<PAGE>
[Logo] M F S(R)
INVESTMENT MANAGEMENT ANNUAL REPORT
WE INVENTED THE MUTUAL FUND(R) DECEMBER 31, 1999
[graphic omitted]
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
MFS(R) 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* Massachusetts Financial Services Company
Chairman and Chief Executive Officer, 500 Boylston Street
MFS Investment Management(R) Boston, MA 02116-3741
Nelson J. Darling, Jr.+ DISTRIBUTOR
Private investor and trustee MFS Fund Distributors, Inc.
500 Boylston Street
William R. Gutow+ Boston, MA 02116-3741
Private investor and real estate consultant;
Vice Chairman, Capitol Entertainment SHAREHOLDER SERVICE CENTER
Management Company (video franchise) MFS Service Center, Inc.
P.O. Box 2281
CHAIRMAN AND PRESIDENT Boston, MA 02107-9906
Jeffrey L. Shames*
For additional information,
PORTFOLIO MANAGERS contact your financial consultant.
David M. Calabro*
Kenneth J. Enright* CUSTODIAN
Geoffrey L. Kurinsky* State Street Bank and Trust Company
Constantinos Mokas*
Lisa B. Nurme* AUDITORS
Deloitte & Touche LLP
TREASURER
W. Thomas London* WORLD WIDE WEB
www.mfs.com
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
* MFS Investment Adviser
+ Independent Trustee
- --------------------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Shareholders,
One could easily argue that the Internet represents the greatest technological
development most of us may see in our lifetimes. There is no disputing that this
new communication medium is changing forever the way we work, play, and shop.
One might also argue that investing in this new technology represents the
investment opportunity of a lifetime. The question for any investor is whether
and how to take advantage of it.
The popular press, it seems, would have us believe that by surfing the Web, we
can learn everything we need to know about investing. Indeed, there is no doubt
that Internet-delivered information and brokerage services enable individual
investors to be well-informed and to trade at bargain prices. But we believe the
facts argue that, for most of us, professionally managed investment portfolios
purchased through a financial consultant will continue to be one of the best
products for long-term investing in this new millennium.
Why do we believe managed portfolios plus professional advice will continue to
define the best course of action for many investors? Let's look at some of the
characteristics of a successful long-term investment approach:
o HAVING A PLAN AND STICKING TO IT: Our experience is that successful
investors -- those whose lives are enriched by the fruits of their investing
-- share two characteristics. They have a plan for reaching their monetary
goals, and they stick with that plan through up markets and down. And for
many investors, working with a financial consultant may be the best way to
develop a plan. Although the Internet abounds with calculators for
developing all sorts of investment plans, none has your consultant's high
level of experience and an understanding of your unique situation. And no
calculator can counsel you during a down market, when you may be tempted to
abandon your goals and your plan.
o DIVERSIFICATION: Few individual investors can afford to own a large number
of holdings, so poor performance of one company can potentially drag down
their entire personal portfolio. This is especially true when investing in
volatile new areas such as the Internet. On the other hand, a diversified,
professionally managed investment portfolio that owns dozens or even
hundreds of holdings is better positioned to survive a disappointment in one
or several investments.
o GOOD IN A DOWN MARKET: As we enter the tenth year of the greatest bull
market in history, it's easy to forget that market downturns are an almost
inevitable part of investing. Few investment portfolios, of course, are
going to be up when the overall market is down. But we believe diversified,
professionally managed investment portfolios may be less likely to suffer
the extreme downturns experienced by a large number of individual holdings
when the market heads south.
o MFS ORIGINAL RESEARCH(R): The Internet is one of the greatest research tools
ever invented, but it's still not the same as being eyeball to eyeball with
the management of a company and discussing their plans for their firm's
future.
o GOOD PERFORMANCE AT AN ACCEPTABLE LEVEL OF RISK: Investing in individual
stocks or bonds does indeed offer the potential of exhilarating performance
that few managed portfolios even attempt. The downside is that the most
exciting investments are also likely to be the ones that give you sleepless
nights. The diversification and professional management of investment
portfolios help make them inherently less risky than individual stock
picking, and managed portfolios are available in a wide range of risk
profiles.
We believe that now, more than ever, managed investment portfolios sold by an
investment professional may offer many investors the best way to participate in
whatever investment opportunities the new millennium may bring. The combination
of professional portfolio management and professional advice recognizes the key
reason that investors give us their money: because they don't want to make a
hobby or a second profession out of investing; they simply want their money to
work for them so they have a better likelihood of realizing their dreams.
As always, we appreciate your confidence in MFS and welcome any questions or
comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
January 15, 2000
Investments in variable products will fluctuate and may be worth more or less
upon redemption. Please see your financial consultant for more information.
The opinions expressed in this letter are those of Jeffrey L. Shames, and no
forecasts can be guaranteed.
MANAGEMENT REVIEW AND OUTLOOK
Dear Shareholders,
For the 12 months ended December 31, 1999, the Series provided a total return of
3.08% (including the reinvestment of any distributions), which compared to a
21.04% return for the Standard & Poor's 500 Composite Index, a popular,
unmanaged index of common stocks, and to a -2.15% return for the Lehman Brothers
Government/Corporate Bond Index, an unmanaged, market-value-weighted index of
U.S. Treasuries, government-agency securities (excluding mortgage-backed
securities), and investment-grade domestic corporate debt. During the same
period, the average balanced portfolio tracked by Lipper Analytical Services,
Inc., an independent firm that reports performance, returned 8.72%.
The Series faced several headwinds during 1999. In the equity area, where we had
57% of our investments, our focus on value stocks held us back as investors
favored growth stocks by ever-widening margins. Value stocks have tended to have
lower valuations than the overall stock market. They tend to be in mature
industries, such as energy, financial services, and industrials, that have to be
able to raise prices to grow earnings. By contrast, growth stocks -- the most
well known of which are in the technology and health care sectors -- usually
have proprietary products and high gross margins. Unfortunately, there was
little pricing flexibility in the economy in 1999, so investors favored growth
stocks. Not only did we have sizable investments in some of the market's weaker
sectors, we also had few investments in the high-priced, top-performing
technology area. Our 36% stake in bonds further hampered performance, as
interest rates climbed and bond prices fell throughout the second half of the
year.
Financial services and electric utilities stocks turned in particularly
disappointing results in 1999. In financial services, the Series' biggest stock
sector, both bank and insurance stocks suffered as rising interest rates
squeezed valuations. We focused on insurance stocks, where we believe
consolidation -- which has already swept the banking industry -- is just
beginning. We believe this trend translates into strong potential for insurers
like Hartford Financial Services Group, a multiline insurance company with what
we view as an excellent management team and demonstrated earnings growth. We
owned companies like Chubb, a property and casualty insurer that has struggled
because of weak pricing, and Lincoln National, an insurer that is selling off
its less profitable businesses and focusing on its growing annuity business.
Unfortunately, these stocks made little headway this past year. We kept a
smaller stake in electric utilities, but the few names we owned, such as
Carolina Power & Light, disappointed as earnings fell short of expectations and
deregulation continued to take longer than expected.
By contrast, telecommunications and energy stocks were among our best
performers. Telecommunications companies continued to benefit from the worldwide
explosion in data communications and Internet traffic. We owned both GTE and
Bell Atlantic, both of which did well following the announcement of their
merger. Sprint, a long-distance carrier also posted excellent returns. We
believe energy stocks took off in 1999, due to rising oil prices, a promising
supply/demand outlook, and industry consolidation. BP Amoco did well during the
year thanks to synergies from its recent Amoco merger. Natural gas utilities
also did well during the period. We owned El Paso Energy Corp. which recently
merged with Sonat to create one of the largest natural gas companies in the
country. Finally, the Series got a nice boost from stocks like Honeywell, which
recently merged with AlliedSignal; American Express, which continued to produce
double-digit earnings growth; and Time Warner, which rebounded as investors
appeared to recognize the value of its cable assets.
During 1999, we found some of our best values overseas. We boosted our
international investments, predominantly in Europe, where corporations are way
behind the United States in terms of restructuring. As companies like Royal
Dutch, an energy company, and Akzo Nobel, a chemical and pharmaceutical company,
reorganize and cut costs to compete globally, we expect to see better earnings
growth. We also began buying stocks in Japan, including Nippon Telegraph &
Telephone, a large telephone utility, and Hitachi, an electronics company. By
year-end, they had already posted solid gains thanks in part to Japan's
improving economy.
Back at home, we began building our stake in oil services companies like Noble
Drilling and smaller exploration companies like Apache and Devon Energy. We
expect these stocks to benefit in the coming year if earnings growth accelerates
as we anticipate. We also added to newspaper stocks like Gannett and The New
York Times, which enjoyed increased revenues as Internet companies spend heavily
on advertising. Another major investment this past year was Motorola, a wireless
communications equipment manufacturer whose stock was selling at a discount due
to problems in its cellular handset division and a slump in semiconductor sales.
As the company has taken steps to correct its problems and semiconductor sales
have begun to turn around, the stock has made a comeback. We also believe there
is good potential from stocks like SBC Communications (the former Southwestern
Bell) and Mobil, which recently merged with Exxon. Although uncertainties dogged
both names this past year, we believe they are better positioned than ever to be
dominant players in their respective markets.
We made few changes during the year on the bond side of our portfolio. We kept
roughly two-thirds of our bond investments in corporate bonds and the rest in
U.S. Treasuries and mortgage-backed securities. Early in 1999, we lowered the
Series' duration, a measure of its sensitivity to interest-rate changes, to give
us some protection from rising interest rates. By the fall, however, we had
raised duration back to 5.3 years, reflecting our outlook that interest rates
are just as likely to stay around current levels as to rise. Even if interest
rates do go higher, we don't expect inflation to become a significant problem.
Going forward, we believe our long-term value orientation and balanced approach
may help shareholders to participate in the stock market's gains while
attempting to provide some protection in the event of a market downturn. Over
long periods, returns on growth and value stocks have been very similar as
evidenced by a return of 16.76% for the S&P 500/BARRA Growth Index and a 17.31%
return for the S&P 500/BARRA Value Index over the last 25 years. The S&P
500/BARRA Growth Index and the S&P 500/Value Index are market-capitalization
weighted indices of the stocks in the Standard & Poor's 500 Index having the
highest book to price ratios. The indices consists of approximately half of the
S&P 500 on a market capitalization basis. We're confident that value stocks will
eventually return to favor, benefiting the Series.
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.
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 common stock portion of the Series' portfolio. Mr.
Calabro has been employed by MFS since 1992. Mr. Enright, a manager of the
common stock portion of the Series' portfolio, has been employed by MFS since
1986. Mr. Kurinsky, the manager of the Series' fixed-income securities, has
been employed by MFS since 1987. Mr. Mokas, the manager of the Series'
convertible securities, has been employed by MFS since 1990. Ms. Nurme, a
manager of the common stock portion of the Series' portfolio, has been
employed by MFS since 1987.
All portfolio managers at MFS Investment Management(R) are supported by an
investment staff of over 100 professionals utilizing MFS Original Research(R), a
global, company-oriented, bottom-up process of selecting securities.
SERIES FACTS
Objective: Seeks primarily to provide above-average income (compared to a
portfolio invested entirely in equity securities) consistent with the prudent
employment of capital, and secondarily to provide a reasonable opportunity for
growth of capital and income.
Commencement of investment operations: January 3, 1995
Size: $256.1 million net assets as of December 31, 1999
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 other MFS product is available from
your financial consultant, or by calling MFS at 1-800-225-2606. Please read it
carefully before investing or sending money.
<PAGE>
PERFORMANCE SUMMARY
The information below illustrates the historical performance of the Series in
comparison to various market indicators. Benchmark comparisons are unmanaged and
do not reflect any fees or expenses. It is not possible to invest directly in an
index. (See Notes to Performance Summary.)
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from the commencement of the Series' investment operations,
January 3, 1995, through December 31, 1999. Index information is from
January 1, 1995.)
MFS S&P Lehman Brothers
Total 500 Government/
Return Composite Corporate
Series Index Bond Index
- ---------------------------------------------------------
1/95 $10,000 $10,000 $10,000
12/95 12,734 13,754 11,924
12/96 14,564 16,917 12,270
12/97 17,666 22,560 13,468
12/98 19,845 29,008 14,744
12/99 20,457 35,112 14,427
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN THROUGH DECEMBER 31, 1999
<TABLE>
<CAPTION>
1 Year 3 Years Life*
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return + 3.08% +40.46% +104.57%
- --------------------------------------------------------------------------------------------------------------
Average Annual Total Return + 3.08% +11.99% + 15.42%
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
COMPARATIVE INDICES(+)
1 Year 3 Years Life*
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Average balanced portfolio+ + 8.72% +13.78% + 16.24%
- --------------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index# +21.04% +27.56% + 28.56%
- --------------------------------------------------------------------------------------------------------------
Lehman Brothers Government/Corporate Bond Index# - 2.15% + 5.54% + 7.61%
- --------------------------------------------------------------------------------------------------------------
* For the period from the commencement of the Series' investment operations, January 3, 1995, through
December 31, 1999. Index information is from January 1, 1995.
(+) Average annual rates of return.
+ Source: Lipper Analytical Services, Inc.
# Source: Standard & Poor's Micropal, Inc.
</TABLE>
NOTES TO PERFORMANCE SUMMARY
All results are historical and assume the reinvestment of dividends and capital
gains. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MORE RECENT
RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. PAST PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS. Performance results reflect any applicable expense subsidies
and waivers, without which the results would have been less favorable. Subsidies
and waivers may be rescinded at any time. See the prospectus for details.
Returns shown do not reflect the deduction of the mortality and expense risk
charges and administration fees. Please refer to the annuity product's annual
report for performance that reflects the deduction of the fees and charges
imposed by insurance company separate accounts.
<PAGE>
PORTFOLIO OF INVESTMENTS - December 31, 1999
Stocks - 56.6%
- ------------------------------------------------------------------------------
ISSUER SHARES VALUE
- ------------------------------------------------------------------------------
U.S. Stocks - 48.0%
Aerospace - 2.0%
Honeywell International, Inc. 27,600 $ 1,592,175
Raytheon Co., "A" 12,179 302,191
TRW, Inc. 52,100 2,705,944
United Technologies Corp. 9,860 640,900
------------
$ 5,241,210
- ------------------------------------------------------------------------------
Automotive - 1.1%
Delphi Automotive Systems Corp. 68,000 $ 1,071,000
Ford Motor Co. 32,100 1,715,344
------------
$ 2,786,344
- ------------------------------------------------------------------------------
Banks and Credit Companies - 1.8%
Bank America Corp. 30,200 $ 1,515,662
Bank of New York Co., Inc. 26,520 1,060,800
Bank One Corp. 17,900 573,919
PNC Bank Corp. 35,100 1,561,950
------------
$ 4,712,331
- ------------------------------------------------------------------------------
Business Machines - 1.5%
Hewlett-Packard Co. 12,400 $ 1,412,825
International Business Machines Corp. 18,340 1,980,720
Xerox Corp. 22,200 503,663
------------
$ 3,897,208
- ------------------------------------------------------------------------------
Business Services - 0.1%
United Parcel Service, Inc. 4,190 $ 289,110
- ------------------------------------------------------------------------------
Cellular Telephones - 0.5%
Telephone & Data Systems, Inc. 11,000 $ 1,386,000
- ------------------------------------------------------------------------------
Chemicals - 1.3%
Dow Chemical Co. 3,000 $ 400,875
Engelhard Corp. 39,000 736,125
PPG Industries, Inc. 3,900 243,994
Rohm & Haas Co. 47,800 1,944,862
------------
$ 3,325,856
- ------------------------------------------------------------------------------
Coal
CONSOL Energy, Inc. 6,100 $ 61,763
- ------------------------------------------------------------------------------
Conglomerates - 0.4%
Eastern Enterprises Co. 15,000 $ 861,562
Tyco International Ltd. 3,002 116,703
------------
$ 978,265
- ------------------------------------------------------------------------------
Consumer Goods and Services - 0.7%
Fortune Brands, Inc. 31,000 $ 1,024,938
Kimberly-Clark Corp. 11,400 743,850
------------
$ 1,768,788
- ------------------------------------------------------------------------------
Electrical Equipment - 1.1%
Emerson Electric Co. 44,300 $ 2,541,713
General Electric Co. 2,000 309,500
------------
$ 2,851,213
- ------------------------------------------------------------------------------
Electronics - 0.1%
Agilent Technologies, Inc.* 2,350 $ 181,684
- ------------------------------------------------------------------------------
Energy - 0.6%
Devon Energy Corp. 32,000 $ 1,052,000
Sierra Pacific Resources 21,600 373,950
------------
$ 1,425,950
- ------------------------------------------------------------------------------
Entertainment - 2.2%
Disney (Walt) Co. $
32,300 944,775
Harrah's Entertainment, Inc.* 48,000 1,269,000
MediaOne Group, Inc.* 7,500 576,094
Time Warner, Inc. 40,840 2,958,347
------------
$ 5,748,216
- ------------------------------------------------------------------------------
Financial Institutions - 2.5%
American Express Co. 2,890 $ 480,462
Citigroup, Inc. 39,550 2,197,497
Edwards (A.G.), Inc. 35,850 1,149,441
Federal Home Loan Mortgage Corp. 9,440 444,270
Merrill Lynch & Co., Inc. 11,600 968,600
State Street Corp. 15,600 1,139,775
------------
$ 6,380,045
- ------------------------------------------------------------------------------
Financial Services - 1.3%
AXA Financial, Inc. 50,500 $ 1,710,687
Mellon Financial Corp. 44,200 1,505,563
------------
$ 3,216,250
- ------------------------------------------------------------------------------
Food and Beverage Products - 2.0%
Archer-Daniels-Midland Co. 90,389 $ 1,101,616
Bestfoods Co. 7,500 394,219
General Mills, Inc. 24,900 890,175
Hershey Foods Corp. 12,800 608,000
McCormick & Co., Inc. 8,500 252,875
Quaker Oats Co. 23,400 1,535,625
Seagram Limited 9,400 423,000
------------
$ 5,205,510
- ------------------------------------------------------------------------------
Forest and Paper Products - 1.6%
Bowater, Inc. 36,000 $ 1,955,250
Champion International Corp. 27,000 1,672,312
International Paper Co. 7,800 440,213
------------
$ 4,067,775
- ------------------------------------------------------------------------------
Insurance - 6.2%
Allstate Corp. 18,200 $ 436,800
American International Group, Inc. 8,375 905,547
Aon Corp. 22,300 892,000
Chubb Corp. 14,800 833,425
CIGNA Corp. 19,900 1,603,194
Hartford Financial Services Group, Inc. 69,900 3,311,512
Jefferson Pilot Corp. 12,300 839,475
Lincoln National Corp. 61,600 2,464,000
Marsh & McLennan Cos., Inc. 9,100 870,756
ReliaStar Financial Corp. 42,100 1,649,794
St. Paul Cos., Inc. 61,400 2,068,413
------------
$ 15,874,916
- ------------------------------------------------------------------------------
Machinery - 0.7%
Deere & Co., Inc. 18,300 $ 793,762
Ingersoll Rand Co. 12,200 671,763
W.W. Grainger, Inc. 5,200 248,625
------------
$ 1,714,150
- ------------------------------------------------------------------------------
Medical and Health Products - 1.0%
American Home Products Corp. 21,760 $ 858,160
Baxter International, Inc. 2,480 155,775
Bristol-Myers Squibb Co. 4,000 256,750
Pharmacia & Upjohn, Inc. 29,000 1,305,000
------------
$ 2,575,685
- ------------------------------------------------------------------------------
Metals and Minerals - 0.2%
Alcoa, Inc. 6,700 $ 556,100
- ------------------------------------------------------------------------------
Oil Services - 2.1%
Halliburton Co. 61,400 $ 2,471,350
Noble Drilling Corp.* 90,100 2,950,775
------------
$ 5,422,125
- ------------------------------------------------------------------------------
Oils - 3.8%
Apache Corp. 7,000 $ 258,562
Chevron Corp. 7,400 641,025
Coastal Corp. 82,060 2,908,001
Conoco, Inc., "A" 60,700 1,502,325
Exxon Mobil Corp. 44,311 3,569,805
Texaco, Inc. 3,000 162,938
Unocal Corp. 17,100 573,919
------------
$ 9,616,575
- ------------------------------------------------------------------------------
Photographic Products
Eastman Kodak Co. 1,000 $ 66,250
- ------------------------------------------------------------------------------
Printing and Publishing - 2.4%
Gannett Co., Inc. 32,300 $ 2,634,469
New York Times Co. 44,700 2,195,887
Tribune Co. 21,700 1,194,856
------------
$ 6,025,212
- ------------------------------------------------------------------------------
Railroads - 0.2%
Burlington Northern Santa Fe Railway Co. 23,100 $ 560,175
- ------------------------------------------------------------------------------
Restaurants and Lodging - 0.6%
Hilton Hotels Corp. 9,100 $ 87,587
McDonald's Corp. 36,098 1,455,201
------------
$ 1,542,788
- ------------------------------------------------------------------------------
Stores - 0.2%
Dayton Hudson Corp. 7,000 $ 514,063
- ------------------------------------------------------------------------------
Supermarkets - 0.9%
Kroger Co.* 61,900 $ 1,168,362
Safeway, Inc.* 32,700 1,162,894
------------
$ 2,331,256
- ------------------------------------------------------------------------------
Telecommunications - 5.6%
AT&T Corp. 15,650 $ 794,238
Bell Atlantic Corp. 18,100 1,114,281
GTE Corp. 69,750 4,921,734
Motorola, Inc. 24,700 3,637,075
SBC Communications, Inc. 60,744 2,961,270
Sprint Corp. 12,900 868,331
------------
$ 14,296,929
- ------------------------------------------------------------------------------
Utilities - Electric - 1.4%
Carolina Power & Light Co. 27,700 $ 843,119
CMS Energy Corp. 10,200 318,112
Duke Energy Corp. 20,000 1,002,500
FirstEnergy Corp. 12,000 272,250
Pinnacle West Capital Corp. 25,100 767,119
Texas Utilities Co. 8,000 284,500
------------
$ 3,487,600
- ------------------------------------------------------------------------------
Utilities - Gas - 1.9%
Columbia Energy Group 13,000 $ 822,250
El Paso Energy Corp. 33,000 1,280,812
National Fuel Gas Co. 32,000 1,488,000
Washington Gas Light Co. 16,300 448,250
Williams Cos., Inc. 25,500 779,344
------------
$ 4,818,656
- ------------------------------------------------------------------------------
Total U.S. Stocks $122,925,998
- ------------------------------------------------------------------------------
Foreign Stocks - 8.6%
Canada - 0.1%
Canadian National Railway Co. (Railroads) 10,000 $ 263,125
- ------------------------------------------------------------------------------
France - 0.4%
AXA (Insurance) 8,000 $ 1,115,061
- ------------------------------------------------------------------------------
Japan - 1.8%
Fuji Heavy Industries Ltd. (Automotive) 90,000 $ 616,559
Hitachi Ltd. (Electronics) 119,000 1,909,963
Mitsubishi Motor (Automotive) 97,000 331,307
Nippon Telegraph & Telephone Corp.
(Utilities - Telephone) 21,600 1,860,300
------------
$ 4,718,129
- ------------------------------------------------------------------------------
Netherlands - 2.5%
Akzo Nobel N.V. (Chemicals) 66,600 $ 3,340,229
ING Groep N.V. (Financial Services)* 32,402 1,955,965
Royal Dutch Petroleum Co., ADR (Oils) 18,780 1,135,016
------------
$ 6,431,210
- ------------------------------------------------------------------------------
Switzerland - 0.8%
Nestle S.A. (Food and Beverage Products) 1,095 $ 2,006,732
- ------------------------------------------------------------------------------
United Kingdom - 3.0%
BP Amoco PLC, ADR (Oils) 95,676 $ 5,674,783
Diageo PLC (Food and Beverage Products)* 159,059 1,268,360
SmithKline-Beecham PLC, ADR (Medical
and Health Products) 9,260 596,691
------------
$ 7,539,834
- ------------------------------------------------------------------------------
Total Foreign Stocks $ 22,074,091
- ------------------------------------------------------------------------------
Total Stocks (Identified Cost, $137,398,980) $145,000,089
- ------------------------------------------------------------------------------
Bonds - 36.3%
- ------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- ------------------------------------------------------------------------------
U.S. Bonds - 36.0%
Aerospace - 0.2%
BE Aerospace, Inc., 8s, 2008 $ 250 $ 215,625
Raytheon Co., 7.2s, 2027 90 80,243
TRW, Inc., 7.125s, 2009 201 189,607
------------
$ 485,475
- ------------------------------------------------------------------------------
Airlines - 0.1%
Delta Airlines, Inc., 6.65s, 2004 $ 243 $ 232,578
- ------------------------------------------------------------------------------
Apparel and Textiles - 0.1%
Hilfiger (Tommy) USA, Inc., 6.5s, 2003 $ 105 4 99,572
Jones Apparel Group, Inc., 6.25s, 2001 88 85,899
------------
$ 185,471
- ------------------------------------------------------------------------------
Automotive - 2.1%
DaimlerChrysler NA Holdings Co.,
6.63s, 2001 $ 1,946 $ 1,937,457
DaimlerChrysler NA Holdings Co.,
7.2s, 2009 225 221,004
Federal Mogul Corp., 7.5s, 2004 140 132,481
Ford Credit Auto Owner Trust, 6.2s, 2002 557 554,911
Ford Motor Co., 6.625s, 2028 234 203,000
Ford Motor Co., 7.45s, 2031 521 501,223
General Motors Corp., 9.4s, 2021 124 143,871
------------
$ 3,693,947
- ------------------------------------------------------------------------------
Banks - 0.3%
Abbey National PLC, 6.7s, 2049 $ 866 $ 780,967
- ------------------------------------------------------------------------------
Banks and Credit Companies - 0.8%
Beaver Valley Funding Corp. II, 9s, 2017 $ 559 $ 553,349
Capital One Financial Corp., 7.25s, 2003 50 48,579
Chase Manhattan Corp., 6.75s, 2004 495 503,088
Midland Funding Corp., 10.33s, 2002 31 32,279
Riggs National Corp., 9.65s, 2009 650 684,658
Socgen Real Estate Co., 7.64s, 2049## 151 136,264
Washington Mutual Capital I,
8.375s, 2027 210 199,874
------------
$ 2,158,091
- ------------------------------------------------------------------------------
Business Services
Unisys Corp., 12s, 2003 $ 88 $ 93,720
- ------------------------------------------------------------------------------
Chemicals - 0.3%
Lyondell Chemical Co., 9.625s, 2007 $ 777 $ 794,482
- ------------------------------------------------------------------------------
Conglomerates - 0.2%
Amerco, 7.85s, 2003 $ 281 $ 268,108
Eaton Corp., 6.95s, 2004 164 160,400
------------
$ 428,508
- ------------------------------------------------------------------------------
Consumer Goods and Services - 0.1%
Kindercare Learning Centers, Inc.,
9.5s, 2009 $ 150 $ 144,375
Protection One Alarm Monitoring,
7.375s, 2005 104 82,160
------------
$ 226,535
- ------------------------------------------------------------------------------
Containers - 0.1%
Owens-Illinois, Inc., 8.1s, 2007 $ 183 $ 172,911
- ------------------------------------------------------------------------------
Corporate Asset Backed - 1.7%
American Airlines Pass-Through Trust,
6.855s, 2009 $ 224 $ 220,367
Beneficial Home Equity Loan Trust,
5.721s, 2037 180 178,774
Chase Commercial Mortgage Secs Corp.,
6.39s, 2008 328 305,040
Continental Airlines Pass-Through
Trust, Inc., 6.545s, 2019 87 79,071
Continental Airlines Pass-Through
Trust, Inc., 6.648s, 2019 117 106,522
Continental Airlines Pass-Through
Trust, Inc., 7.256s, 2020 800 756,568
Continental Airlines, Inc., 9.5s, 2013 23 23,458
Criimi Mae Commercial Mortgage Trust,
7s, 2011 100 83,563
Crimi Mae Cmbs Corp., 6.701s, 2008 169 149,591
Northwest Airlines, Inc., 7.575s, 2019 245 233,946
Residential Accredit Loans, Inc.,
6.75s, 2028 615 577,331
Time Warner Pass-Through Asset Trust,
6.1s, 2001## 1,712 1,678,051
------------
$ 4,392,282
- ------------------------------------------------------------------------------
Entertainment - 1.0%
Hearst Argyle Television, Inc.,
7.5s, 2027 $ 1,099 $ 1,015,685
News America Holdings, Inc.,
6.703s, 2004 378 361,017
Time Warner, Inc., 8.375s, 2023 640 665,427
Time Warner, Inc., 10.15s, 2012 467 547,123
------------
$ 2,589,252
- ------------------------------------------------------------------------------
Finance - 0.1%
Countrywide Funding Corp., 6.25s, 2009 $ 190 $ 171,488
- ------------------------------------------------------------------------------
Financial Institutions - 2.6%
Aristar, Inc., 7.25s, 2006 $ 310 $ 303,301
Aristar, Inc., 7.375s, 2004 264 262,738
Associates Corp., 5.5s, 2004 497 466,594
Associates Corp., 5.75s, 2003 1,920 1,831,315
AT & T Capital Corp., 6.25s, 2001 120 118,852
Finova Capital Corp., 6.125s, 2004 248 234,764
General Motors Acceptance Corp.,
5.95s, 2003 257 247,901
General Motors Acceptance Corp.,
6.75s, 2002 485 481,314
Goldman Sachs Group LP, 5.9s, 2003 1,300 1,246,661
GS Escrow Corp., 6.75s, 2001 461 444,329
Morgan Stanley Group, Inc., 7.125s, 2003 426 425,663
Salton Sea Funding Corp., 7.84s, 2010 325 309,367
Sunamerica Institutional, 5.75s, 2009 295 263,282
------------
$ 6,636,081
- ------------------------------------------------------------------------------
Financial Services - 1.0%
Conseco Finance Corp., 10.25s, 2002 $ 301 $ 312,158
Deere (John) Capital Corp., 7s, 2002 232 231,207
Ford Motor Credit Co., 5.75s, 2004 500 474,685
Ford Motor Credit Co., 6.7s, 2004 1,148 1,123,605
Ford Motor Credit Co., 7.375s, 2009 1,302 1,285,399
General Electric Capital Corp.,
8.3s, 2009 404 430,591
General Electric Capital Corp.,
8.625s, 2008 211 227,960
General Electric Capital Corp.,
8.85s, 2007 169 183,198
------------
$ 4,268,803
- ------------------------------------------------------------------------------
Food and Beverage Products - 0.6%
Nabisco, Inc., 6.375s, 2035 $ 70 $ 65,011
Seagram (Joseph E) & Sons, Inc.,
5.79s, 2001 388 381,117
Seagram (Joseph E) & Sons, Inc.,
6.4s, 2003 505 486,815
Seagram (Joseph E) & Sons, Inc.,
7.5s, 2018 444 420,681
Seagram (Joseph E) & Sons, Inc.,
7.6s, 2028 163 153,492
------------
$ 1,507,116
- ------------------------------------------------------------------------------
Forest and Paper Products - 1.3%
Georgia-Pacific Corp., 7.25s, 2028 $ 105 $ 94,383
Georgia-Pacific Corp., 7.75s, 2029 2,123 2,023,092
Georgia-Pacific Corp., 9.5s, 2022 500 532,035
Georgia-Pacific Corp., 9.95s, 2002 529 558,047
U.S. Timberlands, 9.625s, 2007 30 27,825
------------
$ 3,235,382
- ------------------------------------------------------------------------------
Insurance - 0.4%
Aflac, Inc., 6.5s, 2009 $ 675 $ 617,537
Atlantic Mutual Insurance Co.,
8.15s, 2028 149 111,825
Conseco, Inc., 6.4s, 2001 160 156,025
Providian Capital I, 9.525s, 2027 109 92,371
------------
$ 977,758
- ------------------------------------------------------------------------------
Oil Services - 0.1%
McDermott, Inc., 9.375s, 2002 $ 245 $ 244,851
Ultramar Diamond Shamrock Corp.,
7.2s, 2017 20 17,727
------------
$ 262,578
- ------------------------------------------------------------------------------
Oils - 0.3%
Occidental Petroleum Corp., 6.4s, 2003 $ 357 $ 344,198
Occidental Petroleum Corp., 6.75s, 2002 341 334,848
------------
$ 679,046
- ------------------------------------------------------------------------------
Railroads - 0.4%
Union Pacific Corp., 5.78s, 2001 $ 157 $ 153,428
Union Pacific Corp., 6.34s, 2003 935 902,051
------------
$ 1,055,479
- --------------------------------------------------------------------------------
Stores - 0.7%
Federated Department Stores, Inc.,
6.3s, 2009 $ 375 $ 340,939
Federated Department Stores, Inc.,
8.5s, 2003 601 617,641
Rite Aid Corp., 6s, 2003 358 247,020
Rite Aid Corp., 7.125s, 2007 115 87,400
Saks, Inc., 7.25s, 2004 161 153,264
Wal-Mart Stores, Inc., 6.55s, 2004 429 421,600
------------
$ 1,867,864
- --------------------------------------------------------------------------------
Telecommunications - 2.1%
Cable & Wireless Communication,
6.625s, 2005 $ 415 $ 409,842
Lear Corp., 7.96s, 2005 293 282,085
Qwest Communications International,
Inc., 7.5s, 2008 377 366,512
Sprint Capital Corp., 5.875s, 2004 729 687,549
Sprint Capital Corp., 6.375s, 2009 300 275,934
Sprint Capital Corp., 6.5s, 2001 970 961,716
Sprint Capital Corp., 6.9s, 2019 1,042 947,678
TCI Communications Financing III,
9.65s, 2027 1,102 1,211,517
Telecomunicaciones de Puerto Rico,
Inc., 6.65s, 2006 182 171,626
WorldCom, Inc., 8.875s, 2006 20 20,991
------------
$ 5,335,450
- ------------------------------------------------------------------------------
Telecommunications and Cable - 0.1%
Belo Ah Corp., 7.75s, 2027 $ 297 $ 282,652
- ------------------------------------------------------------------------------
Tire and Rubber - 0.1%
Cooper Tire & Rubber Co., 7.25s, 2002 $ 310 $ 306,578
- ------------------------------------------------------------------------------
U.S. Federal Agencies - 3.1%
Federal Home Loan Bank - 0.5%
Federal Home Loan Bank, 5.7s, 2009 $ 720 $ 654,077
Federal Home Loan Bank, 6.5s, 2028 594 560,249
------------
$ 1,214,326
- ------------------------------------------------------------------------------
Federal National Mortgage Association - 2.6%
FNMA, 5.722s, 2009 $ 465 $ 413,414
FNMA, 6.625s, 2009 600 582,750
FNMA, 6.5s, 2027 - 2029 5,616 5,291,482
FNMA, 8s, 2028 482 485,557
------------
$ 6,773,203
- ------------------------------------------------------------------------------
Total U.S. Federal Agencies $ 7,987,529
- ------------------------------------------------------------------------------
U.S. Government Guaranteed - 11.4%
Government National Mortgage Association - 4.5%
GNMA, 8s, 2022 - 2029 $ 5,927 $ 5,992,862
GNMA, 7.5s, 2025 - 2027 2,926 2,893,462
GNMA, 6.5s, 2028 1,357 1,273,005
GNMA, 7s, 2028 - 2028 1,404 1,355,937
------------
$ 11,515,266
- ------------------------------------------------------------------------------
U.S. Treasury Obligations - 6.9%
U.S. Treasury Bonds, 9.875s, 2015 $ 1,628 $ 2,105,720
U.S. Treasury Bonds, 6.125s, 2027 320 297,799
U.S. Treasury Bonds, 5.25s, 2028 - 2029 8,065 6,663,658
U.S. Treasury Notes, 4.875s, 2001 3,600 3,544,308
U.S. Treasury Notes, 7.5s, 2001 300 306,516
U.S. Treasury Notes, 5.875s, 2004 1,371 1,344,224
U.S. Treasury Notes, 6s, 2004 - 2009 2,796 2,717,747
U.S. Treasury Notes, 7.875s, 2004 355 375,356
U.S. Treasury Notes, 6.5s, 2005 95 95,000
U.S. Treasury Notes, 6.625s, 2007 290 291,134
------------
$ 17,741,462
- ------------------------------------------------------------------------------
Total U.S. Government Guaranteed $ 29,256,728
- ------------------------------------------------------------------------------
Utilities - Electric - 3.9%
CalEnergy Co., Inc., 7.23s, 2005 $ 15 $ 14,616
Cleveland Electric Illuminating Co.,
7.67s, 2004 256 252,147
Cleveland Electric Illuminating Co.,
7.88s, 2017 81 76,821
CMS Energy Corp., 6.75s, 2004 600 573,108
CMS Energy Corp., 8s, 2001 235 232,249
CMS Energy Corp., 8.375s, 2003 928 907,121
Commonwealth Edison Company, 8.5s, 2022 511 530,392
Connecticut Light & Power Co., 7.875s, 2024 70 70,469
Connecticut Light & Power Co., 8.59s, 2003 400 401,536
El Paso Electric Co., 8.25s, 2003 1,170 1,190,791
Entergy Mississippi, Inc., 6.2s, 2004 253 238,797
GGIB Funding Corp., 7.43s, 2011 87 84,097
Illinois Power Special Purpose Trust,
5.26s, 2003 122 120,323
Long Island Lighting Co., 8.2s, 2023 800 780,120
Midamerican Funding LLC, 5.85s, 2001 275 271,433
Midamerican Funding LLC, 6.927s, 2029 414 353,599
Midland Cogeneration Venture Corp.,
10.33s, 2002 34 34,589
Niagara Mohawk Power Corp., 0s to 2003,
8.5s to 2010, 0s, 2010 1,818 1,355,246
Niagara Mohawk Power Corp., 7.25s, 2002 212 210,996
Niagara Mohawk Power Corp., 7.625s, 2005 83 82,950
Niagara Mohawk Power Corp., 8.5s, 2023 50 48,309
Niagara Mohawk Power Corp., 8.75s, 2022 100 99,069
Niagara Mohawk Power Corp., 8.77s, 2018 126 128,660
Northeast Utilities, 8.58s, 2006 60 60,676
Texas Utilities Co., 5.94s, 2001 194 190,706
Toledo Edison Co., 7.875s, 2004 400 397,088
Txu Eastern Funding Co., 6.15s, 2002 137 133,586
Utilicorp United, Inc., 7s, 2004 131 126,512
Waterford 3 Funding Entergy Corp.,
8.09s, 2017 381 365,948
Wisconsin Electric Power Co., 6.625s, 2002 805 798,286
------------
$ 10,130,240
- ------------------------------------------------------------------------------
Utilities - Gas - 0.7%
Coastal Corp., 6.2s, 2004 $ 468 $ 444,090
Tennessee Gas Pipeline Co., 7.625s, 2037 260 242,517
Texas Gas Transmission Corp., 7.25s, 2027 600 545,191
Williams Cos., Inc., 7.625s, 2019 600 576,564
Williams Gas Pipelines Central, 7.375s, 2006 140 137,220
------------
$ 1,945,582
- ------------------------------------------------------------------------------
Utilities - Telephone - 0.1%
AT & T Corp., 6.5s, 2029 $ 234 $ 200,465
- ------------------------------------------------------------------------------
Total U.S. Bonds $ 92,341,038
- ------------------------------------------------------------------------------
Foreign Bonds - 0.3%
Chile - 0.3%
Empresa Electric Guacolda S.A., 7.6s, 2001
(Utilities - Electric)## $ 760 $ 744,800
- ------------------------------------------------------------------------------
Finland
UPM Kymmene Corp., 7.45s, 2027
(Forest and Paper Products)## $ 12 $ 10,878
- ------------------------------------------------------------------------------
Total Foreign Bonds $ 755,678
- ------------------------------------------------------------------------------
Total Bonds (Identified Cost, $96,570,081) $ 93,096,716
- ------------------------------------------------------------------------------
Convertible Preferred Stocks - 1.1%
- ------------------------------------------------------------------------------
SHARES
- ------------------------------------------------------------------------------
Containers - 0.1%
Owens-Illinois, Inc., 4.75% 10,100 $ 315,625
- ------------------------------------------------------------------------------
Insurance - 0.3%
Lincoln National Corp., 7.75% 31,600 $ 695,200
- ------------------------------------------------------------------------------
Oils - 0.2%
Apache Corp., 6.5% 15,900 $ 564,450
- ------------------------------------------------------------------------------
Utilities - Electric - 0.2%
Texas Utilities Co., 9.25% 13,300 $ 580,212
- ------------------------------------------------------------------------------
Utilities - Gas - 0.3%
El Paso Energy Capital Trust I, 4.75% 14,800 $ 745,550
- ------------------------------------------------------------------------------
Total Convertible Preferred Stocks
(Identified Cost, $3,136,664) $ 2,901,037
- ------------------------------------------------------------------------------
Preferred Stocks - 0.3%
- ------------------------------------------------------------------------------
Banks and Credit Companies
NB Capital Corp., 8.35% 2,519 $ 54,159
- ------------------------------------------------------------------------------
Utilities - Electric - 0.3%
CMS Energy Corp., 8.75% 20,800 $ 704,600
- ------------------------------------------------------------------------------
Total Preferred Stocks
(Identified Cost, $926,175) $ 758,759
- ------------------------------------------------------------------------------
Convertible Bonds - 1.5%
- ------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- ------------------------------------------------------------------------------
Business Machines - 0.3%
Xerox Corp., 0s, 2018## $ 460 $ 244,375
Xerox Corp., 0s, 2018 710 363,875
------------
$ 608,250
- ------------------------------------------------------------------------------
Conglomerates - 0.4%
Loews Corp., 3.125s, 2007 $ 1,300 $ 1,059,500
- ------------------------------------------------------------------------------
Financial Services - 0.8%
Bell Atlantic Financial Services, Inc.,
4.25s, 2005## $ 1,720 $ 2,115,600
- ------------------------------------------------------------------------------
Total Convertible Bonds
(Identified Cost, $3,691,468) $ 3,783,350
- ------------------------------------------------------------------------------
Rights - 0.3%
- ------------------------------------------------------------------------------
SHARES
- ------------------------------------------------------------------------------
CVS Corp.* (Identified Cost, $743,267) 10,000 $ 712,500
- ------------------------------------------------------------------------------
Short-Term Obligations - 2.7%
- ------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- ------------------------------------------------------------------------------
Federal Home Loan Bank, due 1/03/00 - 1/07/00 $ 5,900 $ 5,898,654
American Express Credit Corp., due 1/03/00 900 899,875
- ------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 6,798,529
- ------------------------------------------------------------------------------
Total Investments (Identified Cost, $249,265,164) $253,050,980
Other Assets, Less Liabilities - 1.2% 3,076,998
- ------------------------------------------------------------------------------
Net Assets - 100.0% $256,127,978
- ------------------------------------------------------------------------------
* Non-income producing security.
## SEC Rule 144A restriction.
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
DECEMBER 31, 1999
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $249,265,164) $253,050,980
Investments of cash collateral for securities
loaned, at value (identified cost, $9,968,467) 9,968,467
Cash 61,691
Receivable for Series shares sold 399,047
Receivable for investments sold 1,472,315
Interest and dividends receivable 1,560,374
Other assets 1,394
------------
Total assets $266,514,268
------------
Liabilities:
Payable for Series shares reacquired $ 349,869
Collateral for securities loaned, at value 9,968,467
Payable to affiliates -
Management fee 5,265
Shareholder servicing agent fee 246
Accrued expenses and other liabilities 62,443
------------
Total liabilities $ 10,386,290
------------
Net assets $256,127,978
============
Net assets consist of:
Paid-in capital $240,443,039
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 3,785,622
Accumulated undistributed net realized gain on investments
and foreign currency transactions 5,435,349
Accumulated undistributed net investment income 6,463,968
------------
Total $256,127,978
============
Shares of beneficial interest outstanding 14,432,140
==========
Net asset value per share
(net assets / shares of beneficial interest outstanding) $17.75
======
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999
- ------------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 5,816,989
Dividends 2,634,614
Foreign taxes withheld (32,108)
-----------
Total investment income $ 8,419,495
-----------
Expenses -
Management fee $ 1,632,401
Trustees' compensation 2,431
Shareholder servicing agent fee 66,610
Administrative fee 23,324
Custodian fee 79,678
Printing 53,783
Postage 16
Auditing fees 9,321
Legal fees 2,077
Amortization of organization expenses 1,861
Miscellaneous 97,670
-----------
Total expenses $ 1,969,172
Fees paid indirectly (14,000)
-----------
Net expenses $ 1,955,172
-----------
Net investment income $ 6,464,323
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 5,506,634
Foreign currency transactions (12,868)
-----------
Net realized gain on investments and foreign
currency transactions $ 5,493,766
-----------
Change in unrealized appreciation (depreciation) -
Investments $(5,937,002)
Translation of assets and liabilities in foreign
currencies (179)
-----------
Net unrealized loss on investments and foreign
currency translation $(5,937,181)
-----------
Net realized and unrealized loss on investments
and foreign currency $ (443,415)
-----------
Increase in net assets from operations $ 6,020,908
===========
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 6,464,323 $ 3,682,274
Net realized gain on investments and foreign currency transactions 5,493,766 6,764,978
Net unrealized gain (loss) on investments and foreign currency translation (5,937,181) 3,522,255
------------- -------------
Increase in net assets from operations $ 6,020,908 $ 13,969,507
------------- -------------
Distributions declared to shareholders -
From net investment income $ (3,664,354) $ (1,465,065)
From net realized gain on investments and foreign currency transactions (6,795,201) (1,722,619)
------------- -------------
Total distributions declared to shareholders $ (10,459,555) $ (3,187,684)
------------- -------------
Net increase in net assets from Series share transactions $ 89,384,826 $ 84,787,846
------------- -------------
Total increase in net assets $ 84,946,179 $ 95,569,669
Net assets:
At beginning of year 171,181,799 75,612,130
------------- -------------
At end of year (including accumulated undistributed net
investment income of $6,463,968 and $3,676,287, respectively) $ 256,127,978 $ 171,181,799
============= =============
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, PERIOD ENDED
--------------------------------------------------------- DECEMBER 31,
1999 1998 1997 1996 1995*
- -------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $ 18.12 $ 16.63 $ 13.71 $ 12.25 $ 10.00
----------- ----------- ----------- ----------- -----------
Income from investment operations# -
Net investment income(S) $ 0.53 $ 0.53 $ 0.52 $ 0.46 $ 0.41
Net realized and unrealized gain on
investments and foreign currency transactions 0.05 1.49 2.40 1.30 2.32
----------- ----------- ----------- ----------- -----------
Total from investment operations $ 0.58 $ 2.02 $ 2.92 $ 1.76 $ 2.73
----------- ----------- ----------- ----------- -----------
Less distributions declared to shareholders -
From net investment income $ (0.33) $ (0.24) $ -- $ (0.21) $ (0.25)
From net realized gain on investments and
foreign currency transactions (0.62) (0.29) -- (0.09) (0.23)
----------- ----------- ----------- ----------- -----------
Total distributions declared to shareholders $ (0.95) $ (0.53) -- $ (0.30) $ (0.48)
----------- ----------- ----------- ----------- -----------
Net asset value - end of period $ 17.75 $ 18.12 $ 16.63 $ 13.71 $ 12.25
=========== =========== =========== =========== ===========
Total return 3.08% 12.33% 21.30% 14.37% 27.34%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.90% 1.00% 1.00% 1.00% 1.00%+
Net investment income 2.97% 3.05% 3.25% 3.59% 3.83%+
Portfolio turnover 112% 100% 93% 76% 16%
Net assets at end of period (000 Omitted) $ 256,128 $ 171,182 $ 75,612 $ 19,250 $ 2,797
(S) Subject to reimbursement by the Series, the investment adviser agreed to maintain the expenses of the Series, exclusive of
management fees, at not more than 0.25% of average daily net assets for certain of the periods indicated. 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 -- $ 0.54 $ 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 certain expense offset arrangements.
</TABLE>
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(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 December 31, 1999, there
were 56 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 and forward contracts 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 agents. Income from
securities lending is included in interest income on the Statement of
Operations. The dividend and interest income earned on the securities loaned is
accounted for in the same manner as other dividend and interest income.
At December 31, 1999, the value of securities loaned was $9,648,078. These loans
were collateralized by cash of $9,968,467, which was invested in the following
short-term obligation:
IDENTIFIED
SHARES COST & VALUE
- ----------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio 9,968,467 $9,968,467
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 calculated as a percentage of
the Series' month end net assets. The fee is reduced according to an arrangement
that measures the value of cash deposited with the custodian by the Series. This
amount is shown as a reduction of expenses on the Statement of Operations.
Tax Matters and Distributions - The Series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its income,
including any net realized gain on investments. Accordingly, no provision for
federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The Series
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits be reported in the financial statements as distributions from paid-in
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. During
the year ended December 31, 1999, $12,288 and $2,646 were reclassified from
accumulated undistributed net investment income and accumulated undistributed
net realized gain on investments and foreign currency transactions respectively,
to paid-in capital due to differences between book and tax accounting for
currency transactions and mortgage-backed securities. This change had no effect
on the net assets or net asset value per share.
(3) Transactions with Affiliates
Investment Adviser - The Series has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities.
The management fee is computed daily and paid monthly at an annual rate of 0.75%
of the Series' average daily net assets. Prior to January 29, 1999, the Series
had a temporary expense reimbursement agreement whereby MFS voluntarily agreed
to pay all of the Series' operating expenses, exclusive of management fees. The
Series in turn paid MFS an expense reimbursement fee not greater than 0.25% of
average daily assets.
The Series pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Series, all of whom receive
remuneration for their services to the Series from MFS. Certain officers and
Trustees of the Series are officers or directors of MFS and MFS Service Center,
Inc. (MFSC).
Administrator - The Series has an administrative services agreement with MFS to
provide the Series with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Series pays MFS an administrative fee
at the following annual percentages of the Series' average daily net assets:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the Series's average daily net assets at an 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 $107,970,672 $ 96,792,062
----------- -----------
Investments (non-U.S. government securities) $208,907,914 $134,063,424
----------- -----------
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 $250,097,441
------------
Gross unrealized appreciation $ 15,601,821
Gross unrealized depreciation (12,648,282)
------------
Net unrealized appreciation $ 2,953,539
============
(5) Shares of Beneficial Interest
The Series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
Series shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 YEAR ENDED DECEMBER 31, 1998
---------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 6,249,799 $111,763,471 5,510,683 $ 95,333,122
Shares issued to shareholders in
reinvestment of distributions 577,557 10,459,550 186,754 3,187,885
Shares reacquired (1,840,037) (32,838,195) (799,224) (13,733,161)
----------- ------------ ------------- -------------
Net increase 4,987,319 $ 89,384,826 4,898,213 $ 84,787,846
=========== ============ ============= =============
</TABLE>
(6) Line of Credit
The Series and other affiliated Series participate in an $820 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made to temporarily finance the repurchase of
Series shares. Interest is charged to each 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 year ended December 31, 1999, was $1,431. The Series had no
borrowings during the year.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of the MFS Variable Insurance Trust and Shareholders of MFS
Total Return Series:
We have audited the accompanying statement of assets and liabilities of MFS
Total Return Series (the Series) (one of the series constituting the MFS
Variable Insurance Trust), including the portfolio of investments, as of
December 31, 1999, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Total Return Series as of December 31, 1999, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 3, 2000
<PAGE>
FEDERAL TAX INFORMATION
The Series has designated $5,450,508 as a capital gain dividend for the year
ended December 31, 1999.
For the year ended December 31, 1999, the amount of distributions from income
eligible for the 70% dividends received deduction for corporations is 24.77%.
<PAGE>
MFS' YEAR 2000 READINESS DISCLOSURE
MFS Investment Management(R), as an investment adviser and
on behalf of the MFS funds, is committed to the effective
use of technology in managing our portfolio investments,
delivering high-quality service to MFS fund shareholders, [Graphic Omitted]
retirement plan participants, and MFS' institutional
clients, and supporting the financial consultants who sell
our products.
MFS can now say that it is ready for the Year 2000. Our testing has demonstrated
that MFS' computer hardware and software will recognize "00" as the Year 2000
and will not confuse those digits with 1900. All of our critical business
applications and processes have been successfully tested, and we have adopted
companywide policies that will help us maintain our readiness through the
remainder of the year. Any new technology that is brought into the company
before the end of the year will be held to the same stringent standards as our
current technology. We have also developed a vendor readiness survey, contacted
over 700 of our vendors, and established an ongoing process to review responses,
as well as to review readiness statements of new vendors and products.
MFS recognizes that fund shareholders and institutional clients also are
concerned about whether the companies whose securities are held in their
portfolios are addressing Y2K issues. As part of the MFS Original Research(R)
process of evaluating portfolio investments, one of the many relevant factors
that MFS' portfolio managers and research analysts may consider is a company's
Y2K readiness.
Y2K readiness is an enormously complex, worldwide issue. No company or
institution can guarantee that it will be unaffected by the Y2K issue. While
MFS is taking significant steps to protect the integrity of its internal
systems, there can be no assurance that these steps will be sufficient to
avoid any adverse impact on MFS fund shareholders, retirement plan
participants, or institutional clients.
If you have further questions regarding MFS' Year 2000 Readiness Program, please
visit our Web site at www.mfs.com, call our toll-free line, 1-800-637-4406, or
write to the MFS Year 2000 Program Management Office by e-mail at [email protected] or
by letter at 500 Boylston Street, Boston, MA 02116-3741.
<PAGE>
(C) 2000 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116
VTR-2 2/00 26M
