<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) UTILITIES SERIES
<PAGE>
<TABLE>
MFS(R) UTILITIES SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
MFS(R) UTILITIES 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 MANAGER
Maura A. Shaughnessy* For additional information,
contact your investment professional.
TREASURER
James O. Yost* CUSTODIAN
State Street Bank and Trust Company
ASSISTANT TREASURERS
Mark E. Bradley* WORLD WIDE WEB
Ellen Moynihan* www.mfs.com
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 3.84% and Service Class shares 3.89%. These returns
include the reinvestment of any distributions and compare to a 15.33% return for
the series' benchmark, 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 market has been extremely volatile over the past six months. In the first
quarter of 2000, stocks had an incredible run, with the biggest gains coming
from technology and other high-growth sectors. But almost as soon as the new
year started, investors grew unsettled. We felt that part of the problem was
renewed concerns about rising interest rates. Also, technology stocks had
reached such high levels that we believed many investors were getting nervous
that they wouldn't be able to meet their earnings forecasts. Finally, in April
through June, growth stock prices declined and experienced significant
volatility.
However, utility stocks moved in the opposite direction of the market leaders.
During the first quarter of this year, utility stocks did poorly because their
earnings looked weak compared to the strength in high-growth technology names.
But as the market grew increasingly bumpy, utilities started looking more
attractive. Toward the end of the period, investors were moving into electric
utility stocks for defensive reasons, and their stock prices moved up nicely.
Our strategy is always to own the names we have confidence in -- usually
companies with good earnings growth prospects whose stock prices look
reasonable. A few years ago when we had the meltdown in Asian financial markets,
investors flew into electrics, again for defensive reasons. But they flew out
just as quickly. That was a good lesson. Sure, it would have been nice to have a
higher stake in these utilities when they started moving up. But we just don't
have a lot of confidence right now that the management teams at many of these
companies have the experience to run their businesses effectively in a
deregulated environment. We focused exclusively on companies like Pinnacle West
Capital that we think have the right skills. This is an Arizona-based company
focused on its nonregulated generation business. It is not only well managed but
also is operating in a territory with strong growth potential. We believe that
combination may give the company significant earnings growth down the road.
AES and Calpine, two independent power producers, posted exceptionally strong
gains. AES has more of an international focus, whereas Calpine has most of its
power plants here in the United States. But the story is much the same. Both are
capitalizing on two trends in generation -- privatization and deregulation. We
believe these companies have been successful because they run their plants
efficiently and understand the markets in which they operate.
Natural gas stocks have also been strong performers and, fortunately, a sizable
focus for the series. We had built our stake in this area for a couple of
reasons. First, we recognized the overall strength in natural gas demand. Our
research shows that only about 15% of existing electricity generation is natural
gas based today, but 95% of the new plants being built are natural gas ones. We
believe the underlying demand for natural gas is going to go up. Second, many of
the natural gas pipeline companies trade in natural gas and electricity.
Basically, we feel they try to take advantage of price volatility by buying
excess capacity at low prices and then reselling it at higher prices to
companies that are running short. Finally, many natural gas pipeline companies,
including Dynegy and El Paso, have been getting into the deregulated power
generation business. We think they have the necessary risk management tools from
their trading experience, as well as an understanding of power generation, to be
very successful.
Williams, another natural gas pipeline stock and one of our largest investments,
was flat for the period. It spun off 15% of its telecommunications subsidiary
about a year ago. Unfortunately, the parent company's stock has moved more in
line with communications stocks than with energy stocks. And the
telecommunications sector has really done badly this spring. The wireless
companies and the new competitive local exchange carriers got killed during the
downturn of growth investing. The story isn't much better with the service
providers -- stocks like GTE and SBC Communications sunk as investors worried
about whether they could keep up in the rapidly changing telecommunications
market. We held on because we believe these companies will prove they can
compete.
Consolidation has also helped the portfolio. Two stocks that we owned, El Paso
and Coastal, announced a merger in February. Both stocks took pretty hard hits
over concerns that the deal just didn't make sense. We knew the companies well
and thought the merger was a good move, especially given the fact that the
combined entity would create the biggest natural gas pipeline company in the
United States. We used the downturn as an opportunity to add to our position and
have since seen both stocks rebound nicely. We also benefited from selling our
stake in Mannesmann, a German wireless and wire-line company, following its
announced buyout by Vodafone AirTouch, a British-based mobile telecommunications
provider.
As long as the stock market remains volatile, we think utility stocks may
provide a safer haven for investors and, therefore, we believe they should do
well. We feel that natural gas stocks seem to have the strongest prospects and
electrics the weakest. But it is important to remember that since we buy
individual stocks, not whole sectors, that's largely irrelevant to our
investment strategy. We'll remain focused on utility companies -- regardless of
sector -- that we believe can sustain or improve earnings growth.
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 portfolios are actively managed, and current holdings may be different.
<PAGE>
PORTFOLIO MANAGER'S PROFILE
Maura A. Shaughnessey 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 the
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.
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.
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 capital growth and current income (income above that
available from a portfolio invested entirely in equity securities).
Class inception: Initial Class January 3, 1995
Service Class May 1, 2000
Commencement of investment operations: January 3, 1995
Size: $240.5 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.)
TOTAL RATES OF RETURN THROUGH JUNE 30, 2000
<TABLE>
<CAPTION>
INITIAL CLASS
6 Months 1 Year 3 Years 5 Years Life*
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return +3.84% +24.02% +89.18% +197.74% +235.26%
--------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +24.02% +23.68% + 24.38% + 24.66%
--------------------------------------------------------------------------------------------------------------
<CAPTION>
SERVICE CLASS
6 Months 1 Year 3 Years 5 Years Life*
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return +3.89% +24.07% +89.27% +197.87% +235.40%
--------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +24.07% +23.70% + 24.40% + 24.67%
--------------------------------------------------------------------------------------------------------------
*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.
The series may focus its investments in certain sectors, thereby increasing its
vulnerability to any single economic, political, or regulatory development. See
the prospectus for details.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - June 30, 2000
<CAPTION>
Stocks - 71.9%
-------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 50.9%
Business Services - 0.2%
Adelphia Business Solutions* 23,200 $ 537,950
-------------------------------------------------------------------------------------------------------
Cellular Telephones - 0.7%
Voicestream Wireless Corp.* 13,900 $ 1,616,527
-------------------------------------------------------------------------------------------------------
Computer Software - Systems - 0.4%
Digex, Inc.* 12,200 $ 828,837
StorageNetworks, Inc.* 450 40,613
------------
$ 869,450
-------------------------------------------------------------------------------------------------------
Electrical Equipment
Capstone Turbine Corp.* 1,590 $ 71,649
-------------------------------------------------------------------------------------------------------
Electric and Gas Utility Revenue - 0.2%
SCANA Corp. 22,302 $ 538,036
-------------------------------------------------------------------------------------------------------
Energy - 2.3%
Dynegy, Inc. 46,900 $ 3,203,856
NRG Energy, Inc.* 96,270 1,756,927
Sierra Pacific Resources Co. 54,104 679,682
------------
$ 5,640,465
-------------------------------------------------------------------------------------------------------
Internet - 0.1%
VIA NET.WORKS, Inc.* 12,430 $ 191,888
-------------------------------------------------------------------------------------------------------
Metals and Minerals - 0.1%
USEC, Inc. 39,900 $ 184,538
-------------------------------------------------------------------------------------------------------
Oils - 2.7%
Coastal Corp. 107,300 $ 6,531,888
-------------------------------------------------------------------------------------------------------
Special Products and Services - 0.8%
MCN Energy Group, Inc. 87,400 $ 1,868,175
-------------------------------------------------------------------------------------------------------
Telecommunications - 14.2%
Allegiance Telecom, Inc.* 26,400 $ 1,689,600
Alltel Corp. 90,900 5,630,119
AT&T Corp. 43,080 1,200,855
BroadWing, Inc.* 84,318 2,186,998
Focal Communications Corp.* 5,100 182,325
GTE Corp. 112,100 6,978,225
Intermedia Communications, Inc.* 1,000 29,750
Metromedia Fiber Network, Inc., "A"* 49,200 1,952,625
MGC Communications, Inc.* 2,517 150,863
Nextlink Communications, Inc., "A"* 19,600 743,575
NTL, Inc.* 36,842 2,205,915
Qwest Communications International, Inc.* 6,000 298,125
SBC Communications, Inc. 153,365 6,633,036
Sprint Corp. 10,100 515,100
Time Warner Telecom, Inc.* 12,700 817,562
UnitedGlobalCom, Inc.* 17,200 804,100
Williams Communications Group, Inc.* 39,500 1,310,906
Winstar Communications, Inc.* 24,850 841,794
------------
$ 34,171,473
-------------------------------------------------------------------------------------------------------
Telecommunications and Cable - 0.5%
Comcast Corp., "A"* 30,700 $ 1,243,350
-------------------------------------------------------------------------------------------------------
Utilities - Electric - 17.2%
AES Corp.* 119,400 $ 5,447,625
Atmos Energy Corp. 36,900 645,750
Calpine Corp.* 11,800 775,850
CMS Energy Corp. 158,900 3,515,662
Constellation Energy Group, Inc. 39,200 1,276,450
Duke Energy Corp. 75,600 4,261,950
El Paso Electric Co.* 85,300 954,294
FPL Group, Inc. 20,100 994,950
Keyspan Corp. 151,000 4,643,250
Montana Power Co. 47,800 1,687,938
Northeast Utilities 44,500 967,875
Peco Energy Co. 147,300 5,938,031
Pinnacle West Capital Corp. 126,800 4,295,350
Public Service Enterprise Group 35,400 1,225,725
Reliant Energy, Inc. 95,400 2,820,262
Unicom Corp. 48,400 1,872,475
------------
$ 41,323,437
-------------------------------------------------------------------------------------------------------
Utilities - Gas - 11.5%
Columbia Energy Group 68,250 $ 4,478,906
El Paso Energy Corp. 102,600 5,226,187
Energen Corp. 48,300 1,053,544
Enron Corp. 65,000 4,192,500
Kinder Morgan, Inc. 124,200 4,292,662
National Fuel Gas Co. 13,400 653,250
NICOR, Inc. 34,500 1,125,563
Williams Cos., Inc. 162,100 6,757,544
------------
$ 27,780,156
-------------------------------------------------------------------------------------------------------
Total U.S. Stocks $122,568,982
-------------------------------------------------------------------------------------------------------
Foreign Stocks - 21.0%
Argentina - 0.1%
IMPSAT Fiber Networks, Inc. (Telecommunications)* 15,830 $ 265,153
-------------------------------------------------------------------------------------------------------
Australia - 0.7%
Cable & Wireless Optus Ltd. (Telecommunications) 563,100 $ 1,676,374
-------------------------------------------------------------------------------------------------------
Bermuda - 0.7%
FLAG Telecom Holdings Ltd. (Telecommunications)* 14,240 $ 211,820
Global Crossing Ltd. (Telecommunications)* 57,700 1,518,231
------------
$ 1,730,051
-------------------------------------------------------------------------------------------------------
Brazil - 1.0%
Celular CRT Participacoes, Preferred (Telecommunications) 505 $ 221,270
Companhia Electricas est Rio de Janeiro (Utilities - Electric)* 772,600 299,956
Companhia Riogrand Telecomunicacoes, Preferred, "A"
(Utilities - Telephone) 505 170,854
Espirito Santo Centrais Eletricas S.A. (Utilities - Electric) 1,100 33,561
Tele Centro Oeste Celular Participacoes S.A., ADR
(Telecommunications) 18,900 226,800
Tele Centro Sul Participacoes S.A., ADR (Telecommunications)* 5,300 387,231
Telecomunicacoes de Sao Paulo S.A. (Telecommunications)* 41,700 1,155,116
------------
$ 2,494,788
-------------------------------------------------------------------------------------------------------
Canada - 3.7%
AT&T Canada, Inc. (Telecommunications)* 19,900 $ 660,431
BCE, Inc. (Telecommunications) 52,900 1,259,681
Nortel Networks Corp. (Telecommunications) 83,073 5,669,733
Telesystem International Wireless, Inc. (Telecommunications)* 63,900 1,182,150
------------
$ 8,771,995
-------------------------------------------------------------------------------------------------------
Finland - 0.4%
Sonera Oyj (Telecommunications) 22,500 $ 1,025,599
-------------------------------------------------------------------------------------------------------
France - 0.6%
Vivendi S.A. (Business Services) 17,400 $ 1,535,598
-------------------------------------------------------------------------------------------------------
Hong Kong - 0.5%
China Telecom Ltd. (Telecommunications) 120,000 $ 1,058,371
-------------------------------------------------------------------------------------------------------
Hungary - 0.6%
Magyar Tavkozlesi Rt., ADR (Telecommunications)* 44,500 $ 1,532,469
-------------------------------------------------------------------------------------------------------
Israel - 0.4%
Partner Communications Co. Ltd., ADR (Cellular Telephones)* 97,175 $ 923,162
-------------------------------------------------------------------------------------------------------
Italy - 0.6%
Telecom Italia S.p.A. (Telecommunications) 110,500 $ 1,518,960
-------------------------------------------------------------------------------------------------------
Japan - 1.5%
Nippon Telegraph & Telephone Co. (Utilities - Telephone) 95 $ 1,262,726
NTT Mobile Communications Network, Inc. (Telecommunications) 44 1,190,423
Tokyo Gas Co. Ltd. (Gas) 415,000 1,165,818
------------
$ 3,618,967
-------------------------------------------------------------------------------------------------------
Mexico - 1.8%
Grupo Iusacell S. A. de C. V., ADR (Telecommunications)* 85,020 $ 1,328,437
Telefonos de Mexico S.A., ADR (Utilities - Telephone) 50,230 2,869,389
------------
$ 4,197,826
-------------------------------------------------------------------------------------------------------
Netherlands - 1.9%
Completel Europe N.V. (Telecommunications)* 61,090 $ 758,115
Completel Europe N.V. (Telecommunications)* 16,870 168,700
KPNQwest N.V. (Internet)* 11,700 460,155
Libertel N.V. (Cellular Telecommunications)* 60,200 916,598
United Pan-Europe Communications N.V. (Telecommunications
and Cable)* 44,700 1,168,748
Versatel Telecommunications N.V. (Telecommunications)* 24,420 1,025,699
------------
$ 4,498,015
-------------------------------------------------------------------------------------------------------
Spain - 3.3%
Endesa S.A., ADR (Utilities - Electric) 99,800 $ 1,933,010
Telefonica de Espana S.A., ADR (Telecommunications) 52,621 3,371,033
Telefonica S.A. (Telecommunications)* 34,200 734,565
Union Electrica Fenosa S.A. (Utilities - Electric) 102,200 1,848,764
------------
$ 7,887,372
-------------------------------------------------------------------------------------------------------
Sweden - 0.3%
Tele1 Europe Holdings AB (Telecommunications)* 61,220 $ 750,058
Tele1 Europe Holdings AB, ADR (Telecommunications)* 3,100 37,394
------------
$ 787,452
-------------------------------------------------------------------------------------------------------
United Kingdom - 2.9%
Cable & Wireless Communications PLC, ADR (Telecommunications)* 96,757 $ 1,637,709
Energis PLC (Telecommunications)* 34,600 1,296,886
Independent Energy Holdings PLC, ADR (Utilities - Electric) 27,900 231,919
Vodafone AirTouch PLC (Telecommunications)* 927,354 3,745,252
------------
$ 6,911,766
-------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 50,433,918
-------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $169,335,958) $173,002,900
-------------------------------------------------------------------------------------------------------
Bonds - 5.8%
-------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
-------------------------------------------------------------------------------------------------------
U.S. Bonds - 5.6%
Banks and Credit Companies - 0.3%
Beaver Valley Funding Corp. II, 9s, 2017 $ 75 $ 76,483
Midamerican Funding LLC, 5.85s, 2001 368 364,014
Midamerican Funding LLC, 6.927s, 2029 110 91,548
Midland Funding Corp., 10.33s, 2002 102 104,348
------------
$ 636,393
-------------------------------------------------------------------------------------------------------
Energy - 0.1%
Ocean Energy, Inc., 8.875s, 2007 $ 95 $ 94,525
-------------------------------------------------------------------------------------------------------
Financial Institutions - 0.1%
Salton Sea Funding Corp., 7.84s, 2010 $ 100 $ 97,640
-------------------------------------------------------------------------------------------------------
Financial Services - 0.2%
General Electric Capital Corp., 7.375s, 2010 $ 444 $ 449,355
Sprint Capital Corp., 6.9s, 2019 141 125,371
------------
$ 574,726
-------------------------------------------------------------------------------------------------------
Insurance
GE Global Insurance Holdings Corp., 7.75s, 2030 $ 84 $ 83,495
-------------------------------------------------------------------------------------------------------
Oil Services
Valero Energy Corp., 8.75s, 2030 $ 76 $ 77,619
-------------------------------------------------------------------------------------------------------
Telecommunications - 0.7%
Intermedia Communications, Inc., 12.25s, 2009 $ 1,575 $ 929,250
Sprint Capital Corp., 7.625s, 2002 164 163,884
Sprint Spectrum LP, 11s, 2006 165 180,531
Telecomunicaciones de Puerto Rico, Inc., 6.65s, 2006 30 28,389
Telecomunicaciones de Puerto Rico, Inc., 6.8s, 2009 79 73,162
TXU Eastern Funding Co., 6.75s, 2009 150 134,504
WorldCom, Inc., 8.875s, 2006 100 103,686
------------
$ 1,613,406
-------------------------------------------------------------------------------------------------------
U.S. Federal Agencies - 0.8%
Federal National Mortgage Association - 0.8%
FNMA, 7s, 2029 - 2029 $ 132 $ 127,412
FNMA, 7.125s, 2010 228 228,892
FNMA, 7.25s, 2010 1,599 1,615,102
------------
$ 1,971,406
-------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., 5s, 2004 $ 60 $ 56,203
-------------------------------------------------------------------------------------------------------
Total U.S. Federal Agencies $ 2,027,609
-------------------------------------------------------------------------------------------------------
U.S. Government Guaranteed - 2.4%
Government National Mortgage Association - 0.5%
GNMA, 7s, 2028 - 2028 $ 212 $ 206,043
GNMA, 7.5s, 2025 - 2028 639 634,444
GNMA, 8s, 2025 - 2030 400 404,682
------------
$ 1,245,169
-------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 1.9%
U.S. Treasury Bonds, 6.125s, 2029 $ 531 $ 536,310
U.S. Treasury Bonds, 10.375s, 2009 3,512 4,021,802
U.S. Treasury Notes, 6.5s, 2010 12 12,411
------------
$ 4,570,523
-------------------------------------------------------------------------------------------------------
Total U.S. Government Guaranteed $ 5,815,692
-------------------------------------------------------------------------------------------------------
Utilities - Electric - 1.0%
California Infrastructure, 6.17s, 2003 $ 127 $ 126,438
CMS Panhandle Holding Co., 6.5s, 2009 130 117,437
Connecticut Light & Power Co., 8.59s, 2003 100 99,304
Detroit Edison Co., 7.5s, 2005 421 423,588
Illinois Power Special Purpose Trust, 5.26s, 2003 147 145,430
National Rural Utilities Cooperative Finance, 5.75s, 2008 313 277,308
Niagara Mohawk Power Corp., 7.25s, 2002 151 149,429
Niagara Mohawk Power Corp., 7.75s, 2006 252 251,252
Niagara Mohawk Power Corp., 8.77s, 2018 168 168,000
NRG Energy South Central, 8.962s, 2016 100 100,350
PP&L, Inc., 6.125s, 2001 250 247,410
Texas Utilities Co., 5.94s, 2001 250 244,615
Toledo Edison Co., 9.5s, 2001 140 141,608
------------
$ 2,492,169
-------------------------------------------------------------------------------------------------------
Total U.S. Bonds $ 13,513,274
-------------------------------------------------------------------------------------------------------
Foreign Bonds - 0.2%
Canada - 0.1%
Gulf Canada Resources Ltd., 9.25s, 2004 (Oils) $ 90 $ 90,377
-------------------------------------------------------------------------------------------------------
Netherlands - 0.1%
Completel Europe N.V., 0s to 2004, 14s, 2009 (Telecommunications) $ 329 $ 157,920
Deutsche Telekom International, 8s, 2010 (Telecommunications) 124 125,087
------------
$ 283,007
-------------------------------------------------------------------------------------------------------
Total Foreign Bonds $ 373,384
-------------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $14,182,132) $ 13,886,658
-------------------------------------------------------------------------------------------------------
Convertible Preferred Stocks - 9.1%
-------------------------------------------------------------------------------------------------------
SHARES
-------------------------------------------------------------------------------------------------------
U.S. Stocks - 7.5%
Oils - 0.9%
Coastal Corp., 6.625% 63,400 $ 2,219,000
-------------------------------------------------------------------------------------------------------
Telecommunications - 3.6%
Cox Communications, Inc., 0.25% 16,275 $ 955,342
Cox Communications, Inc., 7.00% 18,000 1,105,875
Cox Communications, Inc., 7.75% 16,400 1,806,132
Decs Trust VI, 6.25% 12,200 837,225
MGC Communications, Inc., 7.25% 27,000 1,429,380
Nextlink Communications, Inc., 6.50% 3,500 601,562
UnitedGlobalCom, Inc., "C", 7.00% 7,300 438,913
UnitedGlobalCom, Inc., "D", 7.00% 12,850 571,825
UnitedGlobalCom, Inc., 7.00%## 15,400 925,925
------------
$ 8,672,179
-------------------------------------------------------------------------------------------------------
Utilities - Electric - 3.0%
AES Trust III, 6.75% 31,900 $ 2,304,775
AES Trust VII, 6.00% 22,400 1,324,400
Calpine Capital Trust, 5.75%* 15,900 1,898,063
CMS Energy Corp., 8.75% 55,300 1,548,400
------------
$ 7,075,638
-------------------------------------------------------------------------------------------------------
Total U.S. Stocks $ 17,966,817
-------------------------------------------------------------------------------------------------------
Foreign Stocks - 1.6%
Bermuda - 1.6%
Global Crossing Ltd., 7.00% (Telecommunications)## 9,700 $ 1,760,550
Global Crossing Ltd., 6.75% (Telecommunications) 6,400 1,403,200
Global Crossing Ltd., 7.00% (Telecommunications) 4,700 837,775
------------
$ 4,001,525
-------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 4,001,525
-------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks (Identified Cost, $19,782,520) $ 21,968,342
-------------------------------------------------------------------------------------------------------
Convertible Bonds - 3.2%
-------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
-------------------------------------------------------------------------------------------------------
U.S. Bonds - 2.7%
Energy - 0.3%
Alliant Energy Resources, Inc., 7.25s to 2003, 2.5s, 2030 $ 12 $ 800,400
-------------------------------------------------------------------------------------------------------
Financial Institutions - 1.2%
ADT Operations, Inc., 0s, 2010* $ 1,170 $ 2,942,550
-------------------------------------------------------------------------------------------------------
Financial Services - 0.4%
Bell Atlantic Financial Services, Inc., 4.25s, 2005## $ 680 $ 826,200
-------------------------------------------------------------------------------------------------------
Telecommunications - 0.8%
Liberty Media Group, 4s, 2029## $ 640 921,600
NTL, Inc., 5.75s, 2009## 1,120 $ 879,200
------------
$ 1,800,800
-------------------------------------------------------------------------------------------------------
Total U.S. Bonds $ 6,369,950
-------------------------------------------------------------------------------------------------------
Foreign Bonds - 0.5%
United Kingdom - 0.5%
Telewest Finance Jersey Ltd., 6s, 2005 (Entertainment)##
(Identified Cost, $1,230,000) $ 1,230 $ 1,230,000
-------------------------------------------------------------------------------------------------------
Total Convertible Bonds (Identified Cost, $7,141,260) $ 7,599,950
-------------------------------------------------------------------------------------------------------
Short-Term Obligations - 8.6%
-------------------------------------------------------------------------------------------------------
Associates First Capital Corp., due 7/03/00 $ 5,000 $ 4,998,083
Federal Home Loan Mortgage Corp., due 7/03/00 - 7/7/11/00 15,848 15,830,891
-------------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 20,828,974
-------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $231,270,844) $237,286,824
Other Assets, Less Liabilities - 1.4% 3,260,183
-------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $240,547,007
-------------------------------------------------------------------------------------------------------
* 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, $231,270,844) $237,286,824
Investments of cash collateral for securities loaned,
at identified cost and value 15,799,714
Receivable for investments sold 7,323,365
Receivable for series shares sold 626,635
Interest and dividends receivable 525,161
Receivable from investment adviser 59,850
Other assets 694
------------
Total assets $261,622,243
------------
Liabilities:
Payable to custodian $ 15,097
Payable for investments purchased 5,189,204
Payable for series shares reacquired 16,635
Collateral for securities loaned, at value 15,799,714
Payable to affiliates -
Management fee 4,944
Shareholder servicing agent fee 231
Administrative fee 115
Accrued expenses and other liabilities 49,296
------------
Total liabilities $ 21,075,236
------------
Net assets $240,547,007
============
Net assets consist of:
Paid-in capital $209,754,499
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 6,017,149
Accumulated undistributed net realized gain on
investments and foreign currency transactions 17,973,059
Accumulated undistributed net investment income 6,802,300
------------
Total $240,547,007
============
Shares of beneficial interest outstanding 10,522,908
==========
Initial Class shares:
Net asset value per share
(net assets of $240,546,803 / 10,522,899 shares
of beneficial interest outstanding) $22.86
======
Service Class shares:
Net asset value per share
(net assets of $203.90 / 8.917 shares of
beneficial interest outstanding) $22.87
======
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations (Unaudited)
-----------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2000
-----------------------------------------------------------------------------
Net investment income (loss):
Income -
Dividends $ 6,712,386
Interest 1,075,893
Foreign taxes withheld (27,871)
------------
Total investment income $ 7,760,408
------------
Expenses -
Management fee $ 809,519
Trustees' compensation 3,160
Shareholder servicing agent fee 37,778
Distribution fee (Service Class) --
Administrative fee 17,615
Custodian fee 59,141
Printing 6,302
Auditing fees 18,600
Legal fees 1,011
Amortization of organization expenses 25
Miscellaneous 4,660
------------
Total expenses $ 957,811
Fees paid indirectly (16,451)
Reimbursement of expenses to investment adviser 39,301
------------
Net expenses $ 980,661
------------
Net investment income $ 6,779,747
------------
Realized and unrealized gain (loss) on investments:
Realized gain (identified cost basis) -
Investment transactions $ 18,415,273
Foreign currency transactions 733
------------
Net realized gain on investments and foreign
currency transactions $ 18,416,006
------------
Change in unrealized appreciation (depreciation) -
Investments $(18,751,166)
Translation of assets and liabilities in
foreign currencies 632
------------
Net unrealized loss on investments and foreign
currency translation $(18,750,534)
------------
Net realized and unrealized loss on investments
and foreign currency $ (334,528)
------------
Increase in net assets from operations $ 6,445,219
============
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<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 $ 6,779,747 $ 2,296,535
Net realized gain on investments and foreign currency transactions 18,416,006 16,593,626
Net unrealized gain (loss) on investments and foreign currency translation (18,750,534) 20,080,359
------------- -------------
Increase in net assets from operations $ 6,445,219 $ 38,970,520
------------- -------------
Distributions declared to shareholders -
From net investment income (Initial Class) $ (2,243,233) $ (1,238,327)
From net realized gain on investments and foreign currency
transactions (Initial Class) (16,911,026) (6,226,380)
------------- -------------
Total distributions declared to shareholders $ (19,154,259) $ (7,464,707)
------------- -------------
Net increase in net assets from series share transactions $ 70,287,321 $ 69,737,127
------------- -------------
Total increase in net assets $ 57,578,281 $ 101,242,940
Net assets:
At beginning of period 182,968,726 81,725,786
------------- -------------
At end of period (including accumulated undistributed
net investment income of $6,802,300 and $2,265,786, respectively) $ 240,547,007 $ 182,968,726
============= =============
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<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 $ 24.16 $ 19.82 $ 17.99 $ 13.66 $12.57 $10.00
-------- -------- ------- ------- ------ ------
Income from investment operations# -
Net investment income(S) $ 0.76 $ 0.38 $ 0.46 $ 0.44 $ 0.55 $ 0.39
Net realized and unrealized gain on
investments and foreign currency 0.13 5.40 2.68 3.89 1.78 3.00
-------- -------- ------- ------- ------ ------
Total from investment operations $ 0.89 $ 5.78 $ 3.14 $ 4.33 $ 2.33 $ 3.39
-------- -------- ------- ------- ------ ------
Less distributions declared to shareholders -
From net investment income $ (0.26) $ (0.24) $ (0.24) $ -- $(0.35) $(0.24)
From net realized gain on investments
and foreign currency transactions (1.93) (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 $ (2.19) $ (1.44) $ (1.31) $ -- $(1.24) $(0.82)
-------- -------- ------- ------- ------ ------
Net asset value - end of period $ 22.86 $ 24.16 $ 19.82 $ 17.99 $13.66 $12.57
======== ======== ======= ======= ====== ======
Total return 3.84%++ 30.81% 18.06% 31.70% 18.51% 33.94%++
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 0.93%+ 1.01% 1.01% 1.00% 1.00% 1.00%+
Net investment income 6.31%+ 1.88% 2.48% 2.92% 4.19% 3.66%+
Portfolio turnover 60% 134% 133% 69% 121% 94%
Net assets at end of period
(000 omitted) $240,547 $182,969 $81,726 $30,147 $9,572 $2,373
(S) Prior to March 15, 2000, subject to reimbursement by the series, the investment adviser voluntarily agreed under a temporary
expense reimbursement agreement to pay all of the series' operating expenses, exclusive of management fees. In consideration,
the series paid the investment adviser a reimbursement 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 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 $23.19
------
Income from investment operations# -
Net investment income $ 0.56
Net realized and unrealized loss on investments and
foreign currency (0.88)
------
Total from investment operations $(0.32)
------
Net asset value - end of period $22.87
======
Total return 3.89%++
Ratios (to average net assets)/Supplemental data:
Expenses## 1.13%+
Net investment income 15.12%+
Portfolio turnover 60%
Net assets at end of period $203.90
* For the period from the inception of the 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 Utilities Series (the series) is a non-diversified series of MFS Variable
Insurance Trust (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 56 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 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 $15,339,760. These loans were
collateralized by U.S. Treasury Securities of $36,616 and cash of $15,799,714
which was invested in the following short-term obligations:
AMORTIZED COST
SHARES AND VALUE
------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio 15,799,714 $15,799,714
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 reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
series. During the period, the series' fees were reduced by $13,467 under this
arrangement. The fund 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 $2,984 under this agreement. These amounts are 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 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 only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the financial
statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains.
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. Prior to March 15, 2000, the series had a
temporary expense reimbursement agreement whereby MFS voluntarily agreed to pay
all of the series' operating expenses, exclusive of management fees. The series
in turn paid MFS an expense reimbursement fee not greater than 0.25% of average
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 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; the remaining 0.05% per annum Service Class
distribution fee will become payable on such 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 $ 12,355,477 $ 8,091,937
------------ ------------
Investments (non-U.S. government securities) $152,425,206 $112,770,697
------------ ------------
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 $231,270,844
------------
Gross unrealized appreciation $ 23,933,813
Gross unrealized depreciation (17,917,833)
------------
Net unrealized appreciation $ 6,015,980
============
(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 3,155,382 $ 77,415,437 4,894,393 $ 99,477,735
Shares issued to shareholders
in reinvestment of distributions 853,956 19,154,248 380,270 7,464,700
Shares reacquired (1,059,934) (26,282,564) (1,825,341) (37,205,308)
---------- ------------- ---------- -------------
Net increase 2,949,404 $ 70,287,121 3,449,322 $ 69,737,127
========== ============= ========== =============
<CAPTION>
Service Class shares
PERIOD ENDED JUNE 30, 2000*
----------------------------------
SHARES AMOUNT
-------------------------------------------------------------------
<S> <C> <C>
Shares sold 8.917 $ 200
---------- -------------
Net increase 8.917 $ 200
========== =============
* For the period from inception of the Service Class shares, May 1, 2000, through June 30, 2000.
</TABLE>
(6) Line of Credit
The series and other affiliated funds 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 fund, based on its borrowings, at a rate equal to the bank's
base rate. In addition, a commitment fee, based on the average daily unused
portion of the line of credit, is allocated among the participating funds at the
end of each quarter. The commitment fee allocated to the series for the six
months ended June 30, 2000, was $845. The series had no significant 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
VUF-3 8/00 51.5M
