<PAGE>
[Logo] M F S(R)
INVESTMENT MANAGEMENT ANNUAL REPORT
WE INVENTED THE MUTUAL FUND(R) DECEMBER 31, 1999
[graphic omitted]
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
MFS(R) UTILITIES SERIES
<PAGE>
<TABLE>
MFS(R) UTILITIES SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
<S> <C>
TRUSTEES INVESTMENT ADVISER
Jeffrey L. Shames* Massachusetts Financial Services Company
Chairman and Chief Executive Officer, 500 Boylston Street
MFS Investment Management(R) Boston, MA 02116-3741
Nelson J. Darling, Jr.+ DISTRIBUTOR
Private investor and trustee MFS Fund Distributors, Inc.
500 Boylston Street
William R. Gutow+ Boston, MA 02116-3741
Private investor and real estate consultant;
Vice Chairman, Capitol Entertainment SHAREHOLDER SERVICE CENTER
Management Company (video franchise) 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 consultant.
Maura A. Shaughnessy*
CUSTODIAN
TREASURER State Street Bank and Trust Company
W. Thomas London*
AUDITORS
ASSISTANT TREASURERS Deloitte & Touche LLP
Mark E. Bradley*
Ellen Moynihan* WORLD WIDE WEB
James O. Yost* www.mfs.com
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
* Affiliated with the Investment Adviser
+ Independent Trustee
- --------------------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Shareholders,
One could easily argue that the Internet represents the greatest technological
development most of us may see in our lifetimes. There is no disputing that this
new communication medium is changing forever the way we work, play, and shop.
One might also argue that investing in this new technology represents the
investment opportunity of a lifetime. The question for any investor is whether
and how to take advantage of it.
The popular press, it seems, would have us believe that by surfing the Web, we
can learn everything we need to know about investing. Indeed, there is no doubt
that Internet-delivered information and brokerage services enable individual
investors to be well-informed and to trade at bargain prices. But we believe the
facts argue that, for most of us, professionally managed investment portfolios
purchased through a financial consultant will continue to be one of the best
products for long-term investing in this new millennium.
Why do we believe managed portfolios plus professional advice will continue to
define the best course of action for many investors? Let's look at some of the
characteristics of a successful long-term investment approach:
o HAVING A PLAN AND STICKING TO IT: Our experience is that successful
investors -- those whose lives are enriched by the fruits of their investing
-- share two characteristics. They have a plan for reaching their monetary
goals, and they stick with that plan through up markets and down. And for
many investors, working with a financial consultant may be the best way to
develop a plan. Although the Internet abounds with calculators for
developing all sorts of investment plans, none has your consultant's high
level of experience and an understanding of your unique situation. And no
calculator can counsel you during a down market, when you may be tempted to
abandon your goals and your plan.
o DIVERSIFICATION: Few individual investors can afford to own a large number
of holdings, so poor performance of one company can potentially drag down
their entire personal portfolio. This is especially true when investing in
volatile new areas such as the Internet. On the other hand, a diversified,
professionally managed investment portfolio that owns dozens or even
hundreds of holdings is better positioned to survive a disappointment in one
or several investments.
o GOOD IN A DOWN MARKET: As we enter the tenth year of the greatest bull
market in history, it's easy to forget that market downturns are an almost
inevitable part of investing. Few investment portfolios, of course, are
going to be up when the overall market is down. But we believe diversified,
professionally managed investment portfolios may be less likely to suffer
the extreme downturns experienced by a large number of individual holdings
when the market heads south.
o MFS ORIGINAL RESEARCH(R): The Internet is one of the greatest research tools
ever invented, but it's still not the same as being eyeball to eyeball with
the management of a company and discussing their plans for their firm's
future.
o GOOD PERFORMANCE AT AN ACCEPTABLE LEVEL OF RISK: Investing in individual
stocks or bonds does indeed offer the potential of exhilarating performance
that few managed portfolios even attempt. The downside is that the most
exciting investments are also likely to be the ones that give you sleepless
nights. The diversification and professional management of investment
portfolios help make them inherently less risky than individual stock
picking, and managed portfolios are available in a wide range of risk
profiles.
We believe that now, more than ever, managed investment portfolios sold by an
investment professional may offer many investors the best way to participate in
whatever investment opportunities the new millennium may bring. The combination
of professional portfolio management and professional advice recognizes the key
reason that investors give us their money: because they don't want to make a
hobby or a second profession out of investing; they simply want their money to
work for them so they have a better likelihood of realizing their dreams.
As always, we appreciate your confidence in MFS 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)
January 15, 2000
Investments in variable products will fluctuate and may be worth more or less
upon redemption. Please see your financial consultant for more information.
The opinions expressed in this letter are those of Jeffrey L. Shames, and no
forecasts can be guaranteed.
MANAGEMENT REVIEW AND OUTLOOK
Dear Shareholders,
For the 12 months ended December 31, 1999, the Series provided a total return of
30.81% (including the reinvestment of any distributions). This compares to a
- -9.12% return for the Standard & Poor's Utility Index (the Utility Index), an
unmanaged, market-value-weighted, total return index of all utility stocks in
the Standard & Poor's 500 Composite Index (the S&P 500).
The telecommunications sector has continued to be very strong, driven largely by
the explosion in Internet and data communications traffic. In addition,
companies involved with cellular communications have done very well, as most
subscriber numbers were much higher than initially expected. Natural gas stocks,
on the other hand, have had their share of ups and downs. The sector benefited
indirectly from the rise in oil prices that we saw last spring. But the mild
weather this fall has hurt prospects, and stock prices have fallen off somewhat.
The worst performers have been electric utilities, which were hammered from all
directions. With deregulation, the electric companies -- which typically
generate lots of cash -- now have a lot more choices about how to invest their
money. And we believe that has made investors nervous because they're not so
sure management will do what's best for shareholders. In addition, rising
interest rates have made electric stocks less attractive by eroding the value of
their dividends. The fact that these stocks have not been growing at very high
levels -- like telecommunications stocks -- has also hurt.
A common theme across all three industries has been continued consolidation,
especially in the mid-cap arena, which is where the Series tends to focus. And
that was a big plus. In the telecommunications sector, we owned shares of
MediaOne Group, a cable company whose stock benefited from being acquired by
AT&T. We also owned shares of Frontier, the old Rochester Telephone. It was
bought out at a premium by Global Crossing, a company that is building fiber-
optic networks across the Atlantic. In the natural gas sector, El Paso Energy,
one of our investments, bought Sonat, whose stock we also owned. Both stocks
rallied as the merger created one of the largest natural gas companies in the
country. More recently, MidAmerican Energy, an electric utility, benefited from
being bought out by Warren Buffet's company, Berkshire Hathaway. GTE's and Bell
Atlantic's stocks did well following the announcement of their merger. MCI
WorldCom's pending acquisition of Sprint sent both stocks soaring. Finally, our
investments in Mannesmann, a German wireless and wire line company, and Orange
PLC, a wireless company in the United Kingdom, did well following Mannesmann's
decision to buy Orange.
The Series' international stake also was a positive. During the past six months,
we boosted our stake in foreign stocks to 29.2% of net assets. We did this in
part because that's where we were finding what we consider to be good values,
namely, attractive prices relative to earnings prospects. Plus, we believe there
are lots of restructuring opportunities as foreign companies strive to remain
competitive in today's global economy. Besides Mannesmann and Orange, our stake
in NTT Mobile Communications Network, the big telecommunications player in
Japan, did especially well. We also held BCE, the holding company for Bell
Canada. BCE has a sizable investment in Northern Telecom, which has had a nice
run recently because of increased demand for its telecom equipment, and this has
benefited BCE. We recently bought shares in a French company called Vivendi.
Half of Vivendi's business is in the waste management and water utility area.
The other half is in the media and cellular business. Vivendi is the
second-largest competitor in the French cellular market, where we expect to see
accelerating penetration growth. We believe, however, that the current stock
price does not fully reflect the value of the telecommunications piece of the
business. We also think the company is an excellent candidate for restructuring,
which we believe would give the stock a boost.
During the year, our stake in U.S. telecommunications grew to approximately 17%
of net assets. Our biggest investment was GTE. The stock climbed nicely
following the announcement of a buyout by Bell Atlantic. However, not all of our
telecommunications names did well. SBC Communications, which is the old
Southwestern Bell, had a rough time over the past six months because of
uncertainties surrounding its merger with Ameritech. After closing the deal, SBC
had to cut earnings. Now that the merger is done, we expect the stock to catch
up, especially given SBC's strong standing in the industry.
CMS Energy was a big disappointment. The electric and natural gas utility's
stock suffered from fears that regulators would cut rates. There were also
concerns that the company would have to issue stock to pay for a purchase.
Fortunately, management sold off some assets instead. We expect that once the
regulatory issues settle, the stock will get back on track. Williams Cos. was
another top holding that tumbled during the period. The company, which is in
both the natural gas and telecommunications businesses, decided to spin out part
of its telephone operation. As the new stock quickly shot up, many investors who
owned Williams for its telecommunications assets decided to take profits. The
start-up also has drained Williams' earnings. We held on, however, believing
that the company is still worth more than the stock price reflects. Finally,
Peco Energy, an electric utility in Philadelphia, saw its stock flounder as the
company worked out a merger with Unicom, an electric utility in Chicago. We
found the stock attractive because of Peco's great nuclear power assets,
above-average wholesale trading business, and aggressive management team, and we
decided to increase our stake.
One of our largest new additions was NStar, which is the old Boston Edison.
There's a tremendous amount of merger and acquisition activity going on in the
Northeast, which could benefit NStar. Plus, we believe the company has an
excellent strategy that we believe it is not really getting credit for. Finally,
there's strong potential from Nstar's partial ownership of RCN, a
telecommunications start-up. Eventually, we expect the electrics to do well. In
the meantime, we'll remain flexible and invest wherever we think we find the
best values.
Respectfully,
/s/ Maura A. Shaughnessy
Maura A. Shaughnessy
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
Maura A. Shaughnessy is Senior Vice President of MFS Investment Management(R)
and portfolio manager of MFS(R) Capital Opportunities Fund, MFS(R) Utilities
Fund, MFS(R) Utilities Series and MFS(R) Capital Opportunities Series (both part
of MFS(R) Variable Insurance Trust(SM)), and the Utilities Series and Capital
Opportunities Series offered through MFS(R)/Sun Life annuity products.
Ms. Shaughnessy joined MFS in 1991 as a research analyst and became Vice
President and portfolio manager in 1992 and Senior Vice President in 1998. A
graduate of Colby College and the Amos Tuck School of Business Administration of
Dartmouth College, she is a Chartered Financial Analyst charterholder.
All equity portfolio managers began their careers at MFS Investment
Management(R) as research analysts. Our portfolio managers are supported by an
investment staff of over 100 professionals utilizing MFS Original Research(R), a
global, company-oriented, bottom-up process of selecting securities.
SERIES FACTS
Objective: Seeks capital growth and current income (income above that
available from a portfolio invested entirely in equity securities).
Commencement of investment operations: January 3, 1995
Size: $183.0 million net assets as of December 31, 1999
PERFORMANCE SUMMARY
The information below illustrates the historical performance of the Series in
comparison to a market indicator. Benchmark comparisons are unmanaged and do not
reflect any fees or expenses. It is not possible to invest directly in an index.
(See Notes to Performance Summary.)
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from the commencement of the Series' investment operations,
January 3, 1995, through December 31, 1999. Index information is from January 1,
1995.)
MFS Utilities Series Standard & Poor's|Index Utility
- ---------------------------------------------------------------
1/95 $10,000 $10,000
12/95 13,394 14,201
12/96 15,874 14,646
12/97 20,905 18,258
12/98 24,681 20,956
12/99 32,285 19,043
This report is prepared for the general information of shareholders. 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 consultant, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN THROUGH DECEMBER 31, 1999
1 Year 3 Years Life*
- -----------------------------------------------------------------------------
Cumulative Total Return +30.81% +103.39% +222.85%
- -----------------------------------------------------------------------------
Average Annual Total Return +30.81% + 26.70% + 26.46%
- -----------------------------------------------------------------------------
COMPARATIVE INDEX(+)
1 Year 3 Years Life*
- -----------------------------------------------------------------------------
Standard & Poor's Utility Index** - 9.12% + 9.15% + 13.75%
- -----------------------------------------------------------------------------
* For the period from the commencement of the Series' investment operations,
January 3, 1995, through December 31, 1999. Index information is from
January 1, 1995.
(+) Average annual rates of return.
** Source: Standard and Poor's Micropal, Inc.
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 SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MORE RECENT
RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. 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 lower-rated securities may provide greater returns, but they are
also associated with greater than average risk. These risks may increase share
price volatility. Please see a prospectus for details.
<PAGE>
PORTFOLIO OF INVESTMENTS - December 31, 1999
<TABLE>
<CAPTION>
Stocks - 79.9%
- -----------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 50.7%
Business Services - 0.6%
Adelphia Business Solutions, Inc.* 23,200 $ 1,113,600
- -----------------------------------------------------------------------------------------------------
Conglomerates - 0.7%
Eastern Enterprises Co. 21,100 $ 1,211,931
- -----------------------------------------------------------------------------------------------------
Energy - 0.9%
Sierra Pacific Resources 92,004 $ 1,592,819
- -----------------------------------------------------------------------------------------------------
Entertainment - 1.2%
Comcast Corp., "A" 7,700 $ 389,331
MediaOne Group, Inc.* 13,600 1,044,650
Time Warner, Inc. 10,400 753,350
------------
$ 2,187,331
- -----------------------------------------------------------------------------------------------------
Metals and Minerals - 0.1%
USEC, Inc. 39,900 $ 279,300
- -----------------------------------------------------------------------------------------------------
Oils - 1.3%
Coastal Corp. 66,600 $ 2,360,138
- -----------------------------------------------------------------------------------------------------
Telecommunications - 17.1%
Alltel Corp. 10,600 $ 876,487
AT&T Corp. 26,800 1,360,100
BroadWing, Inc.* 150,318 5,542,976
CenturyTel, Inc. 54,700 2,591,412
Completel Holdings LLC, "B"*## 3,374 3,374
GTE Corp. 81,500 5,750,844
Insight Communications, Inc.* 8,900 263,663
Intermedia Communications, Inc.* 51,200 1,987,200
MCI WorldCom, Inc.* 47,973 2,545,567
Metromedia Fiber Network, Inc., "A"* 40,600 1,946,262
NEXTEL Communications, Inc.* 3,800 391,875
NTL, Inc.* 8,200 1,022,950
SBC Communications, Inc. 87,365 4,259,044
Sprint Corp. 17,100 1,151,044
Time Warner Telecom, Inc.* 2,400 119,850
Tritel, Inc.* 500 15,844
UnitedGlobalCom, Inc.* 1,400 98,875
Williams Communications Group, Inc.* 15,700 454,319
Winstar Communications, Inc.* 12,600 948,150
Z-Tel Technologies, Inc.* 370 14,939
------------
$ 31,344,775
- -----------------------------------------------------------------------------------------------------
Utilities - Electric - 19.9%
AES Corp.* 25,600 $ 1,913,600
Atmos Energy Corp. 54,800 1,119,975
Calpine Corp.* 21,100 1,350,400
CMS Energy Corp. 133,200 4,154,175
DPL, Inc. 32,700 566,119
DQE, Inc. 57,200 1,980,550
Duke Energy Corp. 34,800 1,744,350
El Paso Electric Co.* 77,000 755,563
Illinova Corp. 94,700 3,290,825
Keyspan Corp. 112,000 2,597,000
Niagara Mohawk Holdings, Inc. 79,000 1,101,062
NiSource, Inc. 88,200 1,576,575
Northeast Utilities 31,700 651,831
NStar Co. 75,400 3,053,700
Peco Energy Co. 102,700 3,568,825
Pinnacle West Capital Corp. 63,900 1,952,944
Reliant Energy, Inc. 47,200 1,079,700
Scana Corp. 62,600 1,682,375
Texas Utilities Co. 33,300 1,184,231
Unicom Corp. 30,400 1,018,400
------------
$ 36,342,200
- -----------------------------------------------------------------------------------------------------
Utilities - Gas - 8.9%
Columbia Energy Group 41,250 $ 2,609,063
El Paso Energy Corp. 85,900 3,333,994
Energen Corp. 39,700 717,081
Enron Corp. 89,300 3,962,687
Kinder Morgan, Inc. 46,600 940,738
National Fuel Gas Co. 17,500 813,750
NICOR, Inc. 22,600 734,500
Williams Cos., Inc. 106,700 3,261,019
------------
$ 16,372,832
- -----------------------------------------------------------------------------------------------------
Total U.S. Stocks $ 92,804,926
- -----------------------------------------------------------------------------------------------------
Foreign Stocks - 29.2%
Australia - 0.8%
Cable & Wireless Optus
(Telecommunications) 417,000 $ 1,387,498
- -----------------------------------------------------------------------------------------------------
Brazil - 0.4%
Celular CRT Participacoes, Preferred
(Telecommunications) 505 $ 88,179
Companhia Electricas est Rio de
Janeiro (Utilities - Electric)* 772,600 235,549
Companhia Energetica do Ceara,
Preferred "A" (Utilities - Electric) 70,600 201,546
Companhia Riogrand Telecomunicacoes,
Preferred "A" (Utilities - Telephone) 505 156,763
Espirito Santo Centrais Eletricas S.A.
(Utilities - Electric) 1,100 60,976
------------
$ 743,013
- -----------------------------------------------------------------------------------------------------
Canada - 3.5%
AT&T Canada, Inc. (Telecommunications)* 35,200 $ 1,416,800
BCE, Inc. (Telecommunications) 49,100 4,428,206
Telesystem International Wireless, Inc.
(Telecommunications)* 13,400 499,150
------------
$ 6,344,156
- -----------------------------------------------------------------------------------------------------
Finland - 1.7%
Helsingin Puhelin Oyj (Telecommunications) 9,400 $ 782,900
HPY Holding - HTF Holding Oyj Abp
(Telecommunications)* 9,000 337,630
Sonera Oyj (Telecommunications) 27,900 1,912,075
------------
$ 3,032,605
- -----------------------------------------------------------------------------------------------------
France - 1.6%
Bouygues S.A. (Construction)* 977 $ 620,864
Vivendi (Business Services) 24,900 2,248,134
------------
$ 2,868,998
- -----------------------------------------------------------------------------------------------------
Germany - 2.6%
Deutsche Telekom AG (Utilities - Telephone)* 18,100 $ 1,288,755
Mannesmann AG (Conglomerate) 14,750 3,557,707
------------
$ 4,846,462
- -----------------------------------------------------------------------------------------------------
Greece - 0.7%
Panafon S.A. (Telecommunications)* 99,200 $ 1,332,560
- -----------------------------------------------------------------------------------------------------
Hong Kong - 0.6%
China Telecom Ltd. (Telecommunications)* 166,000 $ 1,035,765
- -----------------------------------------------------------------------------------------------------
Hungary - 1.0%
Magyar Tavkozlesi Rt., ADR (Telecommunications)* 49,100 $ 1,767,600
- -----------------------------------------------------------------------------------------------------
Israel - 1.0%
Partner Communications Co. Ltd., ADR (Cellular
Telephones) 73,575 $ 1,903,753
- -----------------------------------------------------------------------------------------------------
Italy - 3.3%
Enel S.p.A. (Utilities - Electric)* 173,500 $ 726,885
Telecom Italia Mobile S.p.A. (Telecommunications) 318,800 3,560,594
Telecom Italia Mobile S.p.A., Saving Shares
(Telecommunications)* 123,100 586,397
Telecom Italia S.p.A. (Telecommunications) 79,500 1,120,902
------------
$ 5,994,778
- -----------------------------------------------------------------------------------------------------
Japan - 1.9%
Nippon Telephone & Telegraph Co. (Utilities -
Telephone) 95 $ 1,627,031
NTT Mobile Communications Network, Inc.
(Telecommunications) 50 1,923,077
------------
$ 3,550,108
- -----------------------------------------------------------------------------------------------------
Netherlands - 2.7%
Equant N.V. (Computer Software - Services)* 8,720 $ 989,722
Koninklijke KPN N.V. (Telecommunications)* 8,235 803,637
Libertel N.V. (Cellular Telephones)* 62,600 1,639,156
United Pan - Europe Communications N.V.
(Telecommunications)* 11,900 1,522,030
------------
$ 4,954,545
- -----------------------------------------------------------------------------------------------------
Poland - 0.1%
Netia Holdings S.A., ADR (Telecommunications)* 13,200 $ 232,650
- -----------------------------------------------------------------------------------------------------
Spain - 3.5%
Telefonica de Espana S.A., ADR (Telecommunications) 49,421 $ 3,894,993
Telefonica Publicidad e Informacion S.A. (Utilities
- Telephone) 11,500 498,011
Union Electrica Fenosa S.A. (Utilities - Electric) 112,200 1,959,361
------------
$ 6,352,365
- -----------------------------------------------------------------------------------------------------
Sweden - 0.4%
NetCom AB (Telecommunications)* 10,200 $ 718,022
- -----------------------------------------------------------------------------------------------------
Switzerland - 0.4%
Swisscom AG (Telecommunications)* 2,000 $ 809,198
- -----------------------------------------------------------------------------------------------------
United Kingdom - 3.0%
British Telecommunications PLC (Telecommunications)* 94,093 $ 2,278,274
Cable & Wireless Communications PLC
(Telecommunications)* 24,900 355,757
COLT Telecom Group PLC (Telecommunications)* 9,700 500,421
COLT Telecom Group PLC, ADR (Telecommunications)* 3,600 734,400
Independent Energy Holdings PLC, ADR (Utilities -
Electric) 31,700 1,056,006
Jazztel PLC, ADR (Telecommunications)* 7,340 478,018
Thus PLC (Internet)* 14,040 88,614
------------
$ 5,491,490
- -----------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 53,365,566
- -----------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $123,671,003) $146,170,492
- -----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- -----------------------------------------------------------------------------------------------------
Bonds - 4.8%
- -----------------------------------------------------------------------------------------------------
U.S. Bonds - 4.7%
Banks and Credit Companies - 0.1%
Beaver Valley Funding Corp. II, 9s, 2017 $ 75 74,242
Midland Funding Corp., 10.33s, 2002 121 124,149
------------
$ 198,391
- -----------------------------------------------------------------------------------------------------
Energy
Ocean Energy, Inc., 8.875s, 2007 $ 95 $ 94,288
- -----------------------------------------------------------------------------------------------------
Financial Institutions - 0.1%
Salton Sea Funding Corp., 6.69s, 2000 $ 12 $ 11,954
Salton Sea Funding Corp., 7.84s, 2010 100 95,190
------------
$ 107,144
- -----------------------------------------------------------------------------------------------------
Gas - 0.1%
CMS Panhandle Holding Co., 6.5s, 2009 $ 130 $ 118,871
- -----------------------------------------------------------------------------------------------------
Telecommunications - 0.8%
Intermedia Communications, Inc., 0s, 2009 $ 1,575 $ 945,000
Sprint Capital Corp., 6.9s, 2019 141 128,237
Sprint Spectrum LP, 11s, 2006 165 182,516
Telecomunicaciones de Puerto Rico, Inc., 6.65s, 2006 30 28,290
TXU Eastern Funding Co., 6.75s, 2009 150 137,280
WorldCom, Inc., 8.875s, 2006 100 104,957
------------
$ 1,526,280
- -----------------------------------------------------------------------------------------------------
U.S. Federal Agencies - 0.1%
Federal National Mortgage Association - 0.1%
FNMA, 7s, 2029 $ 102 $ 98,410
- -----------------------------------------------------------------------------------------------------
U.S. Government Guaranteed - 1.8%
Government National Mortgage Association - 0.6%
GNMA, 6.5s, 2029 $ 39 $ 36,408
GNMA, 7s, 2028 227 219,025
GNMA, 7.5s, 2025 - 2028 662 654,448
GNMA, 8s, 2025 - 2027 112 112,830
------------
$ 1,022,711
- -----------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 1.2%
U.S. Treasury Bonds, 5.25s, 2029 $ 118 $ 97,570
U.S. Treasury Notes, 5.875s, 2004 50 49,024
U.S. Treasury Notes, 6s, 2009 2,098 2,032,437
------------
$ 2,179,031
- -----------------------------------------------------------------------------------------------------
Total U.S. Government Guaranteed $ 3,201,742
- -----------------------------------------------------------------------------------------------------
Utilities - Electric - 1.5%
AEP Generating, 9.82s, 2022 $ 596 $ 679,493
California Infrastructure, 6.17s, 2003 161 160,245
Connecticut Light & Power Co., 8.59s, 2003 100 100,384
Illinois Power Special Purpose Trust, 5.26s, 2003 183 180,484
Long Island Lighting Co., 8.2s, 2023 150 146,273
Midamerican Funding LLC, 5.85s, 2001 220 217,146
Midamerican Funding LLC, 6.927s, 2029 110 93,952
National Rural Utilities Cooperative Finance, 5.75s,
2008 313 280,097
Niagara Mohawk Power Corp., 7.25s, 2002 151 150,711
PP&L, Inc., 6.125s, 2001 250 248,137
Seabrook Station, 7.83s, 2019 86 83,896
Texas Utilities Co., 5.94s, 2001 250 245,755
Toledo Edison Co., 9.5s, 2001 140 143,261
------------
$ 2,729,834
- -----------------------------------------------------------------------------------------------------
Utilities - Gas - 0.2%
El Paso Energy Corp., 6.75s, 2009 $ 375 $ 350,100
- -----------------------------------------------------------------------------------------------------
Total U.S. Bonds $ 8,425,060
- -----------------------------------------------------------------------------------------------------
Foreign Bonds - 0.1%
Canada
Gulf Canada Resources Ltd., 9.25s, 2004 (Oils) $ 90 $ 88,901
- -----------------------------------------------------------------------------------------------------
Netherlands - 0.1%
Completel Europe N.V., 14s, 2009
(Telecommunications) $ 329 $ 187,530
- -----------------------------------------------------------------------------------------------------
Total Foreign Bonds $ 276,431
- -----------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $9,138,588) $ 8,701,491
- -----------------------------------------------------------------------------------------------------
Convertible Preferred Stocks - 3.8%
- -----------------------------------------------------------------------------------------------------
SHARES
- -----------------------------------------------------------------------------------------------------
Telecommunications - 2.4%
Decs Trust VI, 6.25% 12,200 $ 567,300
Global Crossings Ltd., 7.00%## 5,900 1,634,300
UnitedGlobalCom, Inc., 7.00% 12,850 769,394
UnitedGlobalCom, Inc., 7.00%## 15,100 1,370,325
------------
$ 4,341,319
- -----------------------------------------------------------------------------------------------------
Utilities - Electric - 1.4%
AES Trust III, 6.75% 31,600 $ 1,947,350
Calpine Capital Trust, 5.75% 11,400 741,000
------------
$ 2,688,350
- -----------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks (Identified Cost, $5,521,175) $ 7,029,669
- -----------------------------------------------------------------------------------------------------
Preferred Stocks - 2.4%
- -----------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
- -----------------------------------------------------------------------------------------------------
Oils - 0.4%
Coastal Corp., 6.625% 32,900 $ 766,981
- -----------------------------------------------------------------------------------------------------
Telecommunications - 1.4%
Cox Communications, Inc.,"PRIZES"* 16,400 $ 1,592,850
Cox Communications, Inc., 0.25% 16,275 1,013,119
------------
$ 2,605,969
- -----------------------------------------------------------------------------------------------------
Utilities - Electric - 0.6%
CMS Energy Corp., 8.75% 28,900 $ 978,987
- -----------------------------------------------------------------------------------------------------
Total Preferred Stocks (Identified Cost, $4,169,290) $ 4,351,937
- -----------------------------------------------------------------------------------------------------
Convertible Bonds - 3.6%
- -----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- -----------------------------------------------------------------------------------------------------
Financial Institutions - 0.5%
ADT Operations, Inc., 0s, 2010 $ 450 $ 956,812
- -----------------------------------------------------------------------------------------------------
Financial Services - 0.5%
Bell Atlantic Financial Services, Inc., 4.25s,
2005## $ 680 $ 836,400
- -----------------------------------------------------------------------------------------------------
Telecommunications - 2.6%
Comcast Corp., 2s, 2029 $ 9 $ 905,450
Echostar Communications Corp., 4.875s, 2007## 650 797,875
Level 3 Communications, Inc., 6s, 2009 740 1,028,600
Liberty Media Group, 4s, 2029## 640 812,800
NTL, Inc., 5.75s, 2009## 1,120 1,204,000
------------
$ 4,748,725
- -----------------------------------------------------------------------------------------------------
Total Convertible Bonds (Identified Cost, $5,528,323) $ 6,541,937
- -----------------------------------------------------------------------------------------------------
Short-Term Obligations - 5.6%
- -----------------------------------------------------------------------------------------------------
Federal Home Loan Bank, due 1/03/00 $ 5,000 $ 4,999,583
Federal Home Loan Mortgage Corp., due 1/03/00 5,300 5,299,559
- -----------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 10,299,142
- -----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $158,327,521) $183,094,668
Other Assets, Less Liabilities - (0.1)% (125,942)
- -----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $182,968,726
- -----------------------------------------------------------------------------------------------------
* Non-income producing security.
## SEC Rule 144A restriction.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- -----------------------------------------------------------------------------
DECEMBER 31, 1999
- -----------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $158,327,521) $183,094,668
Investments of cash collateral for securities loaned,
at value (identified cost, $19,259,346) 19,259,346
Cash 477,328
Foreign currency, at value (identified cost, $5) 6
Receivable for Series shares sold 349,568
Receivable for investments sold 354,561
Interest and dividends receivable 412,825
Deferred organization expenses 25
Other assets 167
------------
Total assets $203,948,494
------------
Liabilities:
Payable for Series shares reacquired $ 396,549
Payable for investments purchased 1,318,842
Collateral for securities loaned, at value 19,259,346
Payable to affiliate for management fee 3,750
Accrued expenses and other liabilities 1,281
------------
Total liabilities $ 20,979,768
------------
Net assets $182,968,726
============
Net assets consist of:
Paid-in capital $139,467,178
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 24,767,683
Accumulated undistributed net realized gain on
investments and foreign currency transactions 16,468,079
Accumulated undistributed net investment income 2,265,786
------------
Total $182,968,726
============
Shares of beneficial interest outstanding 7,573,495
=========
Net asset value per share
(net assets / shares of beneficial interest outstanding) $24.16
======
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999
- ------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 2,389,026
Interest 1,160,548
Foreign taxes withheld (28,690)
-----------
Total investment income $ 3,520,884
-----------
Expenses -
Management fee $ 918,261
Trustees' compensation 2,431
Shareholder servicing agent fee 42,857
Administrative fee 14,857
Custodian fee 54,980
Printing 70,666
Auditing fees 32,621
Legal fees 2,117
Amortization of organization expenses 1,837
Miscellaneous 4,252
-----------
Total expenses $ 1,144,879
Fees paid indirectly (10,644)
Reimbursement of expenses to investment adviser 90,114
-----------
Net expenses $ 1,224,349
-----------
Net investment income $ 2,296,535
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $16,622,059
Foreign currency transactions (28,433)
-----------
Net realized gain on investments and foreign
currency transactions $16,593,626
-----------
Change in unrealized appreciation (depreciation) -
Investments $20,081,146
Translation of assets and liabilities in foreign
currencies (787)
-----------
Net unrealized gain on investments and foreign
currency translation $20,080,359
-----------
Net realized and unrealized gain on investments
and foreign currency $36,673,985
-----------
Increase in net assets from operations $38,970,520
===========
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 2,296,535 $ 1,283,044
Net realized gain on investments and foreign currency
transactions 16,593,626 6,049,822
Net unrealized gain on investments and foreign
currency translation 20,080,359 1,544,623
------------- -------------
Increase in net assets from operations $ 38,970,520 $ 8,877,489
------------- -------------
Distributions declared to shareholders -
From net investment income $ (1,238,327) $ (517,487)
From net realized gain on investments and foreign
currency transactions (6,226,380) (2,352,812)
------------- -------------
Total distributions declared to shareholders $ (7,464,707) $ (2,870,299)
------------- -------------
Net increase in net assets from Series share
transactions $ 69,737,127 $ 45,571,784
------------- -------------
Total increase in net assets $ 101,242,940 $ 51,578,974
Net assets:
At beginning of period 81,725,786 30,146,812
------------- -------------
At end of period (including accumulated undistributed
net investment income of $2,265,786 and $1,267,568,
respectively) $ 182,968,726 $ 81,725,786
============= =============
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, PERIOD ENDED
----------------------------------------------------------------- DECEMBER 31,
1999 1998 1997 1996 1995*
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $19.82 $17.99 $13.66 $12.57 $10.00
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.38 $ 0.46 $ 0.44 $ 0.55 $ 0.39
Net realized and unrealized gain on
investments and foreign currency 5.40 2.68 3.89 1.78 3.00
------ ------ ------ ------ ------
Total from investment operations $ 5.78 $ 3.14 $ 4.33 $ 2.33 $ 3.39
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.24) $(0.24) $ -- $(0.35) $(0.24)
From net realized gain on
investments and foreign currency
transactions (1.20) (1.07) -- (0.88) (0.58)
In excess of net realized gain on
investments and foreign currency
transactions -- -- -- (0.01) --
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(1.44) $(1.31) $ -- $(1.24) $(0.82)
------ ------ ------ ------ ------
Net asset value - end of period $24.16 $19.82 $17.99 $13.66 $12.57
====== ====== ====== ====== ======
Total return 30.81% 18.06% 31.70% 18.51% 33.94%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.01% 1.01% 1.00% 1.00% 1.00%+
Net investment income 1.88% 2.48% 2.92% 4.19% 3.66%+
Portfolio turnover 134% 133% 69% 121% 94%
Net assets at end of period (000
Omitted) $182,969 $81,726 $30,147 $9,572 $2,373
(S) Subject to reimbursement by the Series, MFS has voluntarily agreed to pay all of the Series' operating expenses, exclusive
of management fees. In consideration, the Series pays MFS a fee not greater 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 $ 0.40 $ 0.47 $ 0.41 $ 0.32 $ 0.17
Ratios (to average net assets):
Expenses## 0.94% 0.98% 1.20% 2.75% 3.08%+
Net investment income 1.95% 2.51% 2.71% 2.44% 1.62%+
* 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.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
</TABLE>
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Utilities Series (the Series) is a non-diversified series of MFS(R) Variable
Insurance Trust(SM) (the Trust). 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
December 31, 1999, there were 47 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. The Series
can invest in foreign securities. 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 in good faith, at fair value, 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 - State Street Bank and Trust Company ("State Street"), as
lending agent, may loan the securities of the Series to certain qualified
institutions (the "Borrowers") approved by the Series. The loans are
collateralized at all times by cash and/or U.S. Treasury securities in an amount
at least equal to the market value of the securities loaned. State Street
provides the Series with indemnification against Borrower default. The Series
bears the risk of loss with respect to the investment of cash collateral.
Cash collateral is invested in short-term securities. 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 the lending agents. On loans
collateralized by U.S. Treasury securities, a fee is received from the Borrower,
and is allocated between the Series and the lending agents. 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.
At December 31, 1999, the value of securities loaned was $18,714,796. These
loans were collateralized by cash of $19,259,346 which was invested in the
following short-term obligation:
IDENTIFIED
SHARES COST AND VALUE
- --------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio 19,259,346 $19,259,346
-----------
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All discount is
accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Dividends received in cash are recorded on the
ex-dividend date. Dividend and interest payments received in additional
securities are recorded on the ex-dividend or ex-interest date in an amount
equal to the value of the security on such date.
Fees Paid Indirectly - The Series' custody fee is calculated as a percentage of
the Series' month end net assets. The fee is reduced according to an arrangement
that measures the value of cash deposited with the custodian by the Series. This
amount is shown as a reduction of expenses on the Statement of Operations.
Tax Matters and Distributions - The Series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The Series
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits be 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. During
the year ended December 31, 1999, accumulated undistributed net realized gain on
investments and foreign currency transactions was increased by $67,044,
accumulated undistributed net investment income was decreased by $59,990 and
paid-in capital was decreased by $7,054 due to differences between book and tax
accounting for non-taxable dividends and currency transactions. This change had
no effect on the net assets or net asset value per share.
(3) Transactions with Affiliates
Investment Adviser - The Series has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75% of
the Series' average daily net assets. The Series has a temporary expense
reimbursement agreement whereby MFS has voluntarily agreed to pay all of the
Series' operating expenses, exclusive of management fees. The Series in turn
will pay MFS an expense reimbursement fee not greater than 0.25% 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 December 31, 1999, aggregate unreimbursed expenses amounted to
$49,691.
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' average daily net assets at an 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 $ 7,015,365 $ 6,291,678
------------ ------------
Investments (non-U.S. government securities) $200,093,766 $150,010,568
============ ============
The cost and unrealized appreciation and depreciation in value of the
investments owned by the Series, as computed on a federal income tax basis, are
as follows:
Aggregate cost $ 158,743,850
=============
Gross unrealized appreciation $ 32,207,742
Gross unrealized depreciation (7,856,924)
-------------
Net unrealized appreciation $ 24,350,818
=============
(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>
YEAR ENDED DECEMBER 31, 1999 YEAR ENDED DECEMBER 31, 1998
--------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 4,894,393 $ 99,477,735 4,092,549 $ 75,961,041
Shares issued to shareholders in
reinvestment of distributions 380,270 7,464,700 157,019 2,870,311
Shares reacquired (1,825,341) (37,205,308) (1,801,461) (33,259,568)
---------- ------------- ---------- -------------
Net increase 3,449,322 $ 69,737,127 2,448,107 $ 45,571,784
========== ============= ========== =============
</TABLE>
(6) Line of Credit
The Series and other affiliated funds participate in an $820 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made to temporarily finance the repurchase of
Series shares. Interest is charged to each fund, based on its borrowings, at a
rate equal to the bank's base rate. In addition, a commitment fee, based on the
average daily unused portion of the line of credit, is allocated among the
participating funds at the end of each quarter. The commitment fee allocated to
the Series for the year ended December 31, 1999, was $937. The Series had no
borrowings during the year.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of the MFS Variable Insurance Trust and Shareholders of MFS
Utilities Series:
We have audited the accompanying statement of assets and liabilities of MFS
Utilities Series (the Series) (one of the series constituting the MFS Variable
Insurance Trust), including the portfolio of investments, as of December 31,
1999, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Utilities Series as of December 31, 1999, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 3, 2000
<PAGE>
FEDERAL TAX INFORMATION
The Series has designated $1,770,681 as a capital gain dividend for the year
ended December 31, 1999.
For the year ended December 31, 1999, the amount of distributions from income
eligible for the 70% dividends received deduction for corporations is 13.48%.
<PAGE>
MFS' YEAR 2000 READINESS DISCLOSURE
MFS Investment Management(R), as an investment adviser and
on behalf of the MFS funds, is committed to the effective
use of technology in managing our portfolio investments,
delivering high-quality service to MFS fund shareholders, [Graphic Omitted]
retirement plan participants, and MFS' institutional
clients, and supporting the financial consultants who sell
our products.
MFS can now say that it is ready for the Year 2000. Our testing has demonstrated
that MFS' computer hardware and software will recognize "00" as the Year 2000
and will not confuse those digits with 1900. All of our critical business
applications and processes have been successfully tested, and we have adopted
companywide policies that will help us maintain our readiness through the
remainder of the year. Any new technology that is brought into the company
before the end of the year will be held to the same stringent standards as our
current technology. We have also developed a vendor readiness survey, contacted
over 700 of our vendors, and established an ongoing process to review responses,
as well as to review readiness statements of new vendors and products.
MFS recognizes that fund shareholders and institutional clients also are
concerned about whether the companies whose securities are held in their
portfolios are addressing Y2K issues. As part of the MFS Original Research(R)
process of evaluating portfolio investments, one of the many relevant factors
that MFS' portfolio managers and research analysts may consider is a company's
Y2K readiness.
Y2K readiness is an enormously complex, worldwide issue. No company or
institution can guarantee that it will be unaffected by the Y2K issue. While
MFS is taking significant steps to protect the integrity of its internal
systems, there can be no assurance that these steps will be sufficient to
avoid any adverse impact on MFS fund shareholders, retirement plan
participants, or institutional clients.
If you have further questions regarding MFS' Year 2000 Readiness Program, please
visit our Web site at www.mfs.com, call our toll-free line, 1-800-637-4406, or
write to the MFS Year 2000 Program Management Office by e-mail at [email protected] or
by letter at 500 Boylston Street, Boston, MA 02116-3741.
<PAGE>
(C) 2000 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116
VUF-2 02/00 44.1M
