<PAGE>
[Logo] M F S (R)
INVESTMENT MANAGEMENT SEMIANNUAL REPORT
We invented the mutual fund(R) JUNE 30, 2000
[Graphic Omitted]
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
MFS(R) TOTAL
RETURN SERIES
<PAGE>
<TABLE>
MFS(R) TOTAL RETURN SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
<S> <C>
TRUSTEES INVESTMENT ADVISER
Jeffrey L. Shames* - Chairman and Chief Executive Massachusetts Financial Services Company
Officer, MFS Investment Management(R) 500 Boylston Street
Boston, MA 02116-3741
Nelson J. Darling, Jr.+ - Private investor and
trustee DISTRIBUTOR
MFS Fund Distributors, Inc.
William R. Gutow+ - Private investor and real 500 Boylston Street
estate consultant; Vice Chairman, Capitol Boston, MA 02116-3741
Entertainment Management Company (video franchise)
INVESTOR SERVICE
CHAIRMAN AND PRESIDENT MFS Service Center, Inc.
Jeffrey L. Shames* P.O. Box 2281
Boston, MA 02107-9906
PORTFOLIO MANAGERS
David M. Calabro* For additional information,
Kenneth J. Enright* contact your investment professional.
Geoffrey L. Kurinsky*
Constantinos Mokas* CUSTODIAN
Lisa B. Nurme* State Street Bank and Trust Company
TREASURER WORLD WIDE WEB
James O. Yost* www.mfs.com
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
* MFS Investment Management
+ Independent Trustee
</TABLE>
--------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
--------------------------------------------------------------------------------
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Shareholders,
I'm sure you've noticed that whenever financial markets suffer a large
decline, as they did this past spring, there's a flurry of information on "how
to deal with market volatility" -- both in the popular press and from those of
us in the investment business. Our own thinking on this is that, first, for
long-term investors volatility is not necessarily something to be feared;
occasional volatility may in fact be healthy for the markets.
Second, our experience has been that when markets begin to fall, it's often
too late to act. The best response may be to do nothing -- if you're properly
prepared with a long-term plan, created with the help of your investment
professional. To help you create or update that plan and take market
volatility in stride, here are some points you may want to consider the next
time you talk with your investment professional.
1. VOLATILITY CAN BE A GOOD THING
We would argue that the markets today are much healthier than they were before
the period of volatility this past spring, in the sense that stock prices have
returned to more reasonable levels and we have a stronger base for future
growth. Perhaps the worst of the market's wrath descended on companies with very
high stock prices, relative to their earnings, or with business concepts that
looked great in the euphoria of a booming market but in the end appeared to have
no fundamental backing. It has always been our view that one of the best
protections against market volatility is to invest in stocks and bonds of
fundamentally good companies selling at reasonable prices. When discussing
potential investments with your investment professional, you may want to ask how
they fared in previous periods of volatility, as well as in the good times.
2. INVEST FOR THE LONG TERM
You've heard that before, but we think it's still probably the most important
concept in investing. Time is one of an investor's greatest allies. Over
nearly all long-term periods -- 5, 10, 20 years, and more -- stock and bond
returns, as represented by most common indices, have been positive and have
considerably outpaced inflation. Investing is the best way we know of to make
your money work for you while you're doing something else.
Where investors can get into trouble is by confusing investing with trading.
In our view, traders who buy securities with the intention of selling them at
a profit in a matter of hours, days, or weeks are gambling. We believe this
seldom turns out to be a good strategy for increasing your wealth.
3. INVEST REGULARLY
Waiting for the "right time" to invest is almost always a poor strategy,
because only in retrospect do we know when that right time really was. Periods
of volatility are probably the worst times to make an investment decision.
Faced with turmoil in the markets, many investors have opted to simply stay on
the sidelines.
On the other hand, we think one of the best techniques for investing is
through automatic monthly or quarterly deductions from a checking or savings
account. This approach has at least three major benefits. First, you can
formulate a long-term plan -- how much to invest, how often, and into which
portfolios -- in a calm, rational manner, working with your investment
professional. Second, with this approach you invest regularly without
agonizing over the decision each time you buy shares. And, third, if you
invest equal amounts of money at regular intervals, you'll be taking advantage
of a strategy called dollar-cost averaging: by investing a fixed amount while
the share cost fluctuates, you end up with an average share cost to you that
is lower than the average share price over your investment period.(1) If all
this sounds familiar, it's probably because you're already taking advantage of
dollar-cost averaging by investing regularly for retirement through a 401(k)
or similar account at work.
4. DIVERSIFY
One of the dangers of not having an investment plan is that you may be tempted
to simply chase performance, by moving money into whatever asset class appears
to be outperforming at the moment -- small, mid, or large cap; growth or value;
United States or international; stocks or bonds. The problem with this approach
is that by the time a particular area is generally recognized as "hot," you may
have already missed some of the best performance.
International investing offers a case in point. In the 1980s, international
investments, as represented by the Morgan Stanley Capital International (MSCI)
Europe, Australia, Far East (EAFE) Index, outperformed U.S. investments, as
represented by the Standard & Poor's 500 Composite Index (S&P 500), in 7 out
of 10 years.(2) For the decade, the MSCI EAFE's average annual performance was
23%, compared to 18% for the S&P 500. Going into the 1990s, then, an investor
looking only at recent performance might have favored international
investments over U.S. investments.
But the 1990s turned out to be virtually a mirror image of the '80s. Domestic
investments outperformed international investments in 7 out of 10 years, with
the S&P 500 returning an average of 18% annually for the decade and the MSCI
EAFE returning a 7% annual average. Looking ahead, however, we are optimistic
about international markets because we feel that many of the same forces that
propelled the current U.S. economic boom -- deregulation, restructuring, and
increased adoption of technology -- have taken root overseas.
The lesson to be learned is that nobody really knows what asset class will be
the next to outperform or how long that performance will be sustained. We would
suggest that one way to potentially profit from swings in the market -- to
potentially be invested in various asset classes before the market shifts in
their favor -- is with a diversified portfolio covering several asset classes.
If you haven't already done so, we encourage you to discuss these thoughts
with your investment professional and factor them into your long-range
financial planning. Hopefully, the next time the markets appear to be going
wild, you'll feel confident enough in your plan to view periods of volatility
as a time of potential opportunity -- or perhaps just a time to sit back and
do nothing.
As always, 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 17, 2000
(1) The use of a systematic investing program does not guarantee a profit or
protect against a loss in declining markets. You should consider your
financial ability to continue to invest through periods of low prices.
(2) Source: Lipper Inc. Decade performance: '80s -- 12/31/79-12/31/89,
'90s -- 12/31/89-12/31/99. The MSCI EAFE Index is an unmanaged,
market-capitalization-weighted total return index that measures the
performance of the same developed-country global stock markets included in
the MSCI World Index but excludes the United States, Canada, and the South
African mining component. The S&P 500 is a popular, unmanaged index of
common stock total return performance. It is not possible to invest directly
in an index. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
Investments in variable products will fluctuate and may be worth more or less
upon redemption. Please see your investment professional for more information.
The opinions expressed in this letter are those of Jeffrey L. Shames, and no
forecasts can be guaranteed.
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
Dear Shareholders,
For the six months ended June 30, 2000, the series' Initial Class shares
provided a total return of 2.63% and Service Class shares 2.57%. These results
include the reinvestment of any distributions and compare to returns of -0.42%
and 4.18%, respectively, for the series' benchmarks, the Standard & Poor's 500
Composite Index (the S&P 500) and the Lehman Brothers Government/Corporate
Bond Index (the Lehman Index). The S&P 500 is a popular, unmanaged index of
common stocks. The Lehman Index is an unmanaged, market-value-weighted index
of U.S. Treasuries, government-agency securities (excluding mortgage-backed
securities), and investment-grade domestic corporate debt. Over the same
period, the average balanced fund tracked by Lipper Inc., an independent firm
that reports performance, returned 1.34%.
Among energy stocks, oil services as well as exploration and production
companies provided a boost to performance. These stocks are typically very
sensitive to oil and natural gas price changes and benefited immensely from
rising prices. We've anticipated this favorable business environment for some
time now and it has worked very well in recent months. In the insurance
sector, a few of the portfolio's holdings produced exceptional performance.
Recently, the Dutch financial services company ING Groep agreed to buy
ReliaStar Financial Corp., which caused our position in ReliaStar to nearly
double in price. This news sparked a rally in the insurance industry, as
investors began to recognize the strong fundamental business outlooks and the
potential for further consolidation among insurance companies.
We also took advantage of some weakness in pharmaceutical stock prices in the
early part of the year to increase our positions in high-quality companies
with strong long-term track records. Stocks such as Pharmacia and Abbott
Laboratories came back strong in the second quarter, and we think they still
offer attractive growth opportunities at compelling valuations.
While value stocks have rallied recently, it's difficult to predict whether
this trend will continue. But our feeling is that there is still plenty of
upside for more reasonably priced stocks with good fundamental growth
prospects, especially if interest rates and the economic backdrop remain
uncertain. We think more defensive stocks in noncyclical sectors of the
economy, such as consumer nondurables and health care stocks, have the
potential to outperform aggressive growth stocks in this environment.
With regard to our bond holdings during the period, as corporate bonds and
mortgage-backed securities recovered in the first quarter of 2000, we decided to
secure some profits and decrease our positions in these sectors. At the same
time, we shifted some assets into U.S. Treasuries as the outlook for government
securities appeared to brighten. We felt this strategy worked well, especially
following the government's announced plans to buy back nearly $30 billion of
longer-maturity Treasuries during the year. (Principal value and interest on
Treasury securities are guaranteed by the U.S. government if held to maturity.)
With corporate bonds, we also found ourselves in the right areas of the market.
Our positioning in various telecommunications and media issues proved
particularly beneficial.
What makes this portfolio different from other balanced portfolios is the fact
that we remain committed to our disciplined approach to asset allocation,
unlike managers of many balanced portfolios who often take on additional risks
by increasing their exposure to aggressive growth stocks. We maintain a
roughly 60% equity and 40% fixed-income and cash investment mix because we
believe this is what investors expect from a balanced portfolio. We believe
this strategy provides the right balance of growth and income potential.
Looking forward, while certain pockets of the market remain overvalued in our
view, we are still finding some quality companies at what we think are
attractive prices. In addition, we feel there is potential for strong corporate
earnings across a wide range of industries. However, we intend to proceed with
some caution given the Federal Reserve Board's determination to slow down the
economy. In light of the current economic uncertainty, the market is beginning
to behave as we would expect -- defensive, value-oriented stocks have been
rebounding, while growth stocks have suffered. Whether this current trend will
persist is difficult to determine. As a result, we believe it makes sense for
investors to maintain a well-diversified portfolio.
Respectfully,
/s/ David M. Calabro
David M. Calabro
Lead Portfolio Manager
(on behalf of the MFS Total Return Team)
The opinions expressed in this report are those of the lead 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 MANAGERS' PROFILES
David M. Calabro, Senior Vice President; Kenneth J. Enright, Senior Vice
President; Geoffrey L. Kurinsky, Senior Vice President; Constantinos Mokas, Vice
President; and Lisa B. Nurme, Senior Vice President, are the series' portfolio
managers. Mr. Calabro is the head of the portfolio management team and a manager
of the equity portion of the series' portfolio. Mr. Calabro has been employed by
MFS since 1992. Mr. Enright, a manager of the equity portion of the series'
portfolio, has been employed by MFS since 1986. Mr. Kurinsky, the manager of the
series' fixed-income securities, has been employed by MFS since 1987. Mr. Mokas,
a manager of the equity portion of the series' portfolio, has been employed by
MFS since 1990. Ms. Nurme, a manager of the equity portion of the series'
portfolio, has been employed by MFS since 1987.
All portfolio managers at MFS Investment Management(R) are supported by an
investment staff of over 100 professionals utilizing MFS(R) Original
Research(SM), a company-oriented, bottom-up process of selecting securities.
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 all charges and expenses, for any MFS product is available from your
investment professional, or by calling MFS at 1-800-225-2606. Please read it
carefully before investing or sending money.
<PAGE>
SERIES FACTS
Objective: Seeks primarily to provide above-average income (compared to a
portfolio invested entirely in equity securities) consistent with the prudent
employment of capital, and secondarily to provide a reasonable opportunity for
growth of capital and income.
Commencement of investment operations: January 3, 1995
Class inception: Initial Class January 3, 1995
Service Class May 1, 2000
Size: $273.4 million net assets as of June 30, 2000
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. Investment results reflect the percentage change in
net asset value, including the reinvestment of dividends. (See Notes to
Performance Summary.)
<TABLE>
TOTAL RATES OF RETURN THROUGH JUNE 30, 2000
<CAPTION>
INITIAL CLASS
6 Months 1 Year 3 Years 5 Years Life*
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return +2.63% +0.65% +29.43% +85.31% +109.95%
---------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +0.65% + 8.98% +13.13% + 14.47%
---------------------------------------------------------------------------------------------------------
<CAPTION>
SERVICE CLASS
6 Months 1 Year 3 Years 5 Years Life*
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return +2.57% +0.59% +29.36% +85.20% +109.83%
---------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +0.59% + 8.96% +13.12% + 14.46%
---------------------------------------------------------------------------------------------------------
* For the period from the commencement of the series' investment operations, January 3, 1995, through
June 30, 2000.
</TABLE>
NOTES TO PERFORMANCE SUMMARY
Initial Class and Service Class shares have no sales charge; however, Service
Class shares carry a 0.20% annual Rule 12b-1 fee. Service Class share
performance includes the performance of the series' Initial Class shares for
periods prior to the inception of Service Class shares (blended performance).
These blended performance figures have not been adjusted to take into account
differences in the class-specific operating expenses (such as Rule 12b-1
fees). Because operating expenses of Service Class shares are higher than
those of Initial Class shares, the blended Service Class share performance is
higher than it would have been had Service Class shares been offered for the
entire period.
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. 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
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. PAST PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS.
Returns shown do not reflect the deduction of the mortality and expense risk
charges and administration fees. Please refer to the variable product's annual
report for performance that reflects the deduction of the fees and charges
imposed by insurance company separate accounts.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - June 30, 2000
<CAPTION>
Stocks - 51.9%
-------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 45.1%
Aerospace - 1.9%
Boeing Co. 39,200 $ 1,639,050
Honeywell International, Inc. 23,300 784,919
TRW, Inc. 36,491 1,582,797
United Technologies Corp. 19,360 1,139,820
------------
$ 5,146,586
-------------------------------------------------------------------------------------------------------
Automotive - 0.6%
Delphi Automotive Systems Corp. 88,400 $ 1,287,325
Ford Motor Co. 10,300 442,900
Visteon Corp.* 1,348 16,345
------------
$ 1,746,570
-------------------------------------------------------------------------------------------------------
Banks and Credit Companies - 1.4%
Bank America Corp. 33,000 $ 1,419,000
Bank of New York Co., Inc. 14,520 675,180
Bank One Corp. 6,000 159,375
PNC Bank Corp. 33,900 1,589,062
------------
$ 3,842,617
-------------------------------------------------------------------------------------------------------
Biotechnology - 1.7%
Abbott Laboratories, Inc. 50,900 $ 2,268,231
Pharmacia Corp. 43,645 2,255,901
------------
$ 4,524,132
-------------------------------------------------------------------------------------------------------
Business Machines - 0.3%
Hewlett-Packard Co. 1,800 $ 224,775
International Business Machines Corp. 2,540 278,289
Xerox Corp. 15,300 317,475
------------
$ 820,539
-------------------------------------------------------------------------------------------------------
Business Services - 0.5%
Automatic Data Processing, Inc. 22,400 $ 1,199,800
United Parcel Service, Inc. 4,190 247,210
------------
$ 1,447,010
-------------------------------------------------------------------------------------------------------
Cellular Telephones - 0.8%
Motorola, Inc. 36,400 $ 1,057,875
Telephone & Data Systems, Inc. 10,000 1,002,500
------------
$ 2,060,375
-------------------------------------------------------------------------------------------------------
Chemicals - 1.1%
Air Products & Chemicals, Inc. 29,100 $ 896,644
Rohm & Haas Co. 59,800 2,063,100
------------
$ 2,959,744
-------------------------------------------------------------------------------------------------------
Computer Software - Personal Computers - 0.2%
Microsoft Corp.* 8,000 $ 640,000
-------------------------------------------------------------------------------------------------------
Conglomerates - 0.4%
Eastern Enterprises Co. 15,000 $ 945,000
Tyco International Ltd. 3,002 142,220
------------
$ 1,087,220
-------------------------------------------------------------------------------------------------------
Consumer Goods and Services - 0.5%
Fortune Brands, Inc. 36,000 $ 830,250
Kimberly-Clark Corp. 9,900 568,013
------------
$ 1,398,263
-------------------------------------------------------------------------------------------------------
Electrical Equipment - 1.3%
Emerson Electric Co. 56,300 $ 3,399,112
General Electric Co. 1,800 95,400
------------
$ 3,494,512
-------------------------------------------------------------------------------------------------------
Electronics
Agilent Technologies, Inc.* 686 $ 50,593
-------------------------------------------------------------------------------------------------------
Energy - 0.9%
Devon Energy Corp. 38,900 $ 2,185,694
Sierra Pacific Resources Co. 21,600 271,350
------------
$ 2,457,044
-------------------------------------------------------------------------------------------------------
Entertainment - 1.2%
Disney (Walt) Co. 4,500 $ 174,656
Harrah's Entertainment, Inc.* 67,000 1,402,812
Time Warner, Inc. 17,440 1,325,440
Viacom, Inc., "B"* 6,835 466,062
------------
$ 3,368,970
-------------------------------------------------------------------------------------------------------
Financial Institutions - 1.8%
Citigroup, Inc. 30,250 $ 1,822,562
Edwards (A.G.), Inc. 31,950 1,246,050
Freddie Mac Corp. 18,940 767,070
Merrill Lynch & Co., Inc. 8,500 977,500
------------
$ 4,813,182
-------------------------------------------------------------------------------------------------------
Financial Services - 1.7%
AXA Financial, Inc. 65,300 $ 2,220,200
Mellon Financial Corp. 66,100 2,408,519
------------
$ 4,628,719
-------------------------------------------------------------------------------------------------------
Food and Beverage Products - 1.8%
Anheuser-Busch Cos., Inc. 11,000 $ 821,563
Archer-Daniels-Midland Co. 70,389 690,692
General Mills, Inc. 21,600 826,200
Hershey Foods Corp. 8,700 421,950
McCormick & Co., Inc. 8,500 276,250
Quaker Oats Co. 23,300 1,750,412
------------
$ 4,787,067
-------------------------------------------------------------------------------------------------------
Forest and Paper Products - 0.2%
Bowater, Inc. 10,100 $ 445,663
-------------------------------------------------------------------------------------------------------
Gas - 0.3%
Sunoco, Inc. 31,300 $ 921,394
-------------------------------------------------------------------------------------------------------
Healthcare - 0.2%
HCA Healthcare Co.* 18,000 $ 546,750
-------------------------------------------------------------------------------------------------------
Insurance - 5.5%
Allstate Corp. 10,900 $ 242,525
American International Group, Inc. 1,575 185,063
Chubb Corp. 11,600 713,400
CIGNA Corp. 10,200 953,700
Hartford Financial Services Group, Inc. 66,900 3,742,219
Jefferson Pilot Corp. 12,000 677,250
Lincoln National Corp. 56,600 2,044,675
Marsh & McLennan Cos., Inc. 21,400 2,234,962
MetLife, Inc.* 23,620 497,496
ReliaStar Financial Corp. 26,600 1,394,837
St. Paul Cos., Inc. 66,400 2,265,900
------------
$ 14,952,027
-------------------------------------------------------------------------------------------------------
Machinery - 1.2%
Deere & Co., Inc. 51,900 $ 1,920,300
Ingersoll Rand Co. 23,100 929,775
W.W. Grainger, Inc. 14,200 437,537
------------
$ 3,287,612
-------------------------------------------------------------------------------------------------------
Medical and Health Products - 1.5%
American Home Products Corp. 37,060 $ 2,177,275
Baxter International, Inc. 2,480 174,375
Bristol-Myers Squibb Co. 28,400 1,654,300
------------
$ 4,005,950
-------------------------------------------------------------------------------------------------------
Metals and Minerals - 0.1%
Alcoa, Inc. 11,400 $ 330,600
-------------------------------------------------------------------------------------------------------
Oil Services - 2.5%
Halliburton Co. 67,600 $ 3,189,875
Noble Drilling Corp.* 90,100 3,710,994
------------
$ 6,900,869
-------------------------------------------------------------------------------------------------------
Oils - 4.4%
Apache Corp. 20,500 $ 1,205,656
Chevron Corp. 4,900 415,581
Coastal Corp. 79,360 4,831,040
Conoco, Inc., "A" 62,600 1,377,200
Exxon Mobil Corp. 43,511 3,415,613
Transocean Sedco Forex, Inc. 17,000 908,438
------------
$ 12,153,528
-------------------------------------------------------------------------------------------------------
Photographic Products
Eastman Kodak Co. 1,000 $ 59,500
-------------------------------------------------------------------------------------------------------
Printing and Publishing - 1.8%
Gannett Co., Inc. 33,600 $ 2,009,700
New York Times Co. 44,700 1,765,650
Tribune Co. 28,700 1,004,500
------------
$ 4,779,850
-------------------------------------------------------------------------------------------------------
Railroads - 0.3%
Burlington Northern Santa Fe Railway Co. 35,100 $ 805,106
-------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts - 0.4%
Equity Residential Properties Trust 26,400 $ 1,214,400
-------------------------------------------------------------------------------------------------------
Restaurants and Lodging - 0.2%
McDonald's Corp. 12,998 $ 428,122
-------------------------------------------------------------------------------------------------------
Supermarkets - 1.1%
Kroger Co.* 65,900 $ 1,453,919
Safeway, Inc.* 35,100 1,583,887
------------
$ 3,037,806
-------------------------------------------------------------------------------------------------------
Telecommunications - 3.1%
Alltel Corp. 10,600 $ 656,537
AT&T Corp. 15,750 498,094
Bell Atlantic Corp. 4,700 238,819
GTE Corp. 65,750 4,092,937
SBC Communications, Inc. 60,744 2,627,178
Sprint Corp. 9,600 489,600
------------
$ 8,603,165
-------------------------------------------------------------------------------------------------------
Telecommunications and Cable - 0.3%
Comcast Corp., "A"* 17,600 $ 712,800
-------------------------------------------------------------------------------------------------------
Utilities - Electric - 1.6%
CMS Energy Corp. 10,200 $ 225,675
CP&L Energy, Inc.* 24,700 788,856
Duke Energy Corp. 26,600 1,499,575
NiSource, Inc. 40,000 745,000
Peco Energy Co. 9,000 362,813
Pinnacle West Capital Corp. 24,400 826,550
------------
$ 4,448,469
-------------------------------------------------------------------------------------------------------
Utilities - Gas - 2.3%
Columbia Energy Group 13,000 $ 853,125
El Paso Energy Corp. 10,500 534,844
National Fuel Gas Co. 37,000 1,803,750
Washington Gas Light Co. 23,300 560,656
Williams Cos., Inc. 61,600 2,567,950
------------
$ 6,320,325
-------------------------------------------------------------------------------------------------------
Total U.S. Stocks $123,227,079
-------------------------------------------------------------------------------------------------------
Foreign Stocks - 6.8%
France - 0.1%
Axa (Insurance) 1,900 $ 299,267
-------------------------------------------------------------------------------------------------------
Japan - 0.3%
Nippon Telegraph & Telephone Corp., ADR (Utilities - Telephone) 10,700 $ 731,613
-------------------------------------------------------------------------------------------------------
Netherlands - 3.2%
Akzo Nobel N.V. (Chemicals) 71,600 $ 3,041,547
ING Groep N.V. (Financial Services)* 36,402 2,460,255
Royal Dutch Petroleum Co., ADR (Oils) 51,680 3,181,550
------------
$ 8,683,352
-------------------------------------------------------------------------------------------------------
Switzerland - 0.6%
Nestle S.A. (Food and Beverage Products) 815 $ 1,631,699
-------------------------------------------------------------------------------------------------------
United Kingdom - 2.6%
BP Amoco PLC, ADR (Oils) 71,676 $ 4,054,174
Diageo PLC (Food and Beverage Products)* 159,059 1,426,715
HSBC Holdings PLC (Banks and Credit Cos.)* 108,200 1,236,477
SmithKline-Beecham PLC, ADR (Medical and Health Products) 7,560 492,817
------------
$ 7,210,183
-------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 18,556,114
-------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $135,826,247) $141,783,193
-------------------------------------------------------------------------------------------------------
Bonds - 38.7%
-------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
-------------------------------------------------------------------------------------------------------
U.S. Bonds - 38.4%
Automotive - 2.6%
DaimlerChrysler, 6.63s, 2001 $ 1,946 $ 1,932,884
DaimlerChrysler, 7.75s, 2003 415 418,357
DaimlerChrysler, 7.4s, 2005 672 666,685
Ford Credit Auto Owner Trust, 6.2s, 2002 427 424,677
Ford Motor Credit Co., 6.7s, 2004 1,348 1,306,023
Ford Motor Credit Co., 7.75s, 2007 952 943,870
Ford Motor Credit Co., 5.8s, 2009 333 289,707
Ford Motor Credit Co., 7.875s, 2010 1,019 1,018,816
General Motors Corp., 9.4s, 2021 124 141,304
------------
$ 7,142,323
-------------------------------------------------------------------------------------------------------
Banks and Credit Companies - 1.5%
Beaver Valley Funding Corp. II, 9s, 2017 $ 559 $ 570,051
Capital One Financial Corp., 7.25s, 2003 50 48,819
Chase Manhattan Corp., 6.75s, 2004 495 482,219
Fleet National Bank, 5.75s, 2009 198 171,116
Midamerican Funding LLC, 5.85s, 2001 275 272,021
Midamerican Funding LLC, 6.927s, 2029 414 344,556
Midland Cogeneration Venture Corp., 10.33s, 2002 28 29,072
Midland Funding Corp., 10.33s, 2002 27 27,131
Riggs National Corp., 9.65s, 2009 650 643,500
Socgen Real Estate Co., 7.64s, 2049## 151 138,197
State Street Corp., 7.65s, 2010 138 137,757
Washington Mutual Capital I, 8.375s, 2027 157 139,203
Wells Fargo Bank N A, 7.8s, 2010 1,226 1,235,232
------------
$ 4,238,874
-------------------------------------------------------------------------------------------------------
Chemicals - 0.3%
Lyondell Chemical Co., 9.625s, 2007 $ 777 $ 769,230
-------------------------------------------------------------------------------------------------------
Conglomerates - 0.2%
Eaton Corp., 6.95s, 2004 $ 164 $ 160,484
News America Holdings, Inc., 6.625s, 2008 29 26,590
News America Holdings, Inc., 6.703s, 2034 378 359,697
------------
$ 546,771
-------------------------------------------------------------------------------------------------------
Consumer Goods and Services
Kindercare Learning Centers, Inc., 9.5s, 2009 $ 150 $ 138,000
-------------------------------------------------------------------------------------------------------
Corporate Asset Backed - 2.7%
American Airlines Pass-Through Trust, 6.855s, 2009 $ 210 $ 204,623
Bear Stearns Commercial Mortgage Securities, Inc., 6.8s, 2008 474 464,579
Beneficial Home Equity Loan Trust, 6.731s, 2037 146 145,753
Chase Commercial Mortgage Securities Corp., 6.39s, 2008 328 306,557
Chase Commercial Mortgage Securities Corp., 7.543s, 2032 155 155,178
Commerce 2000, 6.93s, 2011 502 502,000
Commerce 2000, 6.95s, 2011 288 288,509
Continental Airlines Pass-Through Trust, Inc., 9.5s, 2013 22 22,512
Continental Airlines Pass-Through Trust, Inc., 6.648s, 2017 65 59,181
Continental Airlines Pass-Through Trust, Inc., 6.545s, 2019 85 76,301
Continental Airlines Pass-Through Trust, Inc., 7.256s, 2020 794 737,349
Criimi Mae Commercial Mortgage Trust, 7s, 2011 100 86,750
Criimi Mae Corp., 6.701s, 2008 169 151,413
CWMBS, Inc. Pass-Through Trust, 8s, 2030 817 812,660
GS Mortgage Securities Corp. II, 6.06s, 2030 815 779,416
Northwest Airlines Pass-Through Trust, 8.072s, 2019 348 349,274
Residential Accredit Loans, Inc., 6.75s, 2028 615 579,059
Time Warner Pass-Through Asset Trust, 6.1s, 2001## 1,712 1,679,318
------------
$ 7,400,432
-------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.2%
American Tower Corp., 5s, 2010 $ 410 $ 415,125
-------------------------------------------------------------------------------------------------------
Entertainment - 0.8%
Hearst Argyle Television, Inc., 7.5s, 2027 $ 1,099 $ 927,106
Time Warner Entertainment Co. LP, 8.375s, 2033 300 302,445
Time Warner, Inc., 10.15s, 2012 591 678,255
Time Warner, Inc., 6.625s, 2029 209 172,515
------------
$ 2,080,321
-------------------------------------------------------------------------------------------------------
Finance - 0.1%
Countrywide Funding Corp., 6.25s, 2009 $ 190 $ 165,764
-------------------------------------------------------------------------------------------------------
Financial Institutions - 2.3%
Associates Corp., 5.75s, 2003 $ 1,210 $ 1,149,681
Associates Corp., 5.5s, 2004 1,207 1,120,736
AT&T Capital Corp., 6.25s, 2001 120 118,608
General Motors Acceptance Corp., 6.75s, 2002 485 476,750
General Motors Acceptance Corp., 5.95s, 2003 257 247,419
General Motors Acceptance Corp., 7.625s, 2004 967 969,040
Goldman Sachs Group LP, 5.9s, 2003 1,300 1,251,133
GS Escrow Corp., 6.75s, 2001 461 447,855
Salton Sea Funding Corp., 7.84s, 2010 325 317,330
Sunamerica Institutional, 5.75s, 2009 295 257,296
------------
$ 6,355,848
-------------------------------------------------------------------------------------------------------
Financial Services - 2.8%
AIG Sunamerica Global Financing I, 7.4s, 2003 $ 639 $ 640,489
AIG Sunamerica Global Financing II, 7.6s, 2005 1,000 1,010,440
Bellsouth Capital Funding Corp., 7.75s, 2010 482 482,019
Deere (John) Capital Corp., 7s, 2002 232 230,476
General Electric Capital Corp., 7.5s, 2005 504 509,171
General Electric Capital Corp., 8.7s, 2007 358 385,063
General Electric Capital Corp., 8.75s, 2007 128 138,862
General Electric Capital Corp., 8.85s, 2007 169 183,874
General Electric Capital Corp., 8.5s, 2008 211 227,880
General Electric Capital Corp., 7.375s, 2010 406 410,897
Morgan (JP) Commercial Mortgage Finance Corp., 6.931s, 2010 275 275,183
Morgan (JP) Commercial Mortgage Finance Corp., 6.613s, 2030 162 153,933
Morgan Stanley Dean Witter, 7.75s, 2005 322 324,225
Morgan Stanley Group, Inc., 7.125s, 2003 426 423,269
Sprint Capital Corp., 6.5s, 2001 970 957,535
Sprint Capital Corp., 5.875s, 2004 729 684,363
Sprint Capital Corp., 6.9s, 2019 835 742,449
------------
$ 7,780,128
-------------------------------------------------------------------------------------------------------
Food and Beverage Products - 0.5%
Nabisco, Inc., 6.375s, 2035 $ 70 $ 62,586
Seagram (Joseph E) & Sons, Inc., 5.79s, 2001 388 382,548
Seagram (Joseph E) & Sons, Inc., 6.4s, 2003 505 483,356
Seagram (Joseph E) & Sons, Inc., 7.5s, 2018 386 369,240
------------
$ 1,297,730
-------------------------------------------------------------------------------------------------------
Forest and Paper Products - 0.4%
Georgia-Pacific Corp., 9.95s, 2002 $ 658 $ 681,267
Georgia-Pacific Corp., 9.5s, 2022 500 520,930
U.S. Timberlands, 9.625s, 2007 30 26,400
------------
$ 1,228,597
-------------------------------------------------------------------------------------------------------
Housing - 0.1%
Residential Funding Mortgage Securities, Inc., 7.66s, 2012 $ 142 $ 141,678
-------------------------------------------------------------------------------------------------------
Insurance - 0.3%
Aflac, Inc., 6.5s, 2009 $ 675 $ 610,855
Atlantic Mutual Insurance Co., 8.15s, 2028 149 117,443
Providian Capital I, 9.525s, 2027 109 85,524
------------
$ 813,822
-------------------------------------------------------------------------------------------------------
Oil Services - 0.1%
Phillips Petroleum Co., 8.5s, 2005 $ 303 $ 313,023
Ultramar Diamond Shamrock Corp., 7.2s, 2017 20 17,498
------------
$ 330,521
-------------------------------------------------------------------------------------------------------
Oils - 0.2%
Occidental Petroleum Corp., 6.75s, 2002 $ 341 $ 334,054
Occidental Petroleum Corp., 6.4s, 2003 357 344,783
------------
$ 678,837
-------------------------------------------------------------------------------------------------------
Printing and Publishing - 0.1%
News America Holdings, Inc., 7.3s, 2028 $ 339 $ 289,431
-------------------------------------------------------------------------------------------------------
Railroads - 0.4%
Union Pacific Corp., 5.78s, 2001 $ 157 $ 153,365
Union Pacific Corp., 6.34s, 2003 935 896,497
------------
$ 1,049,862
-------------------------------------------------------------------------------------------------------
Retail - 0.3%
Federated Department Stores, Inc., 8.5s, 2003 $ 571 $ 576,236
Federated Department Stores, Inc., 6.3s, 2009 375 329,513
------------
$ 905,749
-------------------------------------------------------------------------------------------------------
Telecommunications - 0.5%
TCI Communications Financing III, 9.65s, 2027 $ 1,102 $ 1,217,490
WorldCom, Inc., 8.875s, 2006 20 20,737
------------
$ 1,238,227
-------------------------------------------------------------------------------------------------------
Telecommunications and Cable - 0.1%
Belo Ah Corp., 7.75s, 2027 $ 202 $ 171,189
-------------------------------------------------------------------------------------------------------
U.S. Federal Agencies - 6.4%
Federal Home Loan Bank - 0.5%
Federal Home Loan Bank, 5.7s, 2009 $ 720 $ 655,877
Federal Home Loan Bank, 6.5s, 2028 573 540,639
------------
$ 1,196,516
-------------------------------------------------------------------------------------------------------
Federal National Mortgage Association - 5.9%
FNMA, 5.722s, 2009 $ 465 $ 416,902
FNMA, 6.5s, 2028 - 2029 3,494 3,294,421
FNMA, 6.625s, 2009 600 579,654
FNMA, 7s, 2029 5,285 5,102,743
FNMA, 7.125s, 2010 2,308 2,317,024
FNMA, 7.25s, 2010 1,689 1,706,008
FNMA, 7.5s, 2029 2,750 2,711,307
------------
$ 16,128,059
-------------------------------------------------------------------------------------------------------
Total U.S. Federal Agencies $ 17,324,575
-------------------------------------------------------------------------------------------------------
U.S. Government Guaranteed - 11.0%
Government National Mortgage Association - 3.8%
GNMA, 7s, 2028 $ 1,356 $ 1,318,401
GNMA, 7.5s, 2025 - 2027 2,737 2,718,246
GNMA, 8s, 2022 - 2030 6,257 6,333,843
------------
$ 10,370,490
-------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 7.2%
U.S. Treasury Notes, 6.5s, 2005 - 2010 $ 6,497 $ 6,717,056
U.S. Treasury Notes, 4.25s, 2010 2,544 2,580,405
U.S. Treasury Bonds, 9.875s, 2015 1,628 2,207,470
U.S. Treasury Bonds, 6.125s, 2029 8,192 8,273,920
------------
$ 19,778,851
-------------------------------------------------------------------------------------------------------
Total U.S. Government Guaranteed $ 30,149,341
-------------------------------------------------------------------------------------------------------
Utilities - Electric - 3.5%
CalEnergy Co., Inc., 7.23s, 2005 $ 15 $ 14,587
Cleveland Electric Illuminating Co., 7.67s, 2004 1,997 1,967,744
Cleveland Electric Illuminating Co., 7.88s, 2017 81 76,222
CMS Energy Corp., 8.375s, 2003 928 897,137
CMS Energy Corp., 6.75s, 2004 600 550,500
CMS Energy Corp., 8s, 2011 235 231,409
Commonwealth Edison Company, 8.5s, 2022 511 508,363
Connecticut Light & Power Co., 7.875s, 2001 58 58,186
Connecticut Light & Power Co., 8.59s, 2003 400 397,216
Connecticut Light & Power Co., 7.875s, 2024 70 69,978
Entergy Mississippi, Inc., 6.2s, 2004 169 160,285
GGIB Funding Corp., 7.43s, 2011 84 79,459
Gulf States Utilities Co., 8.25s, 2004 84 84,737
Illinois Power Special Purpose Trust, 5.26s, 2003 98 96,953
Niagara Mohawk Power Corp., 7.25s, 2002 289 285,409
Niagara Mohawk Power Corp., 7.375s, 2003 77 75,924
Niagara Mohawk Power Corp., 7.75s, 2006 762 759,737
Niagara Mohawk Power Corp., 8.77s, 2018 124 127,728
Niagara Mohawk Power Corp., 8.5s, 2023 50 49,739
Northeast Utilities, 8.58s, 2006 239 240,790
NRG Energy South Central, 8.962s, 2016 284 284,994
NRG Energy, Inc., 8.7s, 2005 195 195,266
NSTAR Co., 8s, 2010 240 241,164
Telecomunicaciones de Puerto Rico, Inc., 6.65s, 2006 182 172,225
Texas Utilities Co., 5.94s, 2001 194 189,821
Toledo Edison Co., 7.875s, 2004 400 390,752
TXU Eastern Funding Co., 6.15s, 2002 137 132,741
Utilicorp United, Inc., 7s, 2004 131 125,122
Waterford 3 Funding Entergy Corp., 8.09s, 2017 353 335,416
Wisconsin Electric Power Co., 6.625s, 2002 805 791,597
------------
$ 9,591,201
-------------------------------------------------------------------------------------------------------
Utilities - Gas - 0.8%
Coastal Corp., 6.2s, 2004 $ 468 $ 446,266
Coastal Corp., 7.75s, 2010 639 634,700
Enron Corp., 7.875s, 2003 218 219,323
Tennessee Gas Pipeline Co., 7.625s, 2037 260 242,726
Texas Gas Transmission Corp., 7.25s, 2027 600 551,472
Williams Gas Pipelines Central, Inc., 7.375s, 2006 140 136,293
------------
$ 2,230,780
-------------------------------------------------------------------------------------------------------
Utilities - Telephone - 0.2%
U. S. West Communications, Inc., 7.625s, 2003 $ 474 $ 472,739
-------------------------------------------------------------------------------------------------------
Total U.S. Bonds $104,947,095
-------------------------------------------------------------------------------------------------------
Foreign Bonds - 0.3%
Canada
AT&T Canada, Inc., 0s to 2003, 9.95s to 2008 (Telecommunications) $ 88 $ 71,379
-------------------------------------------------------------------------------------------------------
Chile - 0.3%
Empresa Electric Guacolda S.A., 7.6s, 2001
(Utilities - Electric)## $ 760 $ 747,460
-------------------------------------------------------------------------------------------------------
Total Foreign Bonds $ 818,839
-------------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $107,519,228) $105,765,934
-------------------------------------------------------------------------------------------------------
Convertible Preferred Stocks - 1.0%
-------------------------------------------------------------------------------------------------------
SHARES
-------------------------------------------------------------------------------------------------------
Containers - 0.1%
Owens-Illinois, Inc., 4.75% 10,100 $ 224,725
-------------------------------------------------------------------------------------------------------
Insurance - 0.2%
Lincoln National Corp., 7.75% 31,600 $ 639,900
-------------------------------------------------------------------------------------------------------
Utilities - Electric - 0.4%
CMS Energy Corp., 8.75% 20,800 $ 582,400
NiSource, Inc., 7.75% 13,000 514,312
------------
$ 1,096,712
-------------------------------------------------------------------------------------------------------
Utilities - Gas - 0.3%
El Paso Energy Capital Trust I, 4.75% 12,300 $ 791,813
-------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks (Identified Cost, $3,122,908) $ 2,753,150
-------------------------------------------------------------------------------------------------------
Preferred Stock - 0.2%
-------------------------------------------------------------------------------------------------------
Utilities - Electric - 0.2%
TXU Corp.* (Identified Cost, $699,463) 13,300 $ 517,037
-------------------------------------------------------------------------------------------------------
Convertible Bonds - 0.7%
-------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
-------------------------------------------------------------------------------------------------------
Business Machines - 0.1%
Xerox Corp., 0s, 2018 $ 630 $ 327,600
-------------------------------------------------------------------------------------------------------
Conglomerates - 0.6%
Loews Corp., 3.125s, 2007 $ 1,880 $ 1,565,100
-------------------------------------------------------------------------------------------------------
Total Convertible Bonds (Identified Cost, $1,987,857) $ 1,892,700
-------------------------------------------------------------------------------------------------------
Rights - 0.2%
-------------------------------------------------------------------------------------------------------
SHARES
-------------------------------------------------------------------------------------------------------
CVS Corp. (Identified Cost, $743,268) 10,000 $ 708,125
-------------------------------------------------------------------------------------------------------
Short-Term Obligations - 7.4%
-------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
-------------------------------------------------------------------------------------------------------
Associates First Capital Corp., due 7/03/00 $ 8,527 $ 8,523,732
Federal Home Loan Mortgage Corp., due 7/03/00 6,641 6,638,576
Federal Home Loan Mortgage Corp., due 7/05/00 5,000 4,996,472
-------------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 20,158,780
-------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $270,057,751) $273,578,919
Other Assets, Less Liabilities - (0.1)% (214,948)
-------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $273,363,971
-------------------------------------------------------------------------------------------------------
* Non-income producing security.
## SEC Rule 144A restriction.
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
-------------------------------------------------------------------------------
JUNE 30, 2000
-------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $270,057,751) $273,578,919
Investment of cash collateral for securities loaned, at
identified cost and value 4,854,144
Cash 24,802
Receivable for series shares sold 435,197
Receivable for investments sold 5,132,010
Interest and dividends receivable 1,776,385
Other assets 1,394
------------
Total assets $285,802,851
------------
Liabilities:
Payable for series shares reacquired $ 164,261
Payable for investments purchased 7,347,718
Collateral for securities loaned, at value 4,854,144
Payable to affiliates -
Management fee 5,658
Shareholder servicing agent fee 264
Administrative fee 132
Accrued expenses and other liabilities 66,703
------------
Total liabilities $ 12,438,880
------------
Net assets $273,363,971
============
Net assets consist of:
Paid-in capital $263,555,970
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 3,523,376
Accumulated undistributed net realized gain on investments
and foreign currency transactions 1,807,139
Accumulated undistributed net investment income 4,477,486
------------
Total $273,363,971
============
Shares of beneficial interest outstanding 15,774,902
==========
Initial Class shares:
Net asset value per share
(net assets of $273,333,523 / 15,773,144 shares of
beneficial interest outstanding) $17.33
======
Service Class shares:
Net asset value per share
(net assets of $30,448 / 1,758 shares of beneficial
interest outstanding) $17.32
======
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations (Unaudited)
-------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2000
-------------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 4,071,107
Dividends 1,539,645
Foreign taxes withheld (23,464)
------------
Total investment income $ 5,587,288
------------
Expenses -
Management fee $ 960,858
Trustees' compensation 4,500
Shareholder servicing agent fee 44,840
Distribution fee (Service Class) 3
Administrative fee 20,896
Custodian fee 51,526
Printing 31,170
Postage 14
Auditing fees 26,650
Legal fees 819
Miscellaneous 3,520
------------
Total expenses $ 1,144,796
Fees paid indirectly (13,850)
------------
Net expenses $ 1,130,946
------------
Net investment income $ 4,456,342
------------
Realized and unrealized gain (loss) on investments:
Realized gain (identified cost basis) -
Investment transactions $ 2,575,558
Foreign currency transactions 105
------------
Net realized gain on investments and foreign currency
transactions $ 2,575,663
------------
Change in unrealized appreciation (depreciation) -
Investments $ (264,648)
Translation of assets and liabilities in foreign currencies 2,402
------------
Net unrealized loss on investments and foreign currency
translation $ (262,246)
------------
Net realized and unrealized gain on investments and
foreign currency $ 2,313,417
------------
Increase in net assets from operations $ 6,769,759
============
See notes to financial statements.
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
<CAPTION>
Statement of Changes in Net Assets
--------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
(UNAUDITED)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 4,456,342 $ 6,464,323
Net realized gain on investments and foreign currency
transactions 2,575,663 5,493,766
Net unrealized loss on investments and foreign currency
translation (262,246) (5,937,181)
------------ ------------
Increase in net assets from operations $ 6,769,759 $ 6,020,908
------------ ------------
Distributions declared to shareholders -
From net investment income (Initial Class) $ (6,442,824) $ (3,664,354)
From net realized gain on investments and foreign
currency transactions (Initial Class) (6,203,873) (6,795,201)
------------ ------------
Total distributions declared to shareholders $(12,646,697) $(10,459,555)
------------ ------------
Net increase in net assets from series share transactions $ 23,112,931 $ 89,384,826
------------ ------------
Total increase in net assets $ 17,235,993 $ 84,946,179
Net assets:
At beginning of period 256,127,978 171,181,799
------------ ------------
At end of period (including accumulated undistributed
net investment income of $4,477,486 and $6,463,968,
respectively) $273,363,971 $256,127,978
============ ============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
<CAPTION>
Financial Highlights
------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, PERIOD ENDED
SIX MONTHS ENDED -------------------------------------------------------- DECEMBER 31,
JUNE 30, 2000 1999 1998 1997 1996 1995*
(UNAUDITED)
------------------------------------------------------------------------------------------------------------------------------
INITIAL CLASS SHARES
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning
of period $17.75 $18.12 $16.63 $13.71 $12.25 $10.00
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.30 $ 0.53 $ 0.53 $ 0.52 $ 0.46 $ 0.41
Net realized and unrealized
gain on investments and
foreign currency 0.15 0.05 1.49 2.40 1.30 2.32
------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.45 $ 0.58 $ 2.02 $ 2.92 $ 1.76 $ 2.73
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $(0.44) $(0.33) $(0.24) $ -- $(0.21) $(0.25)
From net realized gain on
investments and foreign
currency transactions (0.43) (0.62) (0.29) -- (0.09) (0.23)
------ ------ ------ ------ ------ ------
Total distributions
declared to
shareholders $(0.87) $(0.95) $(0.53) $ -- $(0.30) $(0.48)
------ ------ ------ ------ ------ ------
Net asset value - end of
period $17.33 $17.75 $18.12 $16.63 $13.71 $12.25
====== ====== ====== ====== ====== ======
Total return 2.63%++ 3.08% 12.33% 21.30% 14.37% 27.34%++
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 0.90%+ 0.90% 1.00% 1.00% 1.00% 1.00%+
Net investment income 3.46%+ 2.97% 3.05% 3.25% 3.59% 3.83%+
Portfolio turnover 54% 112% 100% 93% 76% 16%
Net assets at end of period
(000 omitted) $273,333 $256,128 $171,182 $75,612 $19,250 $2,797
(S) Subject to reimbursement by the series, the investment adviser voluntary agreed under a temporary expense reimbursement
agreement to pay all of the series' operating expenses, exclusive of management fees. In consideration, the series pays
the investment adviser a reimbursement fee of not greater than 0.25% of average daily net assets for certain of the
periods indicated. To the extent actual expenses were over/under this limitation, the net investment income per share
and ratios would have been:
Net investment income $ -- $ -- $ 0.54 $ 0.52 $ 0.32 $ 0.22
Ratios (to average net
assets):
Expenses## -- -- 0.91% 1.02% 2.10% 2.49%+
Net investment income -- -- 3.14% 3.23% 2.49% 2.09%+
* For the period from the commencement of the series' investment operations, January 3, 1995, through December 31, 1995.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from directed brokerage and certain expense offset arrangements.
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
----------------------------------------------------------------------------
PERIOD ENDED
JUNE 30, 2000*
(UNAUDITED)
----------------------------------------------------------------------------
SERVICE CLASS SHARES
----------------------------------------------------------------------------
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $17.07
------
Income from investment operations# -
Net investment income $ 0.11
Net realized and unrealized gain on investments and foreign
currency 0.14
------
Total from investment operations $ 0.25
------
Net asset value - end of period $17.32
======
Total return 2.57%++
Ratios (to average net assets)/Supplemental data:
Expenses## 1.13%+
Net investment income 3.35%+
Portfolio turnover 54%
Net assets at end of period (000 omitted) $30
* For the period from the inception of Service Class shares, May 1, 2000,
through June 30, 2000.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from directed brokerage and certain
expense offset arrangements.
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS Total Return Series (the series) is a diversified series of MFS(R)
Variable Insurance Trust(SM) (the trust). 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, 2000, there were 71 shareholders of the series.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. 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.
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 agent. On loans
collateralized by U.S. Treasury securities, a fee is received from the
Borrower, and is allocated between the series and the lending agent. Income
from securities lending is included in interest income on the Statement of
Operations. The dividend and interest income earned on the securities loaned
is accounted for in the same manner as other dividend and interest income.
At June 30, 2000, the value of securities loaned was $4,725,561. These loans
were collateralized by cash of $4,854,144 which was invested in the following
short-term obligation:
IDENTIFIED COST
SHARES AND VALUE
-------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio 4,854,144 $4,854,144
Forward Foreign Currency Exchange Contracts - The series may enter into
forward foreign currency exchange contracts for the purchase or sale of a
specific foreign currency at a fixed price on a future date. Risks may arise
upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar. The
series may enter into forward contracts for hedging purposes as well as for
non-hedging purposes. For hedging purposes, the series may enter into
contracts to deliver or receive foreign currency it will receive from or
require for its normal investment activities. The series may also use
contracts in a manner intended to protect foreign currency-denominated
securities from declines in value due to unfavorable exchange rate movements.
For non-hedging purposes, the series may enter into contracts with the intent
of changing the relative exposure of the series' portfolio of securities to
different currencies to take advantage of anticipated changes. The forward
foreign currency exchange contracts are adjusted by the daily exchange rate of
the underlying currency and any gains or losses are recorded as unrealized
until the contract settlement date. On contract settlement date, the gains or
losses are recorded as realized gains or losses on foreign currency
transactions.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All discount
is accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Dividends received in cash are recorded on the
ex-dividend date. Dividend and interest payments received in additional
securities are recorded on the ex-dividend or ex-interest date in an amount
equal to the value of the security on such date. The series uses the effective
interest method for reporting interest income on payment-in-kind (PIK) bonds.
Some securities may be purchased on a "when-issued" or "forward delivery"
basis, which means that the securities will be delivered to the series at a
future date, usually beyond customary settlement time.
Fees Paid Indirectly - The series' custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the series. During the period the series' custodian fees were reduced by
$13,675 under this arrangement. The series has entered into a directed
brokerage agreement, under which the broker will credit the series a portion
of the commissions generated, to offset certain expenses of the series. For
the period, the series custodian fees were reduced by $175 under this
agreement. These amounts are shown as a reduction of total 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 net 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.
Multiple Classes of Shares of Beneficial Interest - The series offers multiple
classes of shares that differ in their respective distribution fees. All
shareholders bear the common expenses of the series based on daily net assets
of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates
are generally due to differences in separate class expenses.
(3) Transactions with Affiliates
Investment Adviser - The series has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities.
The management fee is computed daily and paid monthly at an annual rate of
0.75% of the series' average daily net assets.
The series pays no compensation directly to its Trustees who are officers of
the investment adviser, or to officers of the series, all of whom receive
remuneration for their services to the series from MFS. Certain officers and
Trustees of the series are officers or directors of MFS and MFS Service
Center, Inc. (MFSC).
Administrator - The series has an administrative services agreement with MFS
to provide the 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 incurs an administrative fee
at the following annual percentages of the series' average daily net assets:
First $2 billion 0.0175%
Next $2.5 billion 0.0130%
Next $2.5 billion 0.0005%
In excess of $7 billion 0.0000%
Distributor - The Trustees have adopted a distribution plan for the Service
Class shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as
follows:
The series' distribution plan provides that the series will pay MFD a
distribution fee up to 0.25% per annum of its average daily net assets
attributable to Service Class shares in order that MFD may pay expenses on
behalf of the series related to the distribution of its shares. A portion of
this distribution fee is currently being paid by the series; payment of the
remaining 0.05% per annum of the Service Class distribution fee will become
payable on such a date as the Trustees of the trust may determine. Fees
incurred under the distribution plan during the period ended June 30, 2000,
were 0.20% of average daily net assets attributable to Service Class shares on
an annualized basis.
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 $61,731,966 $47,969,075
----------- -----------
Investments (non-U.S. government securities) $74,189,798 $83,211,853
----------- -----------
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the series, as computed on a federal income tax basis,
are as follows:
Aggregate cost $270,057,751
------------
Gross unrealized appreciation $ 15,754,491
Gross unrealized depreciation (12,233,323)
------------
Net unrealized appreciation $ 3,521,168
============
(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>
Initial Class Shares
SIX MONTHS ENDED JUNE 30, 2000 YEAR ENDED DECEMBER 31, 1999
------------------------------ ----------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,651,188 $45,954,251 6,249,799 $111,763,471
Shares issued to shareholders in
reinvestment of distributions 741,742 12,646,694 577,557 10,459,550
Shares reacquired (2,051,926) (35,518,835) (1,840,037) (32,838,195)
---------- ----------- ---------- -----------
Net increase 1,341,004 $23,082,110 4,987,319 $89,384,826
========== =========== ========== ===========
<CAPTION>
Service Class Shares
PERIOD ENDED JUNE 30, 2000*
---------------------------
SHARES AMOUNT
--------------------------------------------------------------------
<S> <C> <C>
Shares sold 1,834 $32,157
Shares reacquired (76) (1,336)
---------- -----------
Net increase 1,758 $30,821
========== ===========
* For the period from the inception of Service Class shares, May 1, 2000, through June 30, 2000.
</TABLE>
(6) Line of Credit
The series and other affiliated series participate in a $1.1 billion unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made for temporary financing needs. Interest is
charged to each series, based on its borrowings, at a rate equal to the bank's
base rate. In addition, a commitment fee, based on the average daily unused
portion of the line of credit, is allocated among the participating series at
the end of each quarter. The commitment fee allocated to the series for the
six months ended June 30, 2000, was $878. The series had no borrowings during
the period.
<PAGE>
(c)2000 MFS Investment Management(R).
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
VTR-3 8/00 25M
