPY 190,000 1,163
Japanese Yen/July/118.5 265,174 5,038
- ----------------------------------------------------------------------------------------------
Total Call Options Purchased (Premiums Paid, $59,764) $ 52,886
- ----------------------------------------------------------------------------------------------
Put Options Purchased - 0.1%
- ----------------------------------------------------------------------------------------------
Euro Dollars/July/1.0325 EUR 3,100 $ 5,012
Euro Dollars/August/1.025 2,043 9,834
Japanese Yen/July/121.7 JPY 454,189 19,076
Japanese Yen/September/125 277,691 14,162
Japanese Yen/Euro Dollars/July/125 279,048 11,720
- ----------------------------------------------------------------------------------------------
Total Put Options Purchased (Premiums Paid, $98,119) $ 59,804
- ----------------------------------------------------------------------------------------------
Short-Term Obligations - 7.4%
- ----------------------------------------------------------------------------------------------
Federal Home Loan Bank., due 7/01/99, at Amortized Cost $ 3,300 $ 3,300,000
- ----------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $46,028,574) $44,336,148
- ----------------------------------------------------------------------------------------------
Call Options Written - (0.2)%
- ----------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
OF CONTRACTS
ISSUER (000 OMITTED) VALUE
- ----------------------------------------------------------------------------------------------
Australian Dollars/April/0.625 AUD 2,454 $ (16,932)
Euro Dollars/July/1.0515 EUR 2,303 (46,683)
Japanese Yen/July/112.75 JPY 420,787 --
Japanese Yen/August/117 233,254 (7,698)
Japanese Yen/September/118 262,140 (31,719)
- ----------------------------------------------------------------------------------------------
Total Call Options Written (Premiums Paid, $(130,775)) $ (103,032)
- ----------------------------------------------------------------------------------------------
Put Options Written - (0.2)%
- ----------------------------------------------------------------------------------------------
Japanese Government Bonds/August/135.31 (Premiums
Paid, $(24,607)) JPY 190,000 $ (96,351)
- ----------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 1.6% 705,486
- ----------------------------------------------------------------------------------------------
Net Assets - 100.0% $44,842,251
- ----------------------------------------------------------------------------------------------
## SEC Rule 144A restriction.
</TABLE>
Abbreviations have been used througout this report to indicate amounts shown
in currencies other than the U.S. dollar. A list of abbreviations is shown
below.
AUD = Australian Dollars GBP = British Pounds
CAD = Canadian Dollars GRD = Greek Drachma
CHF = Swiss Francs HKD = Hong Kong Dollars
DKK = Danish Krone JPY = Japanese Yen
ESP = Spanish Peso NZD = New Zealand Dollars
EUR = Euro Dollars SEK = Swedish Krona
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Statement of Assets and Liabilities (Unaudited)
- -------------------------------------------------------------------------------------------
JUNE 30, 1999
- -------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (identified cost, $46,028,574) $44,336,148
Cash 67,889
Net receivable for forward foreign currency exchange contracts to sell 73,310
Receivable for Series shares sold 48,769
Receivable for investments sold 3,762
Interest receivable 650,336
Other assets 7,030
-----------
Total assets $45,187,244
-----------
Liabilities:
Payable for Series shares reacquired $ 76,629
Payable for investments purchased 6,004
Net payable for forward foreign currency exchange contracts to purchase 13,295
Net payable for forward foreign currency exchange contracts subject to
master netting agreements 48,458
Written options outstanding, at value (premiums received, $155,382) 199,383
Payable to affiliates -
Management fee 913
Administrative fee 21
Accrued expenses and other liabilities 290
-----------
Total liabilities $ 344,993
-----------
Net assets $44,842,251
===========
Net assets consist of:
Paid-in capital $45,680,434
Unrealized depreciation on investments and translation of assets and
liabilities in foreign currencies (1,731,677)
Accumulated net realized gain on investments and foreign currency
transactions 233,405
Accumulated undistributed net investment income 660,089
-----------
Total $44,842,251
===========
Shares of beneficial interest outstanding 4,489,361
=========
Net asset value per share
(net assets / shares of beneficial interest outstanding) $9.99
=====
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Operations (Unaudited)
- --------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------------------
Net investment income (loss):
<S> <C>
Interest income $ 1,349,888
-----------
Expenses -
Management fee $ 169,361
Administrative fee 3,390
Trustees' compensation 2,246
Shareholder servicing agent fee 7,909
Custodian fee 13,386
Printing 15,033
Auditing fees 16,879
Amortization of organization expenses 662
Legal fees 2,543
Miscellaneous 624
-----------
Total expenses $ 232,033
Fees paid indirectly (2,374)
Reduction of expenses by investment adviser (3,844)
-----------
Net expenses $ 225,815
-----------
Net investment income $ 1,124,073
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ (452,972)
Written option transactions 354,656
Foreign currency transactions 470,104
-----------
Net realized gain on investments and foreign currency transactions $ 371,788
-----------
Change in unrealized depreciation -
Investments $(2,662,337)
Written options (79,184)
Translation of assets and liabilities in foreign currencies (89,393)
-----------
Net unrealized loss on investments and foreign currency translation $(2,830,914)
-----------
Net realized and unrealized loss on investments and foreign currency $(2,459,126)
-----------
Decrease in net assets from operations $(1,335,053)
===========
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 1,124,073 $ 2,130,129
Net realized (gain) loss on investments and foreign
currency transactions 371,788 (62,334)
Net unrealized gain (loss) on investments and foreign
currency translation (2,830,914) 1,161,232
------------ -----------
Increase (decrease) in net assets from operations $ (1,335,053) $ 3,229,027
------------ -----------
Distributions declared to shareholders -
From net investment income $ (2,491,294) $ (492,887)
------------ -----------
Net increase in net assets from Series share transactions $ 2,703,096 $ 5,170,895
------------ -----------
Total increase (decrease) in net assets $ (1,123,251) $ 7,907,035
Net assets:
At beginning of period 45,965,502 38,058,467
------------ -----------
At end of period (including accumulated undistributed
net investment income of $660,089 and $2,027,310,
respectively) $ 44,842,251 $45,965,502
============ ===========
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, PERIOD ENDED
JUNE 30, --------------------------------------------------------- DECEMBER 31,
1999 1998 1997 1996 1995 1994*
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each year):
<S> <C> <C> <C> <C> <C> <C>
Net asset value - beginning of period $10.88 $10.21 $10.58 $10.17 $ 9.82 $10.00
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.26 $ 0.53 $ 0.61 $ 0.60 $ 0.63 $ 0.17
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions (0.56) 0.27 (0.73) (0.19) 0.78 (0.09)
------ ------ ------ ------ ------ ------
Total from investment
operations $(0.30) $0.80 $(0.12) $ 0.41 $ 1.41 $ 0.08
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $(0.59) $(0.13) $(0.17) $ -- $(0.42) $(0.17)
From net realized gain on
investments and foreign
currency transactions -- -- (0.08) -- -- --
In excess of net investment
income -- -- -- -- (0.54) (0.09)
In excess of net realized gain
on investments and foreign
currency transactions -- -- -- (+) -- -- --
From paid-in capital -- -- -- -- (0.10) --
------ ------ ------ ------ ------ ------
Total distributions
declared to shareholders $(0.59) $(0.13) $(0.25) $ -- $(1.06) $(0.26)
------ ------ ------ ------ ------ ------
Net asset value - end of period $ 9.99 $10.88 $10.21 $10.58 $10.17 $ 9.82
====== ====== ====== ====== ====== ======
Total return (2.89)%++ 7.90% (1.13)% 4.03% 14.38% 0.79%++
Ratios (to average net assets)/
Supplemental data(S):
Expenses 1.00%+ 1.01% 1.00% 1.00% 1.00% 1.00%+
Net investment income 4.95%+ 5.11% 5.96% 5.84% 6.05% 4.68%+
Portfolio turnover 75% 270% 335% 361% 211% 62%
Net assets at end of period
(000 omitted) $44,842 $45,966 $38,058 $26,023 $7,424 $2,881
* For the period from the commencement of the Series' investment operations, June 14, 1994, through December 31, 1994.
+ 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. For fiscal years ending after September 1, 1995, the Series'
expenses are calculated without reduction for this expense offset arrangement.
(+) Per share amount was less than $0.01 per share.
(S) Subject to reimbursement by the Series, the investment adviser voluntarily 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
these limitations, the net investment income per share and the ratios would have been:
Net investment income $ 0.26 $ 0.52 $ 0.59 $ 0.50 $ 0.53 $ 0.16
Ratios (to average net assets):
Expenses## 1.02%+ 1.11% 1.15% 2.03% 1.99% 1.10%+
Net investment income 4.93%+ 5.01% 5.81% 4.81% 5.09% 4.58%+
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS Global Governments Series (the Series), formerly known as MFS(R) World
Government Series, is a non-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 Opportunites Series (formerly MFS(R) Value Series),
MFS(R) Emerging Growth Series, MFS(R)/Foreign & Colonial Emerging Market Equity
Series, MFS(R) Global Equity Series, MFS Global Government Series, MFS(R) Growth
Series, MFS(R) Growth with Income Series, MFS(R) High Income Series, MFS(R)
Limited Maturity Series, MFS(R) Money Market Series, MFS(R) New Discovery
Series, MFS(R) Research Series, MFS(R) Total Return Series, and MFS(R) Utilities
Series. The Trust is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company.
The shareholders of 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 28 shareholders in the Series.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Investments
in foreign securities are vulnerable to the effects of changes in the relative
values of the local currency and the U.S. dollar and to the effects of changes
in each country's legal, political, and economic environment.
Investment Valuations - Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues, forward contracts, and swap
agreements, are valued on the basis of valuations furnished by dealers or by a
pricing service with consideration to factors such as institutional-size trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data, without exclusive
reliance upon exchange or over-the-counter prices. Short-term obligations, which
mature in 60 days or less, are valued at amortized cost, which approximates
market value. Futures contracts, options, and options on futures contracts
listed on commodities exchanges are reported at market value using closing
settlement prices. Over-the-counter options on securities are valued by brokers.
Over-the-counter currency options are valued through the use of a pricing model
which takes into account foreign currency exchange spot and forward rates,
implied volatility, and short-term repurchase rates. Securities for which there
are no such quotations or valuations are valued at fair value as determined in
good faith by or at the direction of 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.
Written Options - The Series may write call or put options in exchange for a
premium. The premium is initially recorded as a liability which is subsequently
adjusted to the current value of the options contract. When a written option
expires, the Series realizes a gain equal to the amount of the premium received.
When a written call option is exercised or closed, the premium received is
offset against the proceeds to determine the realized gain or loss. When a
written put option is exercised, the premium reduces the cost basis of the
security purchased by the Series. The Series, as writer of an option, may have
no control over whether the underlying securities may be sold (call) or
purchased (put) and, as a result, bears the market risk of an unfavorable change
in the price of the securities underlying the written option. In general,
written call options may serve as a partial hedge against decreases in value in
the underlying securities to the extent of the premium received. Written options
may also be used as part of an income producing strategy reflecting the view of
the Series' management on the direction of interest rates.
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 will 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' 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 premium
discount is amortized for financial statement and tax reporting purposes as
required by federal income tax regulations.
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 a distribution form 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.
At December 31, 1998, the Series, for federal income tax purposes, had a capital
loss carryforward of $28,643 which may be applied against any net taxable
realized gains of each succeeding year until the earlier of its utilization or
expiration on December 31, 2005.
(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
average daily net assets. The Series has a temporary expense reimbursement
agreement whereby MFS has voluntarily agreed to pay all of the Series' operating
expenses, exclusive of management, distribution, and service fees. The Series in
turn will pay MFS an expense reimbursement fee not greater than 0.25% of average
daily net assets. To the extent that the expense reimbursement fee exceeds the
Series' actual expenses, the excess will be applied to amounts paid by MFS in
prior years. At June 30, 1999, the aggregate unreimbursed expenses owed to MFS
by the Series amounted to $349,329.
Administrator - The Series has an administrative services agreement with MFS to
provide the Series with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Series pays MFS an administrative fee
at the following annual percentages of the Series' average daily net assets:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the Series' average daily net assets at an effective annual
rate of 0.035%.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
PURCHASES SALES
- ------------------------------------------------------------------------------
U.S. government securities $16,573,037 $11,389,057
----------- -----------
Investments (non-U.S. government securities) $18,450,725 $18,784,876
----------- -----------
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Series, as computed on a federal income tax basis,
are as follows:
Aggregate cost $46,140,087
-----------
Gross unrealized appreciation $ 147,991
Gross unrealized depreciation (1,951,930)
-----------
Net unrealized depreciation $(1,803,939)
===========
(5) Shares of Beneficial Interest
The Series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
Series shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999 YEAR ENDED DECEMBER 31, 1998
--------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,289,850 $ 13,688,292 3,079,990 $ 32,082,673
Shares issued to shareholders in
reinvestment
of distributions 242,343 2,491,294 48,322 492,887
Shares reacquired (1,267,499) (13,476,490) (2,631,510) (27,404,665)
---------- ------------- ---------- -------------
Net increase 264,694 $ 2,703,096 496,802 $ 5,170,895
========== ============= ========== =============
</TABLE>
(6) Line of Credit
The Series and other affiliated funds 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 funds at the end of each quarter. The commitment fee allocated to
the Series for the six months ended June 30, 1999, was $567. The Series had no
borrowings during the period.
(7) Financial Instruments
The Series trades financial instruments with off-balance-sheet risk in the
normal course of its investing activities in order to manage exposure to market
risks such as interest rates and foreign currency exchange rates. These
financial instruments include written options, forward foreign currency exchange
contracts, swap agreements, and futures contracts. The notional or contractual
amounts of these instruments represent the investment the Series has in
particular classes of financial instruments and does not necessarily represent
the amounts potentially subject to risk. The measurement of the risks associated
with these instruments is meaningful only when all related and offsetting
transactions are considered.
Written Option Transactions
<TABLE>
<CAPTION>
1999 CALLS 1999 PUTS
------------------------------------- ------------------------------------
PRINCIPAL AMOUNTS PRINCIPAL AMOUNTS
OF CONTRACTS OF CONTRACTS
(000 OMITTED) PREMIUMS (000 OMITTED) PREMIUMS
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year -
Hong Kong Dollars -- $ -- 16,392 $ 53,932
Japanese Yen 395,565 31,499 -- --
Japanese Yen/Euro 178,375 21,353 -- --
Options written -
Australian Dollars 6,074 56,646 3,911 24,590
British Pounds 3,443 21,099 -- --
Canadian Dollars 3,147 4,573 3,258 5,190
Euro 2,303 13,796 4,122 25,645
Euro/British Pounds 739 8,559 711 3,927
Japanese Government Bonds -- -- 190,000 24,607
Japanese Yen 1,924,426 185,550 535,903 37,142
Swiss Francs/British Pounds 18,878 27,368 -- --
Options terminated in closing
transactions -
Australian Dollars (2,389) (21,673) (3,911) (24,590)
Canadian Dollars (3,147) (4,573) (3,258) (5,190)
Euro -- -- (4,122) (25,645)
Euro/British Pounds (739) (8,559) (711) (3,927)
Japanese Yen (190,243) (42,073) (249,203) (15,052)
Japanese Yen/Euro (178,375) (21,353) -- --
Options expired -
Australian Dollars (1,231) (7,100) -- --
British Pounds (3,443) (21,099) -- --
Hong Kong Dollars -- -- (16,392) (53,932)
Japanese Yen (1,213,567) (85,870) (286,700) (22,090)
Swiss Francs/British Pounds (18,878) (27,368) -- --
---------- ---------
Outstanding, end of period $ 130,775 $ 24,607
---------- ---------
Options outstanding at end of period
consists of:
Australian Dollars 2,454 $ 27,873 -- $ --
Euro Dollars 2,303 13,796 -- --
Japanese Government Bonds -- -- 190,000 24,607
Japanese Yen 916,181 89,106 -- --
---------- ---------
Outstanding, end of period $ 130,775 $ 24,607
========== =========
</TABLE>
Certain options denominated in foreign currencies have been redenominated in
accordance with the Euro conversion.
At June 30, 1999, the Series had sufficient cash and/or securities at least
equal to the value of the written options.
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
NET UNREALIZED
CONTRACTS TO CONTRACTS APPRECIATION
SETTLEMENT DATE DELIVER/RECEIVE IN EXCHANGE FOR AT VALUE (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales 9/16/99 CAD 274,828 $ 188,238 $ 186,915 $ 1,323
9/16/99 CHF 1,286,831 843,768 834,969 8,799
9/16/99 DKK 9,353,585 1,329,957 1,303,503 26,454
4/25/00 HKD 34,449,018 4,395,218 4,404,333 (9,115)
9/16/99 JPY 130,908,882 1,118,880 1,094,578 24,302
9/16/99 NZD 3,800,231 2,035,024 2,013,477 21,547
---------- ---------- --------
$9,911,085 $9,837,775 $ 73,310
========== ========== ========
Purchases 9/16/99 AUD 1,077,273 $ 713,586 $ 712,422 $(1,164)
9/16/99 JPY 132,474,106 1,119,796 1,107,665 (12,131)
---------- ---------- --------
$1,833,382 $1,820,087 $(13,295)
========== ========== ========
</TABLE>
At June 30, 1999, forward foreign currency purchases and sales under master
netting agreements excluded above amounted to a net receivable of $33,586 with
Deutsche Bank, $17,549 with C.S. First Boston Bank, and a net payable of
$99,593 with Merrill Lynch.
At June 30, 1999, the Series had sufficient cash and/or securities to cover any
commitment under these contracts.
<PAGE>
(C)1999 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
VWG-3 8/99 43M
