<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) HIGH
INCOME SERIES
<PAGE>
<TABLE>
MFS(R) HIGH INCOME SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
<S> <C>
TRUSTEES INVESTMENT ADVISER
Massachusetts Financial Services Company
Jeffrey L. Shames* - Chairman and Chief Executive 500 Boylston Street
Officer, MFS Investment Management(R) Boston, MA 02116-3741
Nelson J. Darling, Jr.+ - Private investor and DISTRIBUTOR
trustee MFS Fund Distributors, Inc.
500 Boylston Street
William R. Gutow+ - Private investor and real Boston, MA 02116-3741
estate consultant; Vice Chairman, Capitol
Entertainment Management Company (video franchise) INVESTOR SERVICE
MFS Service Center, Inc.
CHAIRMAN AND PRESIDENT P.O. Box 2281
Jeffrey L. Shames* Boston, MA 02107-9906
PORTFOLIO MANAGER For additional information,
Bernard A. Scozzafava* contact your investment professional.
TREASURER CUSTODIAN
James O. Yost* State Street Bank and Trust Company
ASSISTANT TREASURERS WORLD WIDE WEB
Mark E. Bradley* www.mfs.com
Ellen Moynihan*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
* MFS Investment Management
+ Independent Trustee
</TABLE>
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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, Initial Class shares of the series
provided a total return of 0.25% and Service Class shares 0.34%. These returns
include the reinvestment of any distributions and compare to a return of
-1.66% for the average high current yield fund tracked by Lipper Inc., an
independent firm that reports mutual fund performance. The series' returns
also compare to returns of -1.21% and -1.91%, respectively, for the series'
benchmarks, the Lehman Brothers High Yield Bond Index (the Lehman Index) and
the Lipper High Yield Bond Fund Index. The Lehman Index is an unmanaged index
of noninvestment-grade corporate debt. The Lipper mutual fund indices are
unmanaged, net-asset-value-weighted indices of the largest qualifying mutual
funds within their respective investment objectives, adjusted for the
reinvestment of capital gain distributions and income dividends.
The high-yield market remained plagued by a number of difficulties during most
of the period. First, high-yield portfolios experienced approximately $6.5
billion in outflows this year, which hurt demand for high-yield securities.
Second, while default rates have recently come down a bit, they remained
relatively high during the period. Finally, concerns about inflation and
unsustainable economic growth kept investors nervous about future interest-rate
hikes. On a more positive note, we've recently started to see money flowing back
into the high-yield market as the interest-rate environment has improved and
investors are being drawn to some extremely attractive yields relative to U.S.
Treasury and investment-grade bonds. (Principal value and interest on Treasury
securities are guaranteed by the U.S. government if held to maturity)
In a market where most high-yield bonds traded lower, the portfolio's
performance compared to its benchmarks benefited from favorable security
selection and industry diversification. During the second quarter of 2000,
many telecommunications and media securities experienced a dramatic selloff
along with the equity market. However, our holdings in these sectors, as well
as holdings in industries such as gaming and industrial manufacturing, held up
well during the period. We maintained our positions in telecommunications
bonds, and it remained the largest industry exposure in the portfolio.
Companies such as Nextel and Esat Holdings Ltd. are two of the series' larger
holdings and provided a positive contribution to performance. Our position in
Nextel Communications provided steady gains due to persistent strength in
wireless subscriber growth. Our holding in Esat Holdings Ltd., provided a nice
boost to performance after it was bought out by British Telecom. We also
weren't afraid to take some profits in energy company bonds, as oil and
natural gas prices reached historically high levels.
In addition to favorable security selection, our successful avoidance of the
credit problems and bankruptcies that hurt a variety of industries helped the
series' performance. The key to avoiding credit defaults is in-depth research,
and we believe MFS' research capabilities are second to none in the industry.
MFS(R) High Income Series is backed by a large group of investment
professionals dedicated exclusively to the high-income market. Our research
analysts use a variety of models to analyze the credit risk and business
prospects of the companies they cover. We carefully measure and manage the
underlying financial stability of each company we hold in the portfolio.
Similar to our equity research, it's an intensive, company-by-company, bottom-
up approach. First, we look at a company's business risks, then we consider
the financial risks. Finally, we look at all the different ways of investing
in the company and how the market is pricing each one of the securities. From
this analysis, we try to pick the bond that offers the best risk-adjusted
return. Our holding in U.S. Can Corp., one of the world's largest aerosol can
manufacturers, is a good example of a bond that met our stringent investment
criteria and benefited the series' performance. The company's management
instituted a number of cost-saving efficiencies in their plants, which
improved profitability and cash flow. The company then began to buy back their
bonds, which resulted in substantial price appreciation.
After telecommunications, our second largest exposure was in media. Core
holdings included cable television and radio entities such as Charter
Communications, one of the fastest-growing companies in the field. Controlled
by Paul Allen, the co-founder of Microsoft, Charter's valuation has risen
following the increased utilization of cable networks as a means of accessing
the Internet.
In many ways, we view telecom and media as defensive industries that offer
attractive growth and income opportunities. Most people are not going to turn
off their cable or mobile phones if the economy slows down. On the other hand,
some of the big-ticket capital items such as industrial machinery, building
materials, and autos may experience a slow down in business and consumer
spending due to higher interest rates. Given the current economic environment,
we like the telecom and media sectors, and we've maintained our significant
exposure to these industries. We've taken some money off the table in some of
the more cyclical industries such as steel and paper packaging, as well as in
general manufacturing. We increased holdings in gaming bonds, which we also
view as a somewhat defensive industry. These securities have gained ground
because there are fewer and fewer regions of the country that permit gaming,
and we believe these companies will continue to produce exceptional earnings
and cash flow growth.
Looking ahead, we're cautiously optimistic regarding a recovery in high-yield
securities. While it's difficult to rule out further volatility given the
uncertain interest-rate environment, the high-income market has been weak for
quite some time now. Yield spreads, the yield difference between
noninvestment-grade debt and Treasuries, have widened significantly during the
past year, making the yields on high-income bonds very attractive relative to
other fixed-income securities in our view. In addition, we believe the economy
will remain healthy and corporate earnings will remain strong. And,
ultimately, the high-yield market tracks corporate earnings.
Respectfully,
/s/ Bernard A. Scozzafava
Bernard A. Scozzafava
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and
are current only through the end of the period of the report as stated on the
cover. The manager's views are subject to change at any time based on market
and other conditions, and no forecasts can be guaranteed.
It is not possible to invest directly in an index.
The portfolio is actively managed, and current holdings may be different.
<PAGE>
PORTFOLIO MANAGER'S PROFILE
Bernard A. Scozzafava is Senior Vice President of MFS Investment
Management(R). He is portfolio manager of the High Yield Series offered
through MFS(R)/Sun Life annuity products and MFS(R) High Income Series (part
of MFS(R) Variable Insurance Trust(SM)).
He joined MFS in 1989 as Investment Officer and was named Assistant Vice
President in 1991, Vice President in 1993, portfolio manager in 1994, and
Senior Vice President in 2000. Prior to joining MFS, he worked as a securities
trader and a research analyst for the Federal Reserve Bank of New York. Mr.
Scozzafava is a graduate of Hamilton College and earned a Master of Science
degree from the Massachusetts Institute of Technology.
All portfolio managers at MFS Investment Management(R) are supported by an
investment staff of over 100 professionals utilizing MFS(R) Original
Research(R), a global, company-oriented, bottom-up process of selecting
securities.
SERIES FACTS
Objective: Seeks high current income by investing primarily in a
professionally managed, diversified portfolio of fixed-income securities, some
of which may involve equity features.
Commencement of investment operations: July 26, 1995
Class inception: Initial Class July 26, 1995
Service Class May 1, 2000
Size: $63.2 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
INITIAL CLASS
6 Months 1 Year 3 Years Life*
------------------------------------------------------------------------------
Cumulative Total Return +0.25% +1.67% +13.31% +42.42%
------------------------------------------------------------------------------
Average Annual Total Return -- +1.67% + 4.25% + 7.43%
------------------------------------------------------------------------------
SERVICE CLASS
6 Months 1 Year 3 Years Life*
------------------------------------------------------------------------------
Cumulative Total Return +0.34% +1.76% +13.42% +42.55%
------------------------------------------------------------------------------
Average Annual Total Return -- +1.76% + 4.29% + 7.45%
------------------------------------------------------------------------------
* For the period from the commencement of the series' investment operations,
July 26, 1995, through June 30, 2000.
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>
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.
Lower-rated securities may provide greater returns, but they are also
associated with greater-than-average risk. These risks may increase share
price volatility. See the prospectus for details.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - June 30, 2000
<CAPTION>
Bonds - 89.1%
-------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Bonds - 75.8%
Aerospace - 2.9%
Airplane Pass-Through Trust, 10.875s, 2019+ $ 74 $ 60,180
Argo Tech Corp., 8.625s, 2007 230 161,000
BE Aerospace, Inc., 9.875s, 2006 170 160,650
BE Aerospace, Inc., 8s, 2008 90 76,050
K & F Industries, Inc., 9.25s, 2007 525 496,125
L-3 Communications Corp., 10.375s, 2007 400 407,000
MOOG, Inc., 10s, 2006 355 353,225
United Defense Industries, Inc., 8.75s, 2007 100 92,500
-----------
$ 1,806,730
-------------------------------------------------------------------------------------------------------
Building Materials - 4.0%
AAF-McQuay, Inc., 8.875s, 2003 $ 125 $ 107,500
American Standard, Inc., 7.375s, 2008 340 308,550
Building Materials Corp., 8.625s, 2006 470 408,900
Formica Corp., 10.875s, 2009 375 292,500
MMI Products, Inc., 11.25s, 2007 300 295,500
Nortek, Inc., 9.875s, 2004 80 75,800
Nortek, Inc., 9.25s, 2007 370 345,950
Nortek, Inc., 8.875s, 2008 60 54,300
Schuff Steel Co., 10.5s, 2008 60 41,400
Williams Scotsman, Inc., 9.875s, 2007 625 562,500
-----------
$ 2,492,900
-------------------------------------------------------------------------------------------------------
Business Services - 0.8%
Anacomp, Inc., 10.875s, 2004 $ 370 $ 229,400
Iron Mountain, Inc., 10.125s, 2006 95 95,000
Pierce Leahy Corp., 11.125s, 2006 49 50,348
Pierce Leahy Corp., 9.125s, 2007 125 117,500
-----------
$ 492,248
-------------------------------------------------------------------------------------------------------
Chemicals - 2.9%
Huntsman ICI Holdings, 10.125s, 2009 $ 485 $ 487,425
Lyondell Chemical Co., 9.625s, 2007 125 123,750
Lyondell Chemical Co., 9.875s, 2007 350 346,500
Lyondell Chemical Co., 10.875s, 2009 135 133,987
Sovereign Specialty Chemicals, 11.875s, 2010## 255 262,650
Sterling Chemicals, Inc., 11.75s, 2006 95 76,950
Sterling Chemicals, Inc., 12.375s, 2006 200 208,000
Sterling Chemicals, Inc., 11.25s, 2007 235 185,650
-----------
$ 1,824,912
-------------------------------------------------------------------------------------------------------
Consumer Goods and Services - 4.1%
General Binding Corp., 9.375s, 2008 $ 150 $ 97,500
Kindercare Learning Centers, Inc., 9.5s, 2009 280 257,600
Polaroid Corp., 11.5s, 2006 145 150,800
Polymer Group, Inc., 9s, 2007 375 318,750
Remington Products Co. LLC, 11s, 2006 75 63,375
Samsonite Corp., 10.75s, 2008 440 366,300
Sealy Mattress Co., 9.875s, 2007 400 382,000
Simmons Co., 10.25s, 2009 390 346,125
Synthetic Industries, Inc., 13s, 2000 245 241,325
Westpoint Stevens, Inc., 7.875s, 2005 125 104,375
Westpoint Stevens, Inc., 7.875s, 2008 350 278,250
-----------
$ 2,606,400
-------------------------------------------------------------------------------------------------------
Container, Forest and Paper Products - 4.9%
Applied Extrusion Technologies, Inc., 11.5s, 2002 $ 350 $ 352,625
Atlantis Plastics, Inc., 11s, 2003 90 89,663
Ball Corp., 8.25s, 2008 350 327,250
Buckeye Cellulose Corp., 8.5s, 2005 190 181,925
Buckeye Cellulose Corp., 9.25s, 2008 35 35,087
Buckeye Technologies, Inc., 8s, 2010 100 90,750
Gaylord Container Corp., 9.75s, 2007 275 214,500
Gaylord Container Corp., 9.875s, 2008 375 243,750
Huntsman Packaging Corp., 13s, 2010## 110 113,300
Riverwood International Corp., 10.25s, 2006 275 261,250
Riverwood International Corp., 10.875s, 2008 20 17,400
Silgan Holdings, Inc., 9s, 2009 525 496,125
Speciality Paperboard, Inc., 9.375s, 2006 125 120,000
U.S. Can Corp., 10.125s, 2006 345 352,762
U.S. Timberlands, 9.625s, 2007 240 211,200
-----------
$ 3,107,587
-------------------------------------------------------------------------------------------------------
Energy - 4.8%
Cheasapeake Energy Corp., 9.625s, 2005 $ 480 $ 469,200
Clark Refining & Marketing, Inc., 8.625s, 2008 160 125,600
Clark USA, Inc., 10.875s, 2005 215 118,250
Continental Resources, Inc., 10.25s, 2008 200 179,000
Forest Oil Corp., 10.5s, 2006 275 279,812
HS Resources, Inc., 9.25s, 2006 225 220,500
Ocean Energy, Inc., 8.875s, 2007 465 462,675
P&L Coal Holdings Corp., 9.625s, 2008 600 556,500
Pioneer Natural Resources Co., 9.625s, 2010 245 252,350
Pride International, Inc., 10s, 2009 30 30,750
R & B Falcon Corp., 9.5s, 2008 350 351,750
-----------
$ 3,046,387
-------------------------------------------------------------------------------------------------------
Entertainment
American Skiing Co., 12s, 2006 $ 25 $ 21,000
-------------------------------------------------------------------------------------------------------
Financial Institutions - 0.4%
Willis Corroon Corp., 9s, 2009 $ 285 $ 238,688
-------------------------------------------------------------------------------------------------------
Gaming and Hotels - 7.3%
Agrosy Gaming Co., 10.75s, 2009 $ 400 $ 415,000
Aztar Corp., 8.875s, 2007 445 418,300
Boyd Gaming Corp., 9.5s, 2007 675 648,000
Coast Hotels & Casinos, Inc., 9.5s, 2009 555 530,025
Eldorado Resorts LLC, 10.5s, 2006 50 49,875
HMH Properties, Inc., 8.45s, 2008 300 277,875
Hollywood Park, Inc., 9.25s, 2007 255 253,725
Horseshoe Gaming LLC, 8.625s, 2009 415 390,100
Isle of Capri Casinos, Inc., 8.75s, 2009 375 345,000
MGM Grand, Inc., 9.75s, 2007 420 426,300
Prime Hospitality Corp., 9.75s, 2007 275 264,000
Santa Fe Hotel, Inc., 11s, 2000 65 64,025
Station Casinos, Inc., 8.875s, 2008 450 423,000
Station Casinos, Inc., 9.875s, 2010## 105 105,525
-----------
$ 4,610,750
-------------------------------------------------------------------------------------------------------
Industrial - 3.9%
Allied Waste North America, Inc., 7.625s, 2006 $ 130 $ 113,100
Allied Waste North America, Inc., 10s, 2009 50 42,250
Blount, Inc., 13s, 2009 250 255,000
Columbus Mckinnon Corp., 8.5s, 2008 315 274,050
Day International Group, Inc., 11.125s, 2005 50 48,750
Hayes Wheels International, Inc., 11s, 2006 310 304,575
Haynes International, Inc., 11.625s, 2004 375 262,500
IMO Industries, Inc., 11.75s, 2006 200 200,000
International Knife & Saw, Inc., 11.375s, 2006 100 52,000
Motors & Gears, Inc., 10.75s, 2006 90 86,625
Newcor, Inc., 9.875s, 2008 125 37,500
Numatics, Inc., 9.625s, 2008 165 132,000
Oxford Automotive, Inc., 10.125s, 2007 125 118,750
Simonds Industries, Inc., 10.25s, 2008 225 184,781
Thermadyne Holdings Corp., 0s to 2003, 12.5s to 2008 625 225,000
Thermadyne Manufacturing/Capital Corp., 9.875s, 2008 150 115,313
-----------
$ 2,452,194
-------------------------------------------------------------------------------------------------------
Media - 12.6%
Acme Television LLC, 0s to 2000, 10.875s to 2004 $ 265 $ 253,075
Adelphia Communications Corp., 8.375s, 2008 550 484,000
Allbritton Communications Co., 9.75s, 2007 160 152,000
Benedek Communications Corp., 0s to 2001, 13.25s to 2006 380 296,400
CD Radio Inc., 14.5s, 2009 50 46,000
Chancellor Media Corp., 8.75s, 2007 200 200,250
Chancellor Media Corp., 8s, 2008 350 351,312
Charter Communications Holdings, 8.25s, 2007 575 508,875
Charter Communications Holdings, 0s to 2004, 9.92s to 2011 325 186,875
Citadel Broadcasting Co., 9.25s, 2008 335 326,625
Classic Cable, Inc., 10.5s, 2010 175 161,438
CSC Holdings, Inc., 8.125s, 2009 330 320,783
Cumulus Media, Inc., 10.375s, 2008 255 221,850
Echostar DBS Corp., 9.375s, 2009 325 313,625
Fox/Liberty Networks LLC, Inc., 8.875s, 2007 200 199,000
Frontiervision Operating Partnership LP, 11s, 2006 250 252,500
Golden Books Publishing, Inc., 10.75s, 2004# 44 19,575
Granite Broadcasting Corp., 10.375s, 2005 55 52,250
Granite Broadcasting Corp., 8.875s, 2008 50 42,250
Hollinger International Publishing, 9.25s, 2007 290 285,650
Insight Midwest, 9.75s, 2009 460 450,800
Liberty Group Operating, Inc., 9.375s, 2008 45 41,400
LIN Holdings Corp., 0s to 2003, 10s to 2008 985 640,250
Marvel Holdings, Inc., 0s, 1998 **(+) 185 0
NTL Communications Corp., 0s to 2003, 12.375s to 2008 490 320,950
NTL Communications Corp., 0s to 2004, 9.75s to 2009 GBP 250 196,638
NTL, Inc., 0s to 2003, 9.75s to 2008 $ 510 318,750
Paxson Communications Corp., 11.625s, 2002 510 521,475
Telemundo Holdings, Inc., 0s to 2003, 11.5s to 2008 405 283,500
World Color Press, Inc., 7.75s, 2009 135 126,340
XM Satellite Radio, Inc., 14s, 2010## 300 264,000
Young Broadcasting, Inc., 8.75s, 2007 150 137,250
-----------
$ 7,975,686
-------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 1.2%
Alaris Medical Systems, Inc., 9.75s, 2006 $ 265 $ 174,900
Alaris Medical, Inc., 0s to 2003, 11.125s to 2008 175 26,250
Prime Medical Services, Inc., 8.75s, 2008 325 269,750
Tenet Healthcare Corp., 8s, 2005 300 287,250
-----------
$ 758,150
-------------------------------------------------------------------------------------------------------
Metals and Minerals - 2.9%
AK Steel Holdings Corp., 9.125s, 2006 $ 270 $ 258,525
Commonwealth Aluminum Corp., 10.75s, 2006 195 193,050
Doe Run Resources Corp., 11.25s, 2005 150 57,000
Jorgensen (Earle M.) Co., 9.5s, 2005 300 279,000
Kaiser Aluminum & Chemical Corp., 9.875s, 2002 350 336,000
Kaiser Aluminum & Chemical Corp., 10.875s, 2006 100 95,000
LTV Corp., 11.75s, 2009 250 210,000
Metal Management, Inc., 10s, 2008 275 137,500
NS Group, Inc., 13.5s, 2003 125 128,437
WCI Steel, Inc., 10s, 2004 150 142,125
-----------
$ 1,836,637
-------------------------------------------------------------------------------------------------------
Retail - 2.1%
Duane Reade, Inc., 9.25s, 2008 $ 425 $ 384,094
Finlay Enterprises, Inc., 9s, 2008 200 179,000
Finlay Fine Jewelry Corp., 8.375s, 2008 75 67,500
J Crew Group, Inc., 0s to 2002, 13.125s to 2008 50 27,125
J.Crew Operating Corp., 10.375s, 2007 410 356,700
Musicland Group, Inc., 9s, 2003 235 213,850
Musicland Group, Inc., 9.875s, 2008 150 120,000
-----------
$ 1,348,269
-------------------------------------------------------------------------------------------------------
Supermarkets - 0.1%
Jitney-Jungle Stores of America, Inc., 12s, 2006** $ 140 $ 30,625
Jitney-Jungle Stores of America, Inc., 10.375s, 2007** 35 613
Pathmark Stores, Inc., 11.625s, 2002** 175 54,250
-----------
$ 85,488
-------------------------------------------------------------------------------------------------------
Telecommunications - 20.1%
Adelphia Communications Corp., 9.375s, 2009 $ 105 $ 97,388
Allegiance Telecommunications, Inc., 0s to 2003, 11.75s to 2008 300 216,000
Allegiance Telecommunications, Inc., 12.875s, 2008 125 135,313
AMSC Acquisition Co., Inc., 12.25s, 2008 285 222,300
Centennial Cellular Operating Co., 10.75s, 2008 500 487,500
Crown Castle International Corp., 10.75s, 2011 625 634,375
Dobson Communications Corp., 10.875s, 2010## 190 190,475
DTI Holdings, Inc., 0s to 2003, 12.5s to 2008 250 105,313
Exodus Communications, Inc., 11.25s, 2008 265 262,350
Exodus Communications, Inc., 10.75s, 2009 100 96,500
Exodus Communications, Inc., 11.625s, 2010## 285 286,425
Focal Communications Corp., 0s to 2003, 12.125 to 2008 190 128,250
Focal Communications Corp., 11.875s, 2010## 290 292,175
Global Crossing Holdings Ltd., 9.625s, 2008 485 472,875
Globix Corp., 12.5s, 2010 160 132,800
Hyperion Telecommunications, Inc., 12.25s, 2004 40 40,600
Hyperion Telecommunication, Inc., 12s, 2007 250 232,500
ICG Holdings, Inc., 0s to 2001, 12.5s to 2006 320 264,800
Intermedia Communications, Inc., 8.875s, 2007 375 352,500
Intermedia Communications, Inc., 0s to 2002, 11.25 to 2007 150 117,000
ITC Deltacom, Inc., 11s, 2007 111 111,000
ITC Deltacom, Inc., 9.75s, 2008 360 342,000
Leap Wireless International, Inc., 0s to 2005, 14.5s
to 2010 (Telecommunications)## 25 11,000
Level 3 Communications, Inc., 9.125s, 2008 925 830,187
Madison River, 13.25s, 2010## 110 99,000
Metromedia Fiber Network, Inc., 10s, 2008 330 325,875
Metromedia Fiber Network, Inc., 10s, 2009 350 346,500
MGC Communications, Inc., 13s, 2010## 425 395,250
MJD Communications, Inc., 9.5s, 2008 190 169,100
Nextel Communications, Inc., 0s to 2002, 9.75s to 2007 50 37,500
Nextel Communications, Inc., 0s to 2003, 9.95s to 2008 985 726,437
Nextel International, Inc., 0s to 2003, 12.125 to 2008 385 252,175
Nextlink Communications, Inc., 9.625s, 2007 25 23,500
Nextlink Communications, Inc., 10.75s, 2009 530 524,700
Nextlink Communications, Inc., 0s to 2004, 12.25s to 2009 175 108,500
Northeast Optic Network, 12.75s, 2008 100 95,500
Northpoint Commerce Group, Inc., 12.875s, 2010## 170 119,000
PSINET, Inc., 10.5s, 2006 250 230,000
PSINET, Inc., 11s, 2009 625 581,250
Rural Cellular Corp., 9.625s, 2008 100 97,000
Spectrasite Holdings, Inc., 0s to 2003, 12s to 2008 175 121,625
Spectrasite Holdings, Inc., 0s to 2004, 11.25s to 2009 625 365,625
Spectrasite Holdings, Inc., 10.75s, 2010## 100 99,750
Time Warner Telecommunications LLC, 9.75s, 2008 400 388,000
United International Holdings, 0s to 2003, 10.75s to 2008 785 525,950
Verio, Inc., 10.375s, 2005 50 53,250
Verio, Inc., 10.625s, 2009 150 166,312
Viatel, Inc., 11.25s, 2008 350 259,000
Viatel, Inc., 0s to 2003, 12.5s to 2008 150 70,500
Voicestream Wireless Corp., 10.375s, 2009 275 283,250
Western Wireless Corp., 10.5s, 2007 200 206,000
-----------
$12,732,175
-------------------------------------------------------------------------------------------------------
Utilities - 0.8%
International Utility Structures, 10.75s, 2008 $ 235 $ 192,700
NRG Energy South Central, 8.962s, 2016 300 301,050
-----------
$ 493,750
-------------------------------------------------------------------------------------------------------
Total U.S. Bonds $47,929,951
-------------------------------------------------------------------------------------------------------
Foreign Bonds - 13.3%
Bermuda - 0.2%
Globenet Communications Group, 13s, 2007 (Telecommunications) $ 100 $ 100,875
-------------------------------------------------------------------------------------------------------
Canada - 1.9%
GT Group Telecom, Inc. 0s to 2005, 13.25 to 2010
(Telecommunications)## $ 550 $ 305,250
PCI Chemicals Canada, Inc., 9.25s, 2007 (Chemicals) 40 26,400
Russel Metals, Inc., 10s, 2009 (Metals and Minerals) 255 242,569
Telesystem International Wireless, Inc., 0s to 2002,
13.25s to 2007 (Telecommunications) 220 152,900
Worldwide Fiber, Inc., 12s, 2009 (Telecommunications) 500 472,500
-----------
$ 1,199,619
-------------------------------------------------------------------------------------------------------
Germany - 0.6%
Callahan Nordrhein Westfalen, 14s, 2010 (Telecommunications)## $ 360 $ 360,000
-------------------------------------------------------------------------------------------------------
Greece - 0.1%
Fage Dairy Industries S.A., 9s, 2007 (Food and
Beverage Products) $ 60 $ 48,000
-------------------------------------------------------------------------------------------------------
Ireland - 0.7%
Esat Holdings Ltd., 0s to 2002, 12.5s to 2007
(Telecommunications) $ 500 $ 472,500
-------------------------------------------------------------------------------------------------------
Luxembourg - 0.8%
Millicom International Cellular, 0s to 2001, 13.50s
to 2006 (Telecommunications) $ 270 $ 232,200
PTC International Finance II S.A., 11.25s, 2009
(Telecommunications) 285 289,987
-----------
$ 522,187
-------------------------------------------------------------------------------------------------------
Mexico - 0.3%
Satelites Mexicanos S.A. de CV, 10.125s, 2004
(Telecommunications) $ 240 $ 160,800
-------------------------------------------------------------------------------------------------------
Netherlands - 3.8%
Completel Europe N.V., 0s to 2004, 14s to 2009
(Telecommunications) $ 300 $ 144,000
Hermes Europe Railtel BV, 10.375s, 2009 (Telecommunications) 350 294,000
Kappa Beheer BV, 10.625s, 2009 (Container, Forest and
Paper Products) 450 456,750
Tele Europe B.V., 13s, 2009 (Telecommunications) 385 390,775
United Pan Europe, 10.875s, 2009 (Media) 500 425,000
United Pan Europe Commerce, 11.25s, 2010 (Media) 200 178,000
Versatel Telecom B.V., 13.25s, 2008 (Telecommunications) 535 545,700
-----------
$ 2,434,225
-------------------------------------------------------------------------------------------------------
Singapore - 0.1%
Flextronics International Ltd., 9.875s, 2010
(Business Services)## $ 70 $ 70,175
-------------------------------------------------------------------------------------------------------
Spain - 0.8%
Jazztel PLC, 13.25s, 2009 (Telecommunications) EUR 175 $ 154,944
Jazztel PLC, 14s, 2009 (Telecommunications) $ 365 335,800
-----------
$ 490,744
-------------------------------------------------------------------------------------------------------
United Kingdom - 4.0%
British Telecom PLC, 11.875s, 2008 (Telecommunications) $ 200 $ 235,394
COLT Telecom Group PLC, 0s to 2001, 12s to 2006
(Telecommunications) 560 492,800
Diamond Cable Communications Corp. PLC, 0s to 2000,
11.75s to 2005 (Media) 10 9,500
Dolphin Telecom PLC, 0s to 2003, 11.50 to 2008
(Telecommunications) 475 178,125
Dolphin Telecom PLC, 0s to 2004, 14s to 2009
(Telecommunications) 150 49,500
Energis PLC, 9.75s, 2009 (Telecommunications) 300 294,000
Global Tele-Systems Ltd., 10.875s, 2008 (Telecommunications) 200 144,000
Ono Finance PLC, 13s, 2009 (Media) 525 498,750
Telewest Communications PLC, 9.625s, 2006 (Media) 125 117,500
Telewest PLC, 0s to 2000, 11s to 2007 (Media) 125 118,437
Telewest PLC, 0s to 2004, 9.25s to 2009 (Media) 425 229,500
Telewest PLC, 9.875s, 2010 (Media)## 65 60,450
Telewest PLC, 0s to 2005, 11.375s to 2010 (Media)## 225 120,375
-----------
$ 2,548,331
-------------------------------------------------------------------------------------------------------
Total Foreign Bonds $ 8,407,456
-------------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $61,443,100) $56,337,407
-------------------------------------------------------------------------------------------------------
Stocks - 0.6%
-------------------------------------------------------------------------------------------------------
SHARES
-------------------------------------------------------------------------------------------------------
Foreign Stocks - 0.6%
Netherlands - 0.6%
Completel Europe N.V. (Telecommunications)* 15,000 $ 150,000
Versatel Telecom International N.V., ADR (Telecommunications)* 4,587 197,814
-----------
$ 347,814
-------------------------------------------------------------------------------------------------------
United Kingdom
COLT Telecom Group PLC, ADR (Telecommunications)* 28 $ 3,798
-------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 351,612
-------------------------------------------------------------------------------------------------------
U.S. Stocks
Media
Golden Books Family Entertainment, Inc. 2,125 $ 1,859
-------------------------------------------------------------------------------------------------------
Telecommunications
Viatel, Inc.* 1,136 $ 32,447
-------------------------------------------------------------------------------------------------------
Total U.S. Stocks $ 34,306
-------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $17,849) $ 385,918
-------------------------------------------------------------------------------------------------------
Preferred Stocks - 2.2%
-------------------------------------------------------------------------------------------------------
Consumer Goods and Services
Renaissance Cosmetics, Inc., 14s# 150 $ 0
-------------------------------------------------------------------------------------------------------
Media - 1.4%
CSC Holdings, Inc., 11.125s# 5,076 $ 534,249
Primedia, Inc., 10s 1,500 144,750
Primedia, Inc., 8.625s 2,650 227,900
-----------
$ 906,899
-------------------------------------------------------------------------------------------------------
Supermarkets
Supermarkets General Holdings Corp., 14.125s*# 1,500 $ 158
-------------------------------------------------------------------------------------------------------
Telecommunications - 0.8%
Crown Castle International Corp.,12.75s# 158 $ 161,160
Global Crossings Holdings Ltd., 10.5s# 1,150 112,987
Rural Cellular Corp., 11.375s# 249 234,060
-----------
$ 508,207
-------------------------------------------------------------------------------------------------------
Total Preferred Stocks (Identified Cost, $1,500,982) $ 1,415,264
-------------------------------------------------------------------------------------------------------
Warrants - 0.3%
-------------------------------------------------------------------------------------------------------
Allegiance Telecommunications, Inc. (Telecommunications)* 200 $ 3,400
DTI Holdings, Inc. (Telecommunications)* 1,250 13
Esat Holdings Ltd. (Telecommunications) *## 500 112,500
Jazztel PLC (Telecommunications)*## 270 26,618
Loral Orion Network Systems, Inc. (Telecommunications)* 100 700
Loral Orion Network Systems, Inc. (Telecommunications)* 200 3,400
McCaw International Ltd. (Telecommunications)*## 175 350
Motient Corp. (Telecommunications)*## 285 11,400
Ono Finance PLC (Media)* 525 52,500
Renaissance Cosmetics, Inc. (Consumer Goods and Services)* 129 0
-------------------------------------------------------------------------------------------------------
Total Warrants (Identified Cost, $62,965) $ 210,881
-------------------------------------------------------------------------------------------------------
Short-Term Obligation - 6.8%
-------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
-------------------------------------------------------------------------------------------------------
Federal Home Loan Bank, due 7/03/00 at Amortized Cost $ 4,267 $ 4,265,443
-------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $67,290,339) $62,614,913
Other Assets, Less Liabilities - 1.0% 615,235
-------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $63,230,148
-------------------------------------------------------------------------------------------------------
* Non-income producing security.
** Non-income producing security -- in default.
# Payment-in-kind security.
## SEC Rule 144A restriction.
+ Restricted security.
(+) Security valued by or at the direction of the Trustees.
Abbreviations have been used throughout this report to indicate amounts shown
in currencies other than U.S. dollar. A list of abbreviations is shown below.
EUR = Euro
GBP = British Pounds
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
-------------------------------------------------------------------------------
JUNE 30, 2000
-------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $67,290,339) $62,614,913
Cash 533
Receivable for series shares sold 183,582
Interest receivable 1,250,506
Deferred organization expenses 130
Other assets 375
-----------
Total assets $64,050,039
-----------
Liabilities:
Net payable for forward foreign currency exchange contracts
to sell $ 44
Payable for investments purchased 791,797
Payable for series shares reacquired 26,491
Payable to affiliates --
Management fee 1,299
Reimbursement fee 260
-----------
Total liabilities $ 819,891
-----------
Net assets $63,230,148
===========
Net assets consist of:
Paid-in capital $67,002,219
Unrealized depreciation on investments and translation of
assets and liabilities in foreign currencies (4,675,456)
Accumulated net realized loss on investments and foreign
currency transactions (1,816,631)
Accumulated undistributed net investment income 2,720,016
-----------
Total $63,230,148
===========
Shares of beneficial interest outstanding 5,980,401
=========
Initial Class shares:
Net asset value per share
(net assets of $63,229,947 / 5,980,382 shares of beneficial
interest outstanding) $10.57
======
Service Class shares:
Net asset value per share
(net assets of $201 / 19 shares of beneficial interest
outstanding) $10.58
======
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations (Unaudited)
-------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2000
-------------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 2,982,697
Dividends 24,964
-----------
Total investment income $ 3,007,661
-----------
Expenses -
Management fee $ 213,816
Trustees' compensation 1,700
Shareholder servicing agent fee 9,974
Administrative fee 4,607
Custodian fee 10,960
Printing 15,181
Postage 6
Auditing fees 21,050
Amortization of organization expenses 916
Miscellaneous 4,359
-----------
Total expenses $ 282,569
Fees paid indirectly (4,506)
Reduction of expenses by investment adviser (2,763)
-----------
Net expenses $ 275,300
-----------
Net investment income $ 2,732,361
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ (598,232)
Foreign currency transactions 13,819
-----------
Net realized loss on investment and foreign currency
transactions $ (584,413)
-----------
Change in unrealized depreciation -
Investments (1,937,224)
Translation of assets and liabilities in foreign currencies (2,553)
-----------
Net unrealized loss on investments and foreign currency
translation $(1,939,777)
-----------
Net realized and unrealized loss on investments and
foreign currency $(2,524,190)
-----------
Increase in net assets from operations $ 208,171
===========
See notes to financial statements.
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
<CAPTION>
Statement of Changes in Net Assets
---------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
(UNAUDITED)
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets:
From operations -
Net investment income $ 2,732,361 $ 4,536,515
Net realized loss on investments and foreign currency
transactions (584,413) (933,914)
Net unrealized loss on investments and foreign currency
translation (1,939,777) (568,374)
----------- -----------
Increase in net assets from operations $ 208,171 $ 3,034,227
----------- -----------
Distributions declared to shareholders from net investment
income (Initial Class) $(4,551,617) $(3,290,275)
----------- -----------
Net increase in net assets from series share transactions $ 8,977,234 $15,961,920
----------- -----------
Total increase in net assets $ 4,633,788 $15,705,872
Net assets:
At beginning of period 58,596,360 42,890,488
----------- -----------
At end of period (including accumulated undistributed net
investment income of $2,720,016 and $4,539,272,
respectively) $63,230,148 $58,596,360
=========== ===========
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
<CAPTION>
Financial Highlights
------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, PERIOD ENDED
SIX MONTHS ENDED ---------------------------------------------------------- DECEMBER 31,
JUNE 30, 2000 1999 1998 1997 1996 1995*
(UNAUDITED)
------------------------------------------------------------------------------------------------------------------------------
INITIAL CLASS SHARES
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of
period $11.49 $11.53 $12.34 $10.87 $10.29 $10.00
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.53 $ 1.03 $ 1.04 $ 0.95 $ 0.89 $ 0.34
Net realized and unrealized
gain (loss) on investments
and foreign currency (0.50) (0.28) (1.02) 0.52 0.32 0.18
------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.03 $ 0.75 $ 0.02 $ 1.47 $ 1.21 $ 0.52
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.95) $(0.79) $(0.62) $ -- $(0.53) $(0.23)
From net realized gain on
investments and foreign
currency transactions -- -- (0.21) -- (0.10) --
In excess of net realized gain
on investments and foreign
currency transactions -- -- (0.00)+++ -- -- --
------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $(0.95) $(0.79) $(0.83) $ -- $(0.63) $(0.23)
------ ------ ------ ------ ------ ------
Net asset value - end of
period $10.57 $11.49 $11.53 $12.34 $10.87 $10.29
====== ====== ====== ====== ====== ======
Total return 0.25%++ 6.44% (0.18)% 13.52% 11.80% 5.25%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.98%+ 1.01% 1.03% 1.01% 1.01% 1.03%+
Net investment income 9.56%+ 8.95% 8.67% 8.17% 8.18% 8.17%+
Portfolio turnover 42% 76% 146% 139% 135% 32%
Net assets at end of period
(000 omitted) $63,230 $58,596 $42,890 $30,662 $12,994 $1,946
(S) Subject to reimbursement by the series', the investment adviser has voluntarily agreed under a temporary expense
reimbursement agreement to pay all of the series' operating expenses, exclusive of management fees. In consideration, the
series pays the investment adviser a reimbursement fee not greater than 0.15% of average daily net assets. Prior to May 1,
2000, this fee was 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 $ 0.53 $ 1.03 $ 1.05 $ 0.93 $ 0.82 $ 0.20
Ratios (to average net assets):
Expenses## 0.99%+ 0.97% 0.96% 1.15% 1.62% 4.38%+
Net investment income 9.55%+ 8.99% 8.74% 8.03% 7.57% 4.82%+
* For the period from the commencement of the series' investment operations, July 26, 1995, through December 31, 1995.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from 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 each period):
Net asset value - beginning of period $10.56
------
Income from investment operations# -
Net investment income(S) $ 0.21
Net realized and unrealized loss on investments and foreign
currency (0.19)
------
Total from investment operations $ 0.02
------
Net asset value - end of period $10.58
======
Total return 0.19%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.12%+
Net investment income 11.59%+
Portfolio turnover 42%
Net assets at end of period (000 omitted) $ -- +++
(S) 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 pays the investment adviser a reimbursement
fee not greater than 0.15% 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 $ 0.21
Ratios (to average net assets):
Expenses## 1.13%+
Net investment income 11.58%+
* For the period from the inception of Service Class shares, May 1, 2000,
through June 30, 2000.
+ Annualized.
++ Not annualized.
+++ Service Class net assets were less than $500.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset
arrangements.
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS High Income Series (the series) is a 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 26 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 up to 100% of its portfolio in high-yield securities rated below
investment grade. Investments in high-yield securities involve greater degrees
of credit and market risk than investments in higher-rated securities and tend
to be more sensitive to economic conditions. 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 - 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. 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. 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.
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. Dividends 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.
Legal fees and other related expenses incurred to preserve and protect the
value of a security owned are added to the cost of the security; other legal
fees are expensed. Capital infusions made directly to the security issuer,
which are generally non-recurring, incurred to protect or enhance the value of
high-yield debt securities, are reported as additions to the cost basis of the
security. Costs that are incurred to negotiate the terms or conditions of
capital infusions or that are expected to result in a plan of reorganization
are reported as realized losses. Ongoing costs incurred to protect or enhance
an investment, or costs incurred to pursue other claims or legal actions, are
expensed.
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. This amount is shown as a reduction of total expenses on the
Statement of Operations.
Tax Matters and Distributions - The series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The series
distinguishes between distributions on a tax basis and a financial reporting
basis and 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.
At December 31, 1999, the series, for federal income tax purposes, had a capital
loss carryforward of $1,210,426 which may be applied against any net taxable
realized gains of each succeeding year until the earlier of its utilization or
expiration on December 31, 2006, ($267,151) and December 31, 2007, ($943,275).
Multiple Classes of Shares of Beneficial Interest - The series offers multiple
classes of shares that differ in their respective distribution fees. All
shareholders bear the common expenses of the series based on daily net assets
of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates
are generally due to differences in separate class expenses.
(3) Transactions with Affiliates
Investment Adviser - The series has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75%
of the series' average daily net assets. The series has a temporary expense
reimbursement agreement whereby MFS has voluntarily agreed to pay all of the
series' operating expenses, exclusive of management fees. The series in turn
will pay MFS an expense reimbursement fee not greater than 0.15% of average
daily net assets. Prior to May 1, 2000, the series paid MFS an expense
reimbursement fee not greater than 0.25% of average daily net assets. To the
extent that the expense reimbursement fee exceeds the series' actual expenses,
the excess will be applied to amounts paid by MFS in prior years. At June 30,
2000, aggregate unreimbursed expenses amounted to $48,808.
The series pays no compensation directly to its Trustees who are officers of
the investment adviser, or to officers of the series, all of whom receive
remuneration for their services to the series from MFS. Certain officers and
Trustees of the series are officers or directors of MFS and MFS Service
Center, Inc. (MFSC).
Administrator - The series has an administrative services agreement with MFS
to provide the series with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the series incurs an administrative fee
at the following annual percentages of the series' average daily net assets:
First $2 billion 0.0175%
Next $2.5 billion 0.0130%
Next $2.5 billion 0.0005%
In excess of $7 billion 0.0000%
Distributor - The Trustees have adopted a distribution plan for the Service
Class shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as
follows:
The series' distribution plan provides that the series will pay MFD a
distribution fee up to 0.25% per annum of its average daily net assets
attributable to Service Class shares in order that MFD may pay expenses on
behalf of the series related to the distribution of its shares. A portion of
this distribution fee is currently being paid by the series; payment of the
remaining 0.05% per annum of the Service Class distribution fee will become
payable on such a date as the Trustees of the trust may determine. Fees
incurred under the distribution plan during the period ended June 30, 2000,
were 0.20% of average daily net assets attributable to Service Class shares on
an annualized basis.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the series' average daily net assets at an annual rate of
0.035%.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$27,223,645 and $22,551,000, respectively.
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 $67,290,339
-----------
Gross unrealized depreciation $(5,624,817)
Gross unrealized appreciation 949,391
-----------
Net unrealized depreciation $(4,675,426)
===========
(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>
Initial Class shares
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000 YEAR ENDED DECEMBER 31, 1999
------------------------------ ----------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,264,590 $ 25,157,171 4,012,796 $ 46,215,103
Shares issued to shareholders in
reinvestment of distributions 431,842 4,551,612 285,119 3,290,270
Shares reacquired (1,815,594) (20,731,749) (2,918,323) (33,543,453)
---------- ------------- ---------- ------------
Net increase 880,838 $ 8,977,034 1,379,592 $ 15,961,920
========== ============= ========== ============
<CAPTION>
Service Class shares
PERIOD ENDED JUNE 30, 2000*
-----------------------------
SHARES AMOUNT
-------------------------------------------------------------------
<S> <C> <C>
Shares sold 19 $ 200
</TABLE>
* For the period from the inception of Service Class shares, May 1, 2000,
through June 30, 2000.
(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 $171. The series had no significant
borrowings during the year.
(7) Financial Instruments
The series trades financial instruments with off-balance-sheet risk in the
normal course of its investing activities in order to manage exposure to
market risks such as interest rates and foreign currency exchange rates. These
financial instruments include forward foreign currency exchange contracts. The
notional or contractual amounts of these instruments represent the investment
the series has in particular classes of financial instruments and does not
necessarily represent the amounts potentially subject to risk. The measurement
of the risks associated with these instruments is meaningful only when all
related and offsetting transactions are considered.
<TABLE>
Forward Foreign Currency Exchange Contracts
<CAPTION>
NET
CONTRACTS TO CONTRACTS UNREALIZED
SETTLEMENT DATE DELIVER/RECEIVE IN EXCHANGE FOR AT VALUE DEPRECIATION
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales 09/13/00 EUR 175,064 $ 167,783 $ 167,827 $ (44)
</TABLE>
At June 30, 2000, the series had sufficient cash and/or securities to cover
any commitments under these contracts.
(8) Restricted Securities
The series may invest not more than 15% of its net assets in securities which
are subject to legal or contractual restrictions on resale. At June 30, 2000,
the series owned the following restricted securities, excluding securities
issued under Rule 144A, constituting 0.1% of net assets which may not be
publicly sold without registration under the Securities Act of 1933. The
series does not have the right to demand that such securities be registered.
The value of these securities is determined by valuations furnished by dealers
or by a pricing service, or if not available, in good faith, at fair value, by
the Trustees.
<TABLE>
<CAPTION>
PAR
DESCRIPTION DATE OF ACQUISITION AMOUNT COST VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Airplane Pass-Through Trust, 10.875s, 2019 3/13/1996 $74,077 $74,077 $60,180
</TABLE>
<PAGE>
(c)2000 MFS Investment Management(R).
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
VHI-3 8/00 18.6M
