<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
MFS(R) GLOBAL
GOVERNMENT SERIES
<PAGE>
<TABLE>
MFS(R) GLOBAL GOVERNMENTS SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
<S> <C>
TRUSTEES INVESTMENT ADVISER
Jeffrey L. Shames* - Chairman and Chief Executive Massachusetts Financial Services Company
Officer, MFS Investment Management(R) 500 Boylston Street
Boston, MA 02116-3741
Nelson J. Darling, Jr.+ - Private investor and
trustee DISTRIBUTOR
MFS Fund Distributors, Inc.
William R. Gutow+ - Private investor and real 500 Boylston Street
estate consultant; Vice Chairman, Capitol Boston, MA 02116-3741
Entertainment Management Company (video franchise)
INVESTOR SERVICE
CHAIRMAN AND PRESIDENT MFS Service Center, Inc.
Jeffrey L. Shames* P.O. Box 2281
Boston, MA 02107-9906
PORTFOLIO MANAGER
James T. Swanson* For additional information,
contact your investment professional.
TREASURER
James O. Yost* CUSTODIAN
State Street Bank and Trust Company
ASSISTANT TREASURERS
Mark E. Bradley* WORLD WIDE WEB
Ellen Moynihan* www.mfs.com
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
* MFS Investment Management
+ Independent Trustee
</TABLE>
-------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
-------------------------------------------------------------------------------
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Shareholders,
I'm sure you've noticed that whenever financial markets suffer a large
decline, as they did this past spring, there's a flurry of information on "how
to deal with market volatility" -- both in the popular press and from those of
us in the investment business. Our own thinking on this is that, first, for
long-term investors volatility is not necessarily something to be feared;
occasional volatility may in fact be healthy for the markets.
Second, our experience has been that when markets begin to fall, it's often
too late to act. The best response may be to do nothing -- if you're properly
prepared with a long-term plan, created with the help of your investment
professional. To help you create or update that plan and take market
volatility in stride, here are some points you may want to consider the next
time you talk with your investment professional.
1. VOLATILITY CAN BE A GOOD THING
We would argue that the markets today are much healthier than they were before
the period of volatility this past spring, in the sense that stock prices have
returned to more reasonable levels and we have a stronger base for future
growth. Perhaps the worst of the market's wrath descended on companies with very
high stock prices, relative to their earnings, or with business concepts that
looked great in the euphoria of a booming market but in the end appeared to have
no fundamental backing. It has always been our view that one of the best
protections against market volatility is to invest in stocks and bonds of
fundamentally good companies selling at reasonable prices. When discussing
potential investments with your investment professional, you may want to ask how
they fared in previous periods of volatility, as well as in the good times.
2. INVEST FOR THE LONG TERM
You've heard that before, but we think it's still probably the most important
concept in investing. Time is one of an investor's greatest allies. Over
nearly all long-term periods -- 5, 10, 20 years, and more -- stock and bond
returns, as represented by most common indices, have been positive and have
considerably outpaced inflation. Investing is the best way we know of to make
your money work for you while you're doing something else.
Where investors can get into trouble is by confusing investing with trading.
In our view, traders who buy securities with the intention of selling them at
a profit in a matter of hours, days, or weeks are gambling. We believe this
seldom turns out to be a good strategy for increasing your wealth.
3. INVEST REGULARLY
Waiting for the "right time" to invest is almost always a poor strategy,
because only in retrospect do we know when that right time really was. Periods
of volatility are probably the worst times to make an investment decision.
Faced with turmoil in the markets, many investors have opted to simply stay on
the sidelines.
On the other hand, we think one of the best techniques for investing is
through automatic monthly or quarterly deductions from a checking or savings
account. This approach has at least three major benefits. First, you can
formulate a long-term plan -- how much to invest, how often, and into which
portfolios -- in a calm, rational manner, working with your investment
professional. Second, with this approach you invest regularly without
agonizing over the decision each time you buy shares. And, third, if you
invest equal amounts of money at regular intervals, you'll be taking advantage
of a strategy called dollar-cost averaging: by investing a fixed amount while
the share cost fluctuates, you end up with an average share cost to you that
is lower than the average share price over your investment period.(1) If all
this sounds familiar, it's probably because you're already taking advantage of
dollar-cost averaging by investing regularly for retirement through a 401(k)
or similar account at work.
4. DIVERSIFY
One of the dangers of not having an investment plan is that you may be tempted
to simply chase performance, by moving money into whatever asset class appears
to be outperforming at the moment -- small, mid, or large cap; growth or value;
United States or international; stocks or bonds. The problem with this approach
is that by the time a particular area is generally recognized as "hot," you may
have already missed some of the best performance.
International investing offers a case in point. In the 1980s, international
investments, as represented by the Morgan Stanley Capital International (MSCI)
Europe, Australia, Far East (EAFE) Index, outperformed U.S. investments, as
represented by the Standard & Poor's 500 Composite Index (S&P 500), in 7 out
of 10 years.(2) For the decade, the MSCI EAFE's average annual performance was
23%, compared to 18% for the S&P 500. Going into the 1990s, then, an investor
looking only at recent performance might have favored international
investments over U.S. investments.
But the 1990s turned out to be virtually a mirror image of the '80s. Domestic
investments outperformed international investments in 7 out of 10 years, with
the S&P 500 returning an average of 18% annually for the decade and the MSCI
EAFE returning a 7% annual average. Looking ahead, however, we are optimistic
about international markets because we feel that many of the same forces that
propelled the current U.S. economic boom -- deregulation, restructuring, and
increased adoption of technology -- have taken root overseas.
The lesson to be learned is that nobody really knows what asset class will be
the next to outperform or how long that performance will be sustained. We would
suggest that one way to potentially profit from swings in the market -- to
potentially be invested in various asset classes before the market shifts in
their favor -- is with a diversified portfolio covering several asset classes.
If you haven't already done so, we encourage you to discuss these thoughts
with your investment professional and factor them into your long-range
financial planning. Hopefully, the next time the markets appear to be going
wild, you'll feel confident enough in your plan to view periods of volatility
as a time of potential opportunity -- or perhaps just a time to sit back and
do nothing.
As always, we appreciate your confidence and welcome any questions or comments
you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
July 17, 2000
(1) The use of a systematic investing program does not guarantee a profit or
protect against a loss in declining markets. You should consider your
financial ability to continue to invest through periods of low prices.
(2) Source: Lipper Inc. Decade performance: '80s -- 12/31/79-12/31/89,
'90s -- 12/31/89-12/31/99. The MSCI EAFE Index is an unmanaged,
market-capitalization-weighted total return index that measures the
performance of the same developed-country global stock markets included in
the MSCI World Index but excludes the United States, Canada, and the South
African mining component. The S&P 500 is a popular, unmanaged index of
common stock total return performance. It is not possible to invest directly
in an index. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
Investments in variable products will fluctuate and may be worth more or less
upon redemption. Please see your investment professional for more information.
The opinions expressed in this letter are those of Jeffrey L. Shames, and no
forecasts can be guaranteed.
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
Dear Shareholders,
For the six months ended June 30, 2000, the series' Initial Class shares
provided a total return of 1.44% and Service Class shares 1.23%. These results
include the reinvestment of any distributions and compare to a 0.41% return
for the series' benchmark, the J.P. Morgan Global Government Bond Index (the
Morgan Index), an aggregate index of actively traded government bonds issued
by 13 countries, including the United States, with remaining maturities of at
least one year.
While global credit markets were not as volatile as they had been in previous
years, they remained relatively illiquid. That is, they suffered from a lack
of investor interest. There were several reasons for this illiquidity. In the
United States, the Federal Reserve Board (the Fed) was actively raising
interest rates in order to cool the U.S. economy and head off inflation. Wall
Street broker/dealers kept very low inventories of non-Treasury bonds.
Questions arose in the U.S. government about the implicit government backing
of government-supported entities, such as the Federal National Mortgage
Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation
(Freddie Mac). Trading in Treasury securities declined as the government
curtailed auctions and used its budget surplus to buy back higher-yielding
long-term debt. As a result, all non-Treasury segments of the U.S. bond market
markedly underperformed Treasury securities at a time when investors were
concerned that economic growth would slow too quickly and we would enter a
recession. (Principal value and interest on Treasuries are guaranteed by the
U.S. government if held to maturity.)
Overseas, the malaise was different. There, the market was rife with fears
that interest rates would rise much higher in order to balance Europe's trade
surpluses. This backdrop helped cause the collapse of the euro. Emerging
market debt proved to be the best-performing segment of the global fixed-
income markets. Among the factors that helped emerging markets were Mexico's
upgrade to investment-grade status, improved prospects for some of the larger
issuers such as Brazil, further growth in Asia, and increases in the price of
oil. About half of the countries that issue emerging-market debt export oil,
including Mexico, Venezuela, and Ecuador.
The series' performance benefited from its concentration in U.S. bonds. We
whittled down the series' European positions and nondollar assets,
reallocating the assets for the most part into U.S. Treasury securities. The
series once held about 60% of its assets in international debt securities. Now
it holds around 18%. Treasuries, on the other hand, currently represent about
33% of the portfolio. U.S. Treasuries were the second-best performing sector
of the world's fixed-income markets in the first half of 2000, behind
emerging-market debt. The series recently found some opportunities among
emerging-market issuers and currently holds about a 3% weighting in that area.
However, the series' stake in this area is typically not very large due to our
focus on higher-quality segments of the international markets.
Our rationale for shunning international bonds, and European securities in
particular, was our feeling that Europe was entering a less favorable stage in
its growth cycle for bonds. European countries were emerging from a recession
and facing stronger growth, a scenario that typically puts upward pressure on
interest rates and downward pressure on bond prices. We were also concerned
about rising inflation in Europe.
In the United States, on the other hand, our view was that the Federal Reserve
Board (the Fed) would achieve its goal of a soft landing, slowing economic
growth without creating a recession. Even though the Fed was actively pursuing
a program of short-term interest-rate hikes to do so, we felt that interest
rates would decline over the long term. This view was supported by the fact
that long-term Treasury yields actually fell below the yields offered by
short-term Treasury securities. Inflation, which eats into the value of a
bond's fixed payments, appears to us to be under control.
With the series' U.S. Treasury allocation, we pursued a barbell strategy. In
other words, we focused the series' Treasury investments on securities with
very long maturities on the one hand, very short maturities on the other, and
very little in the middle. By doing so, we were able to capture higher yields
from the shorter-maturity instruments as the Fed raised short-term rates, and
benefit from the appreciation of the longer-term bonds as their yields fell --
and their prices rose. Long-term Treasuries also benefited from the added
boost provided by the U.S. Treasury's buyback program. Demand for long-term
bonds increased dramatically, as investors became concerned that supply would
become scarce in the future. This added demand helped push yields even lower,
and prices even higher.
The way we structured the series' duration, which is a measure of interest-
rate sensitivity, also helped its performance. With our U.S. Treasury
position, we kept a long duration, which meant the series was more sensitive
to changes in rates. As a result, the series was able to benefit even more
from declining long-term Treasury yields. On the other hand, we kept the
duration of the series' European positions fairly short, a move that helped us
because interest rates rose overseas.
The series also holds about 11% in high-yield corporate bonds. That market has
priced in a default rate of about 10%, a level usually seen in a recession. At
this point defaults are running higher than in the past few years, but still
only at about 4%. Our belief is that a recession will not ensue, that this
sector is attractively valued, and that high-yield bonds could provide strong
relative performance should the Fed engineer a soft landing.
Turning to our outlook, we believe the general trends in global debt markets
will remain in place. That means continued slower growth in the United States,
with no recession but perhaps some credit problems, and further declines in
the yields of long-term Treasuries. We think global economic growth will
probably also decline because of the strong influence of the United States. We
anticipate continuing to avoid European bonds because we feel values there are
not as compelling, and the downward trend of interest rates should be more
pronounced domestically than on the Continent. We feel high-yield bonds offer
the potential for strong performance over the coming year because their prices
are at such cheap levels. We'll probably remain neutral on emerging markets,
keeping the series' position at roughly the same level.
Respectfully,
/s/ James T. Swanson
James T. Swanson
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
James T. Swanson is Senior Vice President of MFS Investment Management(R). He
is portfolio manager of MFS(R) Strategic Income Fund, MFS(R) Global
Governments Series (part of MFS(R) Variable Insurance Trust(SM)), the
Strategic Income Series offered through MFS(R)/Sun Life annuity products, and
two closed-end funds, MFS(R) Charter Income Trust and MFS(R) Multimarket
Income Trust.
Mr. Swanson joined MFS in 1985 as Vice President and was named Senior Vice
President in 1989. He is a graduate of Colgate University and the Harvard
University Graduate School of Business Administration. Mr. Swanson is a
Chartered Financial Analyst.
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, security-
oriented, bottom-up process of selecting securities.
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus. A prospectus containing more information,
including all charges and expenses, for any MFS product is available from your
investment professional, or by calling MFS at 1-800-225-2606. Please read it
carefully before investing or sending money.
<PAGE>
SERIES FACTS
Objective: Seeks income and capital appreciation.
Commencement of investment operations: June 14, 1994
Class inception: Initial Class June 14, 1994
Service Class May 1, 2000
Size: $46.4 million net assets as of June 30, 2000
PERFORMANCE SUMMARY
Because the series is designed for investors with long-term goals, we have
provided the cumulative as well as the average annual total returns for the
applicable time periods. Investment results reflect the percentage change in
net asset value, including the reinvestment of dividends. (See Notes to
Performance Summary.)
<TABLE>
TOTAL RATES OF RETURN THROUGH JUNE 30, 2000
INITIAL CLASS
<CAPTION>
6 Months 1 Year 3 Years 5 Years Life*
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return +1.44% +1.84% +7.35% +13.01% +26.54%
-----------------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +1.84% +2.39% + 2.48% + 3.97%
-----------------------------------------------------------------------------------------------------------------------------------
SERVICE CLASS
6 Months 1 Year 3 Years 5 Years Life*
-----------------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return +1.23% +1.63% +7.12% +12.77% +26.28%
-----------------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +1.63% +2.32% + 2.43% + 3.94%
-----------------------------------------------------------------------------------------------------------------------------------
*For the period from the commencement of the series' investment operations, June 14, 1994, through June 30, 2000.
</TABLE>
NOTES TO PERFORMANCE SUMMARY
Initial Class and Service Class shares have no sales charge; however, Service
Class shares carry a 0.20% annual Rule 12b-1 fee. Service Class share
performance includes the performance of the series' Initial Class shares for
periods prior to the inception of Service Class shares (blended performance).
These blended performance figures have not been adjusted to take into account
differences in the class-specific operating expenses (such as Rule 12b-1
fees). Because operating expenses of Service Class shares are higher than
those of Initial Class shares, the blended Service Class share performance is
higher than it would have been had Service Class shares been offered for the
entire period.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Subsidies and
waivers may be rescinded at any time. See the prospectus for details. All
results are historical and assume the reinvestment of dividends and capital
gains. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MORE RECENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. PAST PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS.
Returns shown do not reflect the deduction of the mortality and expense risk
charges and administration fees. Please refer to the variable product's annual
report for performance that reflects the deduction of the fees and charges
imposed by insurance company separate accounts.
Investments in foreign and emerging market securities may provide superior
returns but also involve greater risk than U.S. investments. Investments in
foreign and emerging market securities may be favorably or unfavorably
affected by changes in interest rates and currency exchange rates, market
conditions, and the economic and political conditions of the countries where
investments are made. These risks may increase share price volatility. See the
prospectus for details.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - June 30, 2000
Bonds - 91.1%
-----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Bonds - 67.0%
Automotive - 5.6%
Ford Motor Credit Co., 6.7s, 2004 $ 1,249 $ 1,210,106
Ford Motor Credit Co., 6.375s, 2008 425 385,186
General Motors Corp., 1.25s, 2004 JPY 26,000 243,505
General Motors Corp., 9.4s, 2021 $ 662 754,382
-----------
$ 2,593,179
-----------------------------------------------------------------------------------------------------
Banks and Credit Companies - 0.2%
Midland Funding Corp., 10.33s, 2002 $ 102 $ 104,348
-----------------------------------------------------------------------------------------------------
Container, Forest and Paper Products - 1.9%
Gaylord Container Corp., 9.75s, 2007 $ 500 $ 390,000
Riverwood International Corp., 10.25s, 2006 500 475,000
-----------
$ 865,000
-----------------------------------------------------------------------------------------------------
Energy - 0.5%
Niagara Mohawk Power Corp., 8.77s, 2018 $ 250 $ 250,000
-----------------------------------------------------------------------------------------------------
Federal National Mortgage Association - 10.5%
FNMA, 7s, 2030 $ 3,010 $ 2,905,911
FNMA, 7.5s, 2030 1,999 1,970,399
-----------
$ 4,876,310
-----------------------------------------------------------------------------------------------------
Financial Institutions - 2.1%
DLJ Commercial Mortgage Corp., 7.545s, 2005 (Interest only) $ 29,000 $ 985,565
-----------------------------------------------------------------------------------------------------
Government National Mortgage Association - 3.3%
GNMA, 8s, 2029 $ 1,499 $ 1,515,768
-----------------------------------------------------------------------------------------------------
Industrial - 1.0%
Hayes Wheels International, Inc., 9.125s, 2007 $ 500 $ 446,250
-----------------------------------------------------------------------------------------------------
Media - 2.0%
Adelphia Communications Corp., 8.375s, 2008 $ 500 $ 440,000
Chancellor Media Corp., 8.125s, 2007 500 501,250
-----------
$ 941,250
-----------------------------------------------------------------------------------------------------
Metals and Minerals - 0.4%
AK Steel Holdings Corp., 9.125s, 2006 $ 200 $ 191,500
-----------------------------------------------------------------------------------------------------
Printing and Publishing - 1.1%
Hollinger International Publishing, 9.25s, 2007 $ 500 $ 492,500
-----------------------------------------------------------------------------------------------------
Telecommunications - 5.6%
Charter Communications Holdings, 8.25s, 2007 $ 500 $ 442,500
Nextel Communications, Inc., 0s to 2003, 9.95s, 2008 1,000 737,500
Nextlink Communications, Inc., 10.75s, 2009 500 495,000
PSINET, Inc., 11s, 2009 500 465,000
Liberty Media Corp., 8.25s, 2030 500 459,131
-----------
$ 2,599,131
-----------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 32.8%
U.S. Treasury Notes, 5.5s, 2003 $ 5,459 $ 5,341,418
U.S. Treasury Notes, 6.5s, 2005 3,500 3,537,730
U.S. Treasury Notes, 6s, 2009 361 358,123
U.S. Treasury Bonds, 9.875s, 2015 440 596,614
U.S. Treasury Bonds, 6.125s, 2029 5,338 5,391,380
-----------
$15,225,265
-----------------------------------------------------------------------------------------------------
Total U.S. Bonds $31,086,066
-----------------------------------------------------------------------------------------------------
Foreign Bonds - 24.1%
Brazil - 1.5%
Federal Republic of Brazil, 5s, 2014 $ 924 $ 680,001
-----------------------------------------------------------------------------------------------------
Bulgaria - 0.9%
Hermes Europe Railtel B.V., 10.375s, 2009
(Telecommunications) $ 500 $ 420,000
-----------------------------------------------------------------------------------------------------
Denmark - 1.0%
Nykredit, 5s, 2019 (Banks and Credit Cos.) DKK 1,540 $ 174,441
Nykredit, 6s, 2029 (Banks and Credit Cos.) 2,298 269,272
-----------
$ 443,713
-----------------------------------------------------------------------------------------------------
France - 1.2%
Republic of France, 4s, 2002 EUR 92 $ 86,532
Republic of France, 3.5s, 2004 95 85,656
Republic of France, 4s, 2009 470 404,924
-----------
$ 577,112
-----------------------------------------------------------------------------------------------------
Germany - 2.1%
Federal Republic of Germany, 5.375s, 2010 EUR 531 $ 511,708
Federal Republic of Germany, 6.5s, 2027 94 101,217
Federal Republic of Germany, 4.75s, 2028 278 237,309
Federal Republic of Germany, 6.25s, 2030 109 115,653
-----------
$ 965,887
-----------------------------------------------------------------------------------------------------
Greece - 2.1%
Hellenic Republic, 6s, 2006 GRD 113,100 $ 318,923
Hellenic Republic, 5.75s, 2008 EUR 357 338,577
Hellenic Republic, 6.3s, 2009 GRD 112,900 323,962
-----------
$ 981,462
-----------------------------------------------------------------------------------------------------
Italy - 2.0%
Republic of Italy, 3.25s, 2004 EUR 264 $ 234,511
Republic of Italy, 5.5s, 2010 276 262,600
Republic of Italy, 6s, 2031 426 416,420
-----------
$ 913,531
-----------------------------------------------------------------------------------------------------
Japan - 1.0%
Development Bank of Japan, 1.75s, 2010 (Banks and
Credit Cos.) JPY 51,000 $ 478,798
-----------------------------------------------------------------------------------------------------
Mexico - 2.6%
United Mexican States, 11.5s, 2026 $ 1,000 $ 1,210,000
-----------------------------------------------------------------------------------------------------
Netherlands - 1.2%
American Med International N.V., 0s, 2002 (Healthcare) $ 176 $ 141,240
United Pan Europe, 10.875s, 2009 (Telecommunications) 500 425,000
-----------
$ 566,240
-----------------------------------------------------------------------------------------------------
Norway - 0.6%
Union Bank of Norway, 7.35s, 2049 (Banks and Credit Cos.)## $ 300 $ 292,467
-----------------------------------------------------------------------------------------------------
Russia - 0.5%
Russia Principal Loans, 7.938s, 2020 (In default) $ 750 $ 226,875
-----------------------------------------------------------------------------------------------------
South Korea - 0.5%
Hanvit Bank, 12.75s, 2010 (Banks and Credit Cos.) $ 250 $ 248,438
-----------------------------------------------------------------------------------------------------
Spain - 1.0%
Government of Spain, 6s, 2008 EUR 453 $ 443,626
-----------------------------------------------------------------------------------------------------
Sweden - 0.4%
Kingdom of Sweden, 6s, 2005 SEK 1,600 $ 186,497
-----------------------------------------------------------------------------------------------------
United Kingdom - 5.5%
British Telecom PLC, 11.875s, 2008
(Telecommunications) $ 500 $ 588,485
OTE PLC, 6.125s, 2007 (Industrial) EUR 190 178,236
United Kingdom Treasury, 7s, 2002 GBP 488 751,710
United Kingdom Treasury, 6.75s, 2004 665 1,049,333
-----------
$ 2,567,764
-----------------------------------------------------------------------------------------------------
Total Foreign Bonds $11,202,411
-----------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $43,240,222) $42,288,477
-----------------------------------------------------------------------------------------------------
Call Options Purchased - 0.1%
-----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
OF CONTRACTS
ISSUER/EXPIRATION MONTH/STRIKE PRICE (000 OMITTED)
-----------------------------------------------------------------------------------------------------
Australian Dollar/July/0.585 AUD 908 $ 4,686
Japan Govt Bonds/August/132.49 JPY 150,000 15,625
Japanese Yen/July/105 220,499 14,112
Mexican Peso/July/10.2 MXP 11,033 34,466
-----------------------------------------------------------------------------------------------------
Total Call Options Purchased (Premiums Paid, $64,161) $ 68,889
-----------------------------------------------------------------------------------------------------
Put Options Purchased - 0.4%
-----------------------------------------------------------------------------------------------------
Australian Dollar/August/0.66 AUD 1,592 $ 153
Euro/August/1.07 EUR 1,286 49
Euro/August/1.04 1,500 519
Euro/August/102 234,807 35,691
Euro/September/0.99 2,568 27,942
Japanese Yen/July/108 JPY 244,417 8,310
Japanese Yen/July/103 221,534 14,178
Japanese Yen/September/105 244,885 47,263
Japanese Yen/January/130 11,037 221
British Pounds/August/0.62 GBP 1,496 31,752
British Pounds/August/0.615 1,490 27,360
-----------------------------------------------------------------------------------------------------
Total Put Options Purchased (Premiums Paid, $234,304) $ 193,438
-----------------------------------------------------------------------------------------------------
Short-Term Obligations - 10.3%
-----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
-----------------------------------------------------------------------------------------------------
Federal Home Loan Bank, due 7/03/00, at Amortized Cost $ 4,799 $ 4,797,248
-----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $48,335,935) $47,348,052
-----------------------------------------------------------------------------------------------------
Call Options Written - (0.1)%
-----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
OF CONTRACTS
ISSUER/EXPIRATION MONTH/STRIKE PRICE (000 OMITTED)
-----------------------------------------------------------------------------------------------------
Australian Dollar/August/0.61 AUD 1,471 $ (39,741)
Australian Dollar/May/0.555 748 (3,853)
Canadian Dollar/September/1.4 CAD 2,963 (201)
Japanese Yen/September/93.25 JPY 224,779 (12,812)
-----------------------------------------------------------------------------------------------------
Total Call Options Written (Premiums Received, $99,143) $ (56,607)
-----------------------------------------------------------------------------------------------------
Put Options Written - (0.1)%
-----------------------------------------------------------------------------------------------------
Canadian Dollar/July/1.50 CAD 23 $ (2,996)
Canadian Dollar/August/1.49 23 (5,818)
Euro/August/1.12 EUR 1,615 (2)
Japanese Yen/July/108 JPY 244,417 (8,310)
Japanese Government Bond/August/132.49 150,000 (11,950)
-----------------------------------------------------------------------------------------------------
Total Call Options Written (Premiums Received, $62,640) $ (29,076)
Other Assets, Less Liabilities - (1.7)% (831,417)
-----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $46,430,952
-----------------------------------------------------------------------------------------------------
## SEC Rule 144A restriction.
Abbreviations have been used throughout this report to indicate amounts shown in currencies other
than the U.S. dollar. A list of abbreviations is shown below.
AUD = Australian Dollar JPY = Japanese Yen
BRL = Brazilian Real MXP = Mexican Peso
CAD = Canadian Dollar NZD = New Zealand Dollar
DKK = Danish Kroner SEK = Swedish Kronor
EUR = Euro VEB = Venezuelan Peso
GBP = British Pounds ZAR = South African Rand
GRD = Greek Drachma
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
-------------------------------------------------------------------------------
JUNE 30, 2000
-------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $48,335,935) $47,348,052
Cash 1,493
Net receivable for forward foreign currency exchange
contracts to purchase 60,158
Receivable for series shares sold 109,957
Receivable for investments sold 982,322
Interest receivable 750,348
-----------
Total assets $49,252,330
-----------
Liabilities:
Foreign currency, at value (identified cost, $21) $ 22
Payable for series shares reacquired 94,293
Payable for investments purchased 2,545,941
Net payable for forward foreign currency exchange contracts
to sell 51,511
Net receivable for forward foreign currency exchange contracts
subject to master netting agreements 42,773
Written options outstanding, at value (premiums
received, $161,783) 85,683
Payable to affiliates -
Management fee 949
Accrued expenses and other liabilities 206
-----------
Total liabilities $ 2,821,378
-----------
Net assets $46,430,952
===========
Net assets consist of:
Paid-in capital $48,666,378
Unrealized depreciation on investments and translation of
assets and liabilities in foreign currencies (950,088)
Accumulated net realized loss on investments and foreign
currency transactions (2,516,450)
Accumulated undistributed net investment income 1,231,112
-----------
Total $46,430,952
===========
Shares of beneficial interest outstanding 4,798,087
=========
Initial Class shares:
Net asset value per share
(net assets of $46,430,748 / 4,798,066 shares of beneficial
interest outstanding) $9.68
=====
Service Class shares:
Net asset value per share
(net assets of $204.09 / 21.142 shares of beneficial
interest outstanding) $9.65
=====
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations (Unaudited)
-------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2000
-------------------------------------------------------------------------------
Net investment income:
Interest income $ 1,520,605
-----------
Expenses -
Management fee $ 170,297
Administrative fee 3,695
Trustees' compensation 1,090
Shareholder servicing agent fee 7,903
Custodian fee 14,413
Printing 15,689
Auditing fees 22,530
Legal fees 663
Miscellaneous 613
-----------
Total expenses $ 236,893
Reduction of expenses by investment adviser (10,451)
-----------
Net expenses $ 226,442
-----------
Net investment income $ 1,294,163
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $(1,901,637)
Written option transactions 129,600
Foreign currency transactions 293,438
-----------
Net realized loss on investments and foreign currency
transactions $(1,478,599)
-----------
Change in unrealized appreciation (depreciation) -
Investments $ 920,337
Written options 1,537
Translation of assets and liabilities in foreign currencies (109,000)
-----------
Net unrealized gain on investments and foreign currency
translation $ 812,874
-----------
Net realized and unrealized loss on investments and
foreign currency $ (665,725)
-----------
Increase in net assets from operations $ 628,438
===========
See notes to financial statements.
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
(UNAUDITED)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 1,294,163 $ 2,364,196
Net realized loss on investments and foreign currency transactions (1,478,599) (639,869)
Net unrealized gain (loss) on investments and foreign currency translation 812,874 (2,862,199)
----------- -----------
Increase (decrease) in net assets from operations $ 628,438 $(1,137,872)
----------- -----------
Distributions declared to shareholders -
From net investment income $(2,222,862) $(2,491,294)
----------- -----------
Net increase in net assets from series share transactions $ 2,964,824 $ 2,724,216
----------- -----------
Total increase (decrease) in net assets $ 1,370,400 $ (904,950)
Net assets:
At beginning of period 45,060,552 45,965,502
----------- -----------
At end of period (including accumulated undistributed net
investment income of $1,231,112 and $2,159,811, respectively) $46,430,952 $45,060,552
=========== ===========
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Financial Highlights
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED -------------------------------------------------------------
JUNE 30, 2000 1999 1998 1997 1996 1995
(UNAUDITED)
-------------------------------------------------------------------------------------------------------------------------------
INITIAL CLASS
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of
period $10.03 $10.88 $10.21 $10.58 $10.17 $ 9.82
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.28 $ 0.54 $ 0.53 $ 0.61 $ 0.60 $ 0.63
Net realized and unrealized gain (loss) on
investments and foreign currency (0.15) (0.80) 0.27 (0.73) (0.19) 0.78
------ ------ ------ ------ ------ ------
Total from investment operations $ 0.13 $(0.26) $ 0.80 $(0.12) $ 0.41 $ 1.41
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.48) $(0.59) $(0.13) $(0.17) $ -- $(0.42)
From net realized gain on investments and
foreign currency transactions -- -- -- (0.08) -- --
In excess of net investment income -- -- -- -- -- (0.54)
In excess of net realized gain on investments
and foreign currency transactions -- -- -- -- (+) -- --
From paid-in capital -- -- -- -- -- (0.10)
------ ------ ------ ------ ------ ------
Total distributions declared to shareholders $(0.48) $(0.59) $(0.13) $(0.25) $ -- $(1.06)
------ ------ ------ ------ ------ ------
Net asset value - end of period $ 9.68 $10.03 $10.88 $10.21 $10.58 $10.17
====== ====== ====== ====== ====== ======
Total return 1.44%++ (2.50)% 7.90% (1.13)% 4.03% 14.38%
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.00%+ 1.01% 1.01% 1.00% 1.00% 1.00%
Net investment income 5.71%+ 5.19% 5.11% 5.96% 5.84% 6.05%
Portfolio turnover 65% 128% 270% 335% 361% 211%
Net assets at end of period (000 omitted) $46,431 $45,061 $45,966 $38,058 $26,023 $7,424
(S) Subject to reimbursement by the series, MFS 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 a fee not greater
than 0.15% of average daily net assets. Prior to May 1, 2000, the series paid the investment adviser a reimbursement fee not
greater than 0.25% of average daily net assets. To the extent actual expenses were over this limitation, the net investment
income per share and the ratios would have been:
Net investment income $ 0.28 $ 0.54 $ 0.52 $ 0.59 $ 0.50 $ 0.53
Ratios (to average net assets):
Expenses## 1.05%+ 1.05% 1.11% 1.15% 2.03% 1.99%
Net investment income 5.66%+ 5.15% 5.01% 5.81% 4.81% 5.09%
+ Annualized.
++ Not annualized.
(+) Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from certain expense offset arrangements.
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
-----------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 2000*
(UNAUDITED)
-----------------------------------------------------------------------------
SERVICE CLASS
-----------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 9.47
------
Income from investment operations# -
Net investment income(S) $ 0.09**
Net realized and unrealized loss on investments and foreign
currency 0.09
------
Total from investment operations $ 0.18
------
Net asset value - end of period $ 9.65
======
Total return 1.23%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.11%+
Net investment income 5.50%+
Portfolio turnover 65%
Net assets at end of period (000 omitted) $ 0***
(S) Subject to reimbursement by the series, MFS has voluntarily agreed under a
temporary expense reimbursement agreement to pay all of the series'
operating expenses, exclusive of management and distribution fees. In
consideration, the series pays a fee not greater than 0.15% of average daily
net assets. To the extent actual expenses were over this limitation, the net
investment income per share and the ratios would have been:
Net investment income $ 0.09
Ratios (to average net assets):
Expenses## 1.16%+
Net investment income 5.45%+
* For the period from the inception of Service Class shares, May 1, 2000,
through June 30, 2000.
** The per share data is not in accord with the net realized and unrealized
loss for the period because of the timing of sales of series shares and the
amount of per share realized and unrealized gains and losses at such time.
*** Net assets for the period were less than $1,000.
+ Annualized.
++ Not annualized.
# 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 Global Government Series (the series) is a non-diversified series of MFS
Variable Insurance Trust (the trust). The trust is organized as a
Massachusetts business trust and is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The
shareholders of each series of the trust are separate accounts of insurance
companies which offer variable annuity and/or life insurance products. As of
June 30, 2000, there were 32 shareholders in the series.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The series
can invest in foreign securities. Investments in foreign securities are
vulnerable to the effects of changes in the relative values of the local
currency and the U.S. dollar and to the effects of changes in each country's
legal, political, and economic environment.
Investment Valuations - Debt securities (other than short-term obligations
which mature in 60 days or less), including listed issues, forward contracts,
and swap agreements, 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. Futures contracts, options,
and options on futures contracts listed on commodities exchanges are reported
at market value using closing settlement prices. Over-the-counter options on
securities are valued by brokers. Over-the-counter currency options are valued
through the use of a pricing model which takes into account foreign currency
exchange spot and forward rates, implied volatility, and short-term repurchase
rates. 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.
Written Options - The series may write call or put options in exchange for a
premium. The premium is initially recorded as a liability which is
subsequently adjusted to the current value of the option contract. When a
written option expires, the series realizes a gain equal to the amount of the
premium received. When a written call option is exercised or closed, the
premium received is offset against the proceeds to determine the realized gain
or loss. When a written put option is exercised, the premium reduces the cost
basis of the security purchased by the series. The series, as writer of an
option, may have no control over whether the underlying securities may be sold
(call) or purchased (put) and, as a result, bears the market risk of an
unfavorable change in the price of the securities underlying the written
option. In general, written call options may serve as a partial hedge against
decreases in value in the underlying securities to the extent of the premium
received. Written options may also be used as part of an income producing
strategy reflecting the view of the series' management on the direction of
interest rates.
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 premium
discount is amortized for financial statement and tax reporting purposes as
required by federal income tax regulations.
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 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.
At December 31, 1999, the series, for federal income tax purposes, had a
capital loss carryforward of $980,034 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, 2005, ($28,643) and December 31,
2007, ($951,391).
The series offers multiple classes of shares that differ in their respective
distribution and service 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 expenses reimbursement fee not greater
than 0.25% of 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 $376,146.
Each 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, MFS Fund
Distributors, Inc. (MFD), and MFS Service Center, Inc. (MFSC).
Administrator - The series has an administrative services agreement with MFS
to provide the series with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the series incurs an administrative fee
at the following annual percentages of the series' average daily net assets:
First $2 billion 0.0175%
Next $2.5 billion 0.0130%
Next $2.5 billion 0.0005%
In excess of $7 billion 0.0000%
Distributor - The Trustees have adopted a distribution plan for the service
class shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as
follows:
The series' distribution plan provides that the series will pay MFD a
distribution fee up to 0.25% per annum of its average daily net assets
attributable to Service Class shares in order that MFD may pay expenses on
behalf of the series related to the distribution of its shares. A portion of
this distribution fee is currently being paid by the series; payment of the
remaining 0.05% per annum of the Service Class distribution fee will become
payable on such a date as the Trustees of the trust may determine. Fees
incurred under the distribution plan during the period ended June 30, 2000,
were 0.20% of average daily net assets attributable to Service Class shares on
an annualized basis.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the series' average daily net assets at an annual rate of
0.035%.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
PURCHASES SALES
-------------------------------------------------------------------------------
U.S. government securities $30,580,561 $15,846,281
----------- -----------
Investments (non-U.S. government securities) $ 1,685,885 $14,435,242
----------- -----------
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 $48,422,610
-----------
Gross unrealized appreciation $ 585,580
Gross unrealized depreciation (1,660,138)
-----------
Net unrealized depreciation $(1,074,558)
===========
(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:
Initial Class Shares
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000 YEAR ENDED DECEMBER 31, 1999
------------------------------ -------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,394,417 $ 13,736,767 2,906,772 $ 29,919,050
Shares issued to shareholders in
reinvestment of distributions 234,975 2,222,860 242,344 2,491,294
Shares reacquired (1,323,057) (12,995,003) (2,882,052) (29,686,128)
---------- ------------ ---------- ------------
Net increase 306,335 $ 2,964,624 267,064 $ 2,724,216
========== ============ ========== ============
</TABLE>
Service Class Shares
SIX MONTHS ENDED JUNE 30, 2000
------------------------------
SHARES AMOUNT
--------------------------------------------------------------------------------
Shares sold 21 $ 200
Shares issued to shareholders in
reinvestment of distributions -- --
Shares reacquired -- --
------ ------
Net increase 21 $ 200
====== ======
(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 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 six
months ended June 30, 2000, was $79. The series had no borrowings during the
period.
(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 written options and 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.
Written Option Transactions
NUMBER OF
CONTRACTS PREMIUMS
-------------------------------------------------------------------------------
Outstanding, beginning of period 6 $121,061
Options written 21 523,387
Options terminated in closing transactions (11) (373,276)
Options exercised (4) (29,664)
Options expired (3) (79,725)
--- --------
Outstanding, end of period 9 $161,783
=== ========
At June 30, 2000, the series had sufficient cash and/or securities at least
equal to the value of the
written options.
<PAGE>
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
NET UNREALIZED
CONTRACTS TO CONTRACTS APPRECIATION
SETTLEMENT DATE DELIVER/RECEIVE IN EXCHANGE FOR AT VALUE (DEPRECIATION)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales 06/05/01 BRL 2,923,286 $1,481,834 $1,498,795 $(16,961)
09/13/00 DKK 3,827,949 490,951 491,281 (330)
09/13/00 GRD 231,319,968 654,648 654,350 298
07/24/00 - 09/13/00 JPY 109,576,540 1,051,121 1,040,037 11,084
07/31/00 MXP 4,622,255 463,600 465,777 (2,177)
09/13/00 SEK 3,290,498 380,735 375,255 5,480
10/05/00 VEB 945,279,158 1,299,650 1,348,555 (48,905)
---------- ---------- --------
$5,822,539 $5,874,050 $(51,511)
========== ========== ========
Purchases 09/13/00 AUD 358,429 $ 212,143 $ 214,510 $ 2,367
06/05/01 BRL 2,923,286 1,455,457 1,498,796 43,339
07/03/00 - 09/13/00 EUR 646,590 613,138 618,312 5,174
09/13/00 JPY 98,536,334 949,597 940,792 (8,805)
09/13/00 NZD 62,628 29,437 29,355 (82)
09/13/00 SEK 761,972 89,182 86,897 (2,285)
10/05/00 VEB 945,279,158 1,328,106 1,348,556 20,450
---------- ---------- --------
$4,677,060 $4,737,218 $ 60,158
========== ========== ========
</TABLE>
At June 30, 2000, forward foreign currency purchases and sales under master
netting agreements excluded above amounted to a net payable of $34,665 with
Deutsche Bank and $16,016 with C.S. First Boston and net receivable of $7,908
with Merrill Lynch.
At June 30, 2000, the series had sufficient cash and/or securities to cover
any commitments under these contracts.
<PAGE>
(c)2000 MFS Investment Management(R).
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
VWG-3 8/00 43M
