<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) BOND SERIES
<PAGE>
<TABLE>
MFS(R) BOND 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
Geoffrey L. Kurinsky* 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
-------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
-------------------------------------------------------------------------------
</TABLE>
<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 Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
July 17, 2000
(1) The use of a systematic investing program does not guarantee a profit or
protect against a loss in declining markets. You should consider your
financial ability to continue to invest through periods of low prices.
(2) Source: Lipper Inc. Decade performance: '80s -- 12/31/79-12/31/89,
'90s -- 12/31/89-12/31/99. The MSCI EAFE Index is an unmanaged,
market-capitalization-weighted total return index that measures the
performance of the same developed-country global stock markets included in
the MSCI World Index but excludes the United States, Canada, and the South
African mining component. The S&P 500 is a popular, unmanaged index of
common stock total return performance. It is not possible to invest directly
in an index. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
Investments in variable products will fluctuate and may be worth more or less
upon redemption. Please see your investment professional for more information.
The opinions expressed in this letter are those of Jeffrey L. Shames, and no
forecasts can be guaranteed.
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
Dear Shareholders,
For the six months ended June 30, 2000, the series' Initial Class shares
provided a total return of 2.65%, and Service Class shares 2.56%. These returns
include the reinvestment of any distributions and compare to a 4.18% return over
the same period for the Lehman Brothers Government/Corporate Bond Index (the
Lehman Index). The Lehman Index is an unmanaged, market-value-weighted index of
U.S. Treasury and government-agency securities (excluding mortgage- backed
securities) and investment-grade debt obligations of domestic corporations.
The recent period was historically tumultuous for the investment-grade
corporate bond market. Most of the problems were the result of company-
specific issues. There has also been much less liquidity in the corporate
market over the past few years, a residual effect of the credit problems that
plagued corporate bonds starting in 1998 when Russia surprisingly defaulted on
its debt obligations. Historically, vulture investors on Wall Street provided
buyers for the debt of companies that hit a hard patch, but that hasn't been
the case recently. In addition, the high-yield market has experienced net
outflows, so there hasn't been capital available to absorb some of these
credit problems from that traditional source.
The overall credit quality of the corporate market has been deteriorating as
well. While we've seen stock price growth in the technology sector, tech
companies have been carrying very little debt. Elsewhere, despite strong
economic growth in the United States, the stocks of many companies --
especially those in cyclical sectors -- have been distressed to the point
where company managements have come under increasing pressure to enhance value
for shareholders. Consequently, we have found that many have issued more debt
to finance mergers and acquisitions or share buyback programs -- all of which
help the shareholder but hurt the bondholder. We think these kinds of moves
have weakened many companies' credit fundamentals and caused a number of
credit downgrades.
In response to this difficult climate, we increased the overall credit quality
of the portfolio. In addition, we reduced investments in domestic corporate
industrial bonds because they remain vulnerable to weakening credit
fundamentals. Instead, we focused on sectors that are not as prone to the risk
that management will issue more debt to finance leveraged buyouts or share
buybacks. That has translated into increased exposure to sectors like media
and telecommunications. For example, we retained our investment in Time
Warner, whose merger with America Online is creating a powerful conglomerate
that we believe should eventually experience a credit upgrade. We found other
opportunities in British Sky Broadcasting, a satellite network in Europe that
we think has tremendous growth prospects, and Seagram, which is making a
transition from a spirits company to an entertainment conglomerate. We also
invested about 8% of the series in Yankee bonds, which are dollar-denominated
bonds issued in the United States by foreign countries that have investment-
grade credit ratings, such as Israel.
Investments that worked out well for the series included a number of our
higher-quality junk bonds, such as Comcast Corporation, which crossed over
into investment-grade status and appreciated significantly in the process. The
credit upgrades enjoyed by emerging market countries South Korea and Mexico
also helped the series' performance.
We restructured the series' holdings in U.S. Treasuries in response to the
Federal Reserve Board's (the Fed's) program of interest-rate hikes. (Principal
value and interest on Treasury securities are guaranteed by the U.S. government
if held to maturity.) The Fed's actions caused short-term rates to back up
significantly, while longer-term rates remained relatively stable. As a result,
the yield curve -- a representation of the difference between short- and
long-term rates -- flattened, then inverted, with short-term rates actually
reaching higher levels than long-term yields. We felt the best way to take
advantage of this situation was to pursue a barbell strategy by investing some
of our Treasury holdings on the long end of the curve, some on the short, and
very little in between. As a result, the series was not affected by the sharpest
price declines that occurred in the intermediate part of the yield curve.
Looking ahead, we believe recent indicators may be pointing to a slowing
economy in response to the Fed's program of interest rate increases. In this
kind of environment, we think interest rates could begin trending downward as
soon as late 2000. There appears to be very little evidence of a protracted
struggle against inflation. That opinion is further strengthened by our
discussions with company managements who say that they have very little
pricing power. For our part, we intend to continue moving our corporate
holdings to bonds with shorter maturities because they are less prone to price
volatility. At the same time, we anticipate extending the Treasury duration in
the portfolio (duration is an indicator of interest-rate sensitivity) to try
to take advantage of potential declines in long-term interest rates.
Respectfully,
/s/ Geoffrey Kurinsky
Geoffrey L. Kurinsky
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
Geoffrey L. Kurinsky is Senior Vice President of MFS Investment Management(R).
He is portfolio manager of MFS(R) Bond Fund, MFS(R) Bond Series (part of
MFS(R) Variable Insurance Trust(SM)), and the Bond Series offered through
MFS(R)/Sun Life annuity products. Mr. Kurinsky is also a portfolio manager of
MFS(R) Total Return Fund, MFS(R) Total Return Series (part of MFS(R) Variable
Insurance Trust(SM)), and the Total Return Series offered through MFS(R)/Sun
Life annuity products.
He joined the MFS Fixed Income Department in 1987 and was named portfolio
manager in 1989, Vice President in 1989, and Senior Vice President in 1993.
Mr. Kurinsky is a graduate of the University of Massachusetts and earned an
M.B.A. degree in finance from Boston University.
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, issuer- oriented, bottom-up process of selecting securities.
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus. A prospectus containing more information,
including all charges and expenses, for any MFS product is available from your
investment professional, or by calling MFS at 1-800-225-2606. Please read it
carefully before investing or sending money.
<PAGE>
SERIES FACTS
Objective: Seeks primarily to provide as high a level of current income as is
believed to be consistent with prudent investment risk and secondarily to
protect shareholders' capital.
Commencement of investment operations: October 24, 1995
Class Inception: Initial Class October 24, 1995
Service Class May 1, 2000
Size: $25.2 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 +2.65% +2.28% +15.52% +24.99%
-------------------------------------------------------------------------------
Average Annual Total Return -- +2.28% + 4.93% + 4.88%
-------------------------------------------------------------------------------
SERVICE CLASS
6 Months 1 Year 3 Years Life*
-------------------------------------------------------------------------------
Cumulative Total Return +2.56% +2.18% +15.42% +24.87%
-------------------------------------------------------------------------------
Average Annual Total Return -- +2.18% + 4.90% + 4.86%
-------------------------------------------------------------------------------
* For the period from the commencement of the series' investment operations,
October 24, 1995, through June 30, 2000.
NOTES TO PERFORMANCE SUMMARY
Initial Class and Service Class shares have no sales charge; however, Service
Class shares carry a 0.20% annual Rule 12b-1 fee. Service Class share
performance includes the performance of the series' Initial Class shares for
periods prior to the inception of Service Class shares (blended performance).
These blended performance figures have not been adjusted to take into account
differences in the class-specific operating expenses (such as Rule 12b-1
fees). Because operating expenses of Service Class shares are higher than
those of Initial Class shares, the blended Service Class share performance is
higher than it would have been had Service Class shares been offered for the
entire period.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Subsidies and
waivers may be rescinded at any time. See the prospectus for details. All
results are historical and assume the reinvestment of dividends and capital
gains. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MORE RECENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. PAST PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS.
Returns shown do not reflect the deduction of the mortality and expense risk
charges and administration fees. Please refer to the variable product's annual
report for performance that reflects the deduction of the fees and charges
imposed by insurance company separate accounts.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - June 30, 2000
<CAPTION>
Bonds - 97.9%
-----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Bonds - 80.3%
Airlines - 1.8%
American Airlines Pass-Through Trust, 7.024s, 2009 $ 109 $ 103,553
Atlas Air, Inc., 7.2s, 2019 57 52,898
Continental Airlines Pass-Through Trust, Inc., 9.5s, 2013 4 4,502
Continental Airlines Pass-Through Trust, Inc., 6.648s, 2017 3 2,611
Continental Airlines Pass-Through Trust, Inc., 6.545s, 2019 97 87,702
Continental Airlines Pass-Through Trust, Inc., 7.256s, 2020 198 184,337
Jet Equipment Trust, 9.41s, 2010## 5 5,266
Jet Equipment Trust, 8.64s, 2012## 4 4,322
-----------
$ 445,191
-----------------------------------------------------------------------------------------------------
Automotive - 1.3%
Daimler Chrysler North America, 7.75s, 2005 $ 318 $ 320,767
-----------------------------------------------------------------------------------------------------
Banks and Finance - 13.3%
Associates Corp., 5.75s, 2003 $ 252 $ 239,438
Associates Corp., 5.5s, 2004 148 137,422
Bank United, 8s, 2009 169 147,243
Capital One Financial Corp., 7.25s, 2003 261 254,836
Chase Manhattan Corp., 7.875s, 2010 84 84,124
Ford Motor Credit Co., 6.7s, 2004 358 346,852
Ford Motor Credit Co., 7.75s, 2007 177 175,488
Ford Motor Credit Co., 5.8s, 2009 62 53,939
Ford Motor Credit Co., 7.875s, 2010 191 190,966
General Electric Capital Corp., 8.7s, 2007 40 43,024
General Motors Acceptance Corp., 5.95s, 2003 67 64,502
Goldman Sachs Group LP, 5.9s, 2003 160 153,986
GS Escrow Corp., 6.75s, 2001 83 80,633
MBNA America Bank National Assoc., 6.875s, 2004 108 102,524
Morgan Stanley Dean Witter, 7.125s, 2003 500 496,795
Morgan Stanley Group, Inc., 8s, 2010 339 342,570
Natexis Ambs Co. LLC, 8.44s, 2049## 170 159,376
Providian Capital I, 9.525s, 2027## 42 32,954
Socgen Real Estate Co., 7.64s, 2049## 226 206,837
Washington Mutual Capital I, 8.375s, 2027 38 33,692
-----------
$ 3,347,201
-----------------------------------------------------------------------------------------------------
Building - 1.1%
Building Materials Corp., 8s, 2008 $ 340 $ 266,900
Nortek, Inc., 9.25s, 2007 20 18,700
-----------
$ 285,600
-----------------------------------------------------------------------------------------------------
Chemicals - 1.5%
Lyondell Chemical Co., 9.625s, 2007 $ 340 $ 336,600
Lyondell Chemical Co., 9.875s, 2007 36 35,640
-----------
$ 372,240
-----------------------------------------------------------------------------------------------------
Computer Hardware - Systems - 0.5%
Seagate Technology, Inc., 7.45s, 2037 $ 149 $ 131,023
-----------------------------------------------------------------------------------------------------
Consumer Goods and Services - 1.1%
Hasbro, Inc., 7.95s, 2003 $ 120 $ 118,734
Hertz Corp., 8.25s, 2005 127 129,644
Kindercare Learning Centers, Inc., 9.5s, 2009 25 23,000
Nabisco Holdings, 6.375s, 2035 10 8,941
-----------
$ 280,319
-----------------------------------------------------------------------------------------------------
Corporate Asset Backed - 3.4%
Amresco Residential Securities Mortgage Loan, 5.94s, 2015 $ 61 $ 59,999
Commercial Mortgage Asset Trust, 7.41s, 2020 (Interest only) 3,879 126,366
Contimortgage Home Equity Loan Trust, 6.19s, 2014 125 122,813
Criimi Mae Commercial Mortgage Trust, 7s, 2011 250 216,875
Morgan Stanley Capital I, 6.86s, 2010 145 114,414
Morgan Stanley Capital I, 7.748s, 2010 160 118,781
Morgan Stanley Capital I, 6.01s, 2030 99 94,359
-----------
$ 853,607
-----------------------------------------------------------------------------------------------------
Food and Beverage Products - 0.4%
Coca-Cola Bottling Co., 6.375s, 2009 $ 119 $ 108,846
-----------------------------------------------------------------------------------------------------
Forest and Paper Products - 2.1%
Georgia Pacific Corp., 9.95s, 2002 $ 411 $ 425,533
Georgia Pacific Corp., 9.5s, 2022 50 52,093
Riverwood International Corp., 10.25s, 2006 35 33,250
U.S. Timberlands, 9.625s, 2007 10 8,800
-----------
$ 519,676
-----------------------------------------------------------------------------------------------------
Government National Mortgage Association - 3.7%
GNMA, 8s, 2022 $ 368 $ 371,697
GNMA, 7.5s, 2025 65 64,444
GNMA, 8s, 2025 4 4,472
GNMA, 7.5s, 2026 50 49,394
GNMA, 7.5s, 2027 191 190,124
GNMA, 8s, 2029 76 76,436
GNMA, TBA, 7.5s, 2026 176 175,202
-----------
$ 931,769
-----------------------------------------------------------------------------------------------------
Insurance - 1.1%
Aflac, Inc., 6.5s, 2009 $ 123 $ 111,311
Atlantic Mutual Insurance Co., 8.15s, 2028## 24 18,917
GE Global Insurance Holding Corp., 7.75s, 2030 62 61,628
The Mony Group, Inc., 8.35s, 2010 100 98,516
-----------
$ 290,372
-----------------------------------------------------------------------------------------------------
Internet - 0.2%
PSINET, Inc., 11s, 2009 $ 50 $ 46,500
-----------------------------------------------------------------------------------------------------
Media/Entertainment - 6.7%
Adelphia Communications Corp., 0s, 2008 $ 200 $ 81,000
Belo AH Corp., 7.75s, 2027 54 45,763
Chancellor Media Corp., 8.75s, 2007 10 10,012
Clear Channel Communications, 7.875s, 2005 118 118,339
Comcast Corp., 9.125s, 2006 54 56,533
Frontiervision Operating Partnership LP, 11s, 2006 20 20,200
Harrahs Operating Co., Inc., 7.5s, 2009 135 125,269
Hearst Argyle Television, Inc., 7.5s, 2027 4 3,374
J Seagram & Sons, Inc., 7.5s, 2018 162 154,966
Liberty Media Corp., 8.25s, 2030## 171 157,023
News America Holdings, Inc., 6.625s, 2008 74 67,851
Outdoor Systems, Inc., 8.875s, 2007 10 9,812
Time Warner Entertainment Co., 10.15s, 2012 435 499,223
Time Warner Entertainment Co., 8.375s, 2033 307 309,502
Time Warner, Inc., 6.625s, 2029 51 42,097
-----------
$ 1,700,964
-----------------------------------------------------------------------------------------------------
Metals and Minerals - 0.1%
Kaiser Aluminum & Chemical Corp., 10.875s, 2006 $ 25 $ 23,750
-----------------------------------------------------------------------------------------------------
Oil Services - 0.3%
Occidental Petroleum Corp., 6.4s, 2003 $ 84 $ 81,126
Ultramar Diamond Shamrock Corp., 7.2s, 2017 5 4,374
-----------
$ 85,500
-----------------------------------------------------------------------------------------------------
Oils - 2.7%
Apache Corp., 7.95s, 2026 $ 211 $ 210,456
Coastal Corp., 7.75s, 2010 152 150,977
Phillips Petroleum Co., 8.75s, 2010 265 279,156
Pioneer Natural Resources Co., 9.625s, 2010 35 36,050
-----------
$ 676,639
-----------------------------------------------------------------------------------------------------
Railroads - 0.6%
Union Pacific Corp., 6.34s, 2003 $ 56 $ 53,694
Union Pacific Corp., 6.39s, 2004 106 100,837
-----------
$ 154,531
-----------------------------------------------------------------------------------------------------
Retail - 0.8%
J Crew Operating Corp., 10.375s, 2007 $ 90 $ 78,300
Kohl's Corp., 7.25s, 2029 134 122,056
-----------
$ 200,356
-----------------------------------------------------------------------------------------------------
Supermarkets - 1.6%
Safeway, Inc., 5.875s, 2001 $ 400 $ 391,812
-----------------------------------------------------------------------------------------------------
Telecommunications - 6.4%
Bellsouth Capital Funding Corp., 7.75s, 2010 $ 56 $ 56,002
Charter Communications Holdings LLC, 8.25s, 2007 500 442,500
Sprint Capital Corp., 7.625s, 2002 445 444,684
Sprint Capital Corp., 6.9s, 2019 193 171,608
TCI Communications Financing III, 9.65s, 2027 280 309,344
Telecom de Puerto Rico, 6.65s, 2006 45 42,583
Telecom de Puerto Rico, 6.8s, 2009 138 127,803
WorldCom, Inc., 8.875s, 2006 5 5,185
-----------
$ 1,599,709
-----------------------------------------------------------------------------------------------------
U.S. Federal Agencies - 3.0%
Federal Home Loan Banks, 5.7s, 2009 $ 165 $ 150,305
Federal National Mortgage Association, 6.625s, 2009 135 130,422
Federal National Mortgage Association, 7s, 2029 199 192,142
Federal National Mortgage Association, 7s, 2030 50 47,810
Federal National Mortgage Association TBA, 7.5s, 2029 250 246,482
-----------
$ 767,161
-----------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 16.1%
U.S. Treasury Bonds, 6.125s, 2029 $2,367 $ 2,390,670
U.S. Treasury Notes, 5.875s, 2004 112 110,372
U.S. Treasury Notes, 7.875s, 2004 15 15,884
U.S. Treasury Notes, 6s, 2009 124 123,012
U.S. Treasury Notes, 4.25s, 2010 168 170,307
U.S. Treasury Notes, 6.5s, 2010 1,216 1,257,611
-----------
$ 4,067,856
-----------------------------------------------------------------------------------------------------
Utilities - Electric - 8.7%
AEP Generating, 9.81s, 2022 $ 200 $ 223,103
Beaver Valley Funding Corp. II, 9s, 2017 236 240,666
CE Generation LLC, 7.416s, 2018 91 81,309
Cleveland Electric Illuminating Co., 7.67s, 2004 25 24,634
Cleveland Electric Illuminating Co., 7.88s, 2017 14 13,174
Cleveland Electric Illuminating Co., 9s, 2023 216 218,387
CMS Energy Corp., 8.375s, 2003 205 198,182
CMS Energy Corp., 6.75s, 2004 120 110,100
Commonwealth Edison Co., 8.5s, 2022 39 38,799
Connecticut Light & Power Co., 7.875s, 2001 46 46,148
Connecticut Light & Power Co., 8.59s, 2003 100 99,304
Connecticut Light & Power Co., 7.875s, 2024 55 54,982
Entergy Mississippi, Inc., 6.2s, 2004 48 45,525
GGIB Funding Corp., 7.43s, 2011 28 26,598
Gulf States Utilities Co., 8.21s, 2002 83 83,680
Gulf States Utilities Co., 8.25s, 2004 23 23,202
Midland Funding Corp., 10.33s, 2002 8 7,753
Niagara Mohawk Power Corp., 8.5s, 2023 10 9,948
Northeast Utilities, 8.58s, 2006 54 54,142
NRG Energy, Inc., 8.7s, 2005## 55 55,075
NRG Energy, Inc., 8.962s, 2016 76 76,266
Salton Sea Funding Corp., 7.84s, 2010 145 141,578
Toledo Edison Co., 7.875s, 2004 161 157,278
Utilicorp United, Inc., 7s, 2004 34 32,474
Valero Energy Corp., 8.75s, 2030 41 41,873
Waterford 3 Funding Corp., 8.09s, 2017 89 84,864
-----------
$ 2,189,044
-----------------------------------------------------------------------------------------------------
Utilities - Gas - 1.8%
Northern Natural Gas Co., 7s, 2011## $ 280 $ 265,280
Texas Gas Transmission Corp., 7.25s, 2027 202 185,663
-----------
$ 450,943
-----------------------------------------------------------------------------------------------------
Total U.S. Bonds $20,241,376
-----------------------------------------------------------------------------------------------------
Foreign Bonds - 17.6%
Argentina - 1.0%
Republic of Argentina, 0s, 2001 $ 270 $ 251,775
-----------------------------------------------------------------------------------------------------
Australia - 1.8%
Cable & Wireless Optus Finance, 8s, 2010 (Telecommunications) $ 147 $ 146,093
Cable & Wireless Optus Ltd., 8.125s, 2009 (Telecommunications)## 322 325,111
-----------
$ 471,204
-----------------------------------------------------------------------------------------------------
Bermuda - 1.6%
Global Crossing Holdings Ltd., 9.625s, 2008 (Telecommunications) $ 411 $ 400,725
-----------------------------------------------------------------------------------------------------
Brazil - 1.1%
Banco Nacional de Desenvolvi, 12.554s, 2008 (Banks and Finance)## $ 170 $ 159,200
Federal Republic of Brazil, 5s, 2014 49 36,267
Federal Republic of Brazil, 12.75s, 2020 25 23,850
Federal Republic of Brazil, 12.25s, 2030 55 50,600
-----------
$ 269,917
-----------------------------------------------------------------------------------------------------
Canada - 1.2%
Apache Finance Canada Corp, 7.75s, 2029 (Oils) $ 212 $ 207,611
Province of Quebec, 7.5s, 2029 104 102,171
-----------
$ 309,782
-----------------------------------------------------------------------------------------------------
Chile - 2.1%
Empresa Electric Guacolda S.A., 7.6s, 2001 (Utilities - Electric)## $ 250 $ 245,875
Empresa Nacional de Electric, 7.75s, 2008 (Utilities - Electric) 193 179,340
Empresa Nacional de Electric, 8.5s, 2009 (Utilities - Electric)## 97 94,501
Empresa Nacional de Electric, 7.325s, 2037 (Utilities - Electric) 5 4,506
-----------
$ 524,222
-----------------------------------------------------------------------------------------------------
Germany - 1.7%
Deutsche Telekom International, 7.75s, 2005 (Telecommunications) $ 299 $ 299,022
Deutsche Telekom International, 8s, 2010 (Telecommunications) 131 132,149
-----------
$ 431,171
-----------------------------------------------------------------------------------------------------
Israel - 1.0%
Israel Electric Corp. Ltd., 8.1s, 2096 (Utilities - Electric) $ 211 $ 179,227
State of Israel, 7.75s, 2010 72 71,089
-----------
$ 250,316
-----------------------------------------------------------------------------------------------------
Mexico - 0.7%
Nuevo Grupo Iusacell S.A., 14.25s, 2006 (Telecommunications)## $ 50 $ 52,250
United Mexican States, 11.375s, 2016 30 34,575
United Mexican States, 11.5s, 2026 75 90,750
-----------
$ 177,575
-----------------------------------------------------------------------------------------------------
Morocco - 0.3%
Kingdom of Morocco, 7.75s, 2009+ $ 85 $ 76,075
-----------------------------------------------------------------------------------------------------
Netherlands - 0.3%
Hermes Europe Railtel BV, 10.375s, 2009 (Telecommunications) $ 90 $ 75,600
-----------------------------------------------------------------------------------------------------
Qatar - 0.2%
State of Qatar, 9.75s, 2030 $ 50 $ 49,125
-----------------------------------------------------------------------------------------------------
South Korea - 1.7%
Cho Hung Bank, 11.5s, 2010 (Banks and Finance)## $ 60 $ 57,750
Export-Import Bank Korea, 7.1s, 2007 (Banks and Finance) 190 188,105
Hanvit Bank, 12.75s, 2010 (Banks and Finance)## 75 74,531
Korea Development Bank, 6.625s, 2003 (Banks and Finance) 105 100,853
-----------
$ 421,239
-----------------------------------------------------------------------------------------------------
Sweden - 0.9%
AB Spintab, 6.8s, 2049 (Banks and Finance)## $ 239 $ 230,886
-----------------------------------------------------------------------------------------------------
Turkey
Republic of Turkey, 11.875s, 2030 $ 2 $ 2,128
-----------------------------------------------------------------------------------------------------
United Kingdom - 2.0%
British Sky Broadcasting Group, 6.875s, 2009 (Telecommunications) $ 581 $ 510,414
-----------------------------------------------------------------------------------------------------
Total Foreign Bonds $ 4,452,154
-----------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $25,378,437) $24,693,530
-----------------------------------------------------------------------------------------------------
Short-Term Obligation - 1.0%
-----------------------------------------------------------------------------------------------------
Federal Home Loan Bank, due 7/03/00, at Amortized Cost $ 243 $ 242,911
-----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $25,621,348) $24,936,441
Other Assets, Less Liabilities - 1.1% 275,316
-----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $25,211,757
-----------------------------------------------------------------------------------------------------
## SEC Rule 144A restriction.
+ Restricted security.
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
------------------------------------------------------------------------------
JUNE 30, 2000
------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $25,621,348) $24,936,441
Receivable for investments sold 756,960
Receivable for series shares sold 86,110
Interest receivable 416,600
Deferred organization expenses 587
Other assets 448
-----------
Total assets $26,197,146
-----------
Liabilities:
Payable to custodian $ 3,827
Payable for investments purchased 922,562
Payable for series shares reacquired 58,481
Payable to affiliates -
Management fee 415
Reimbursement fee 104
-----------
Total liabilities $ 985,389
-----------
Net assets $25,211,757
===========
Net assets consist of:
Paid-in capital $26,135,385
Unrealized depreciation on investments and translation of
assets and liabilities in foreign currencies (684,907)
Accumulated net realized loss on investments and foreign
currency transactions (1,089,961)
Accumulated undistributed net investment income 851,240
-----------
Total $25,211,757
===========
Shares of beneficial interest outstanding 2,369,645
=========
Initial Class shares:
Net asset value per share
(net assets of $25,211,553 / 2,369,626 shares of
beneficial interest outstanding) $10.64
======
Service Class shares:
Net asset value per share
(net assets of $203.58 / 19.157 shares of beneficial
interest outstanding) $10.63
======
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations (Unaudited)
-------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2000
-------------------------------------------------------------------------------
Net investment income:
Interest income $ 968,998
---------
Expenses -
Management fee $ 73,977
Trustees' compensation 1,189
Shareholder servicing agent fee 4,315
Distribution fee (Service Class) 0*
Administrative fee 2,007
Auditing fees 20,900
Custodian fee 9,349
Printing 4,593
Legal fees 977
Amortization of organization expenses 911
Miscellaneous 787
---------
Total expenses $ 119,005
Fees paid indirectly (588)
Reduction of expenses by investment adviser (5,501)
---------
Net expenses $ 112,916
---------
Net investment income $ 856,082
---------
Realized and unrealized gain (loss) on investments:
Realized loss on investment transactions (identified cost basis) $(515,777)
---------
Change in unrealized depreciation on investments $ 304,029
---------
Net realized and unrealized loss on investments $(211,748)
---------
Increase in net assets from operations $ 644,334
=========
* Distribution fee (Service Class) was less than $1.
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 $ 856,082 $ 1,288,843
Net realized loss on investments and foreign currency transactions (515,777) (572,286)
Net unrealized gain (loss) on investments and foreign currency translation 304,029 (1,083,839)
----------- -----------
Increase (decrease) in net assets from operations $ 644,334 $ (367,282)
----------- -----------
Distributions declared to shareholders -
From net investment income $(1,291,453) $ (424,158)
From net realized gain on investments and foreign currency transactions -- (29,276)
In excess of net realized gain on investments and foreign currency transactions -- (2,637)
----------- -----------
Total distributions declared to shareholders $(1,291,453) $ (456,071)
----------- -----------
Net increase in net assets from series share transactions $ 1,567,869 $12,949,839
----------- -----------
Total increase in net assets $ 920,750 $12,126,486
Net assets:
At beginning of period 24,291,007 12,164,521
----------- -----------
At end of period (including accumulated undistributed net investment income
of $851,240 and $1,286,611, respectively) $25,211,757 $24,291,007
=========== ===========
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 $10.93 $11.38 $11.08 $10.06 $10.19 $10.00
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.37 $ 0.70 $ 0.64 $ 0.64 $ 0.58 $ 0.09
Net realized and unrealized
gain (loss) on investments
and foreign currency (0.09) (0.87) 0.09 0.38 (0.36) 0.21
------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.28 $(0.17) $ 0.73 $ 1.02 $ 0.22 $ 0.30
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.57) $(0.26) $(0.29) $ -- $(0.35) $(0.09)
From net realized gain on
investments and foreign
currency transactions -- (0.02) (0.14) -- -- (0.02)
In excess of net realized gain
on investments and foreign
currency transactions -- (0.00)+++ -- -- -- --
------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $(0.57) $(0.28) $(0.43) $ -- $(0.35) $(0.11)
------ ------ ------ ------ ------ ------
Net asset value - end of period $10.64 $10.93 $11.38 $11.08 $10.06 $10.19
====== ====== ====== ====== ====== ======
Total return 2.65%++ (1.56)% 6.79% 10.14% 2.09% 3.02%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.92%+ 1.01% 1.02% 1.01% 1.03% 1.00%+
Net investment income 6.96%+ 6.26% 5.76% 6.04% 5.84% 4.89%+
Portfolio turnover 171% 283% 244% 219% 231% 55%
Net assets at end of period
(000 Omitted) $25,212 $24,291 $12,165 $4,004 $853 $228
(S) Subject to reimbursement by the series, the investment adviser voluntary agreed under a temporary expense reimbursement
agreement to pay all of the series' operating expenses exclusive of management fees. In consideration, the series pays the
investment adviser a reimbursement fee 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 0.40% of average daily net assets. To the extent
actual expenses were over this limitation, the net investment income per share and ratios would have been:
Net investment income
(loss) $ 0.37 $ 0.69 $ 0.61 $ 0.37 $(0.26) $(0.70)
Ratios (to average net assets):
Expenses## 0.96%+ 1.06% 1.23% 3.58% 9.45% 43.85%+
Net investment income
(loss) 6.92%+ 6.21% 5.55% 3.46% (2.61)% (37.96)%+
* For the period from the commencement of the series' investment operations, October 24, 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 the period):
Net asset value - beginning of period $10.43
------
Income from investment operations# -
Net investment income(S) $ 0.12
Net realized and unrealized gain on investments and foreign
currency 0.08**
------
Total from investment operations $ 0.20
------
Net asset value - end of period $10.63
======
Total return 1.92%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.95%+
Net investment income 7.19%+
Portfolio turnover 171%
Net assets at end of period (000 Omitted) 0***
(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 and distribution fees.
In consideration, the series pays the investment adviser a reimbursement
fee not greater than 0.15% of the average daily net assets. To the extent
actual expenses were over this limitation, the net investment loss per
share and the ratios would have been:
Net investment income $ 0.12
Ratios (to average net assets):
Expenses## 0.99%+
Net investment income 7.15%+
* 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 Bond 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 19 shareholders of the series.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The series
can invest in foreign securities. Investments in foreign securities are
vulnerable to the effects of changes in the relative values of the local
currency and the U.S. dollar and to the effects of changes in each country's
legal, political, and economic environment.
Investment Valuations - Debt securities (other than short-term obligations
which mature in 60 days or less), including listed issues and forward
contracts are valued on the basis of valuations furnished by dealers or by a
pricing service with consideration to factors such as institutional-size
trading in similar groups of securities, yield, quality, coupon rate,
maturity, type of issue, trading characteristics, and other market data,
without exclusive reliance upon exchange or over-the-counter prices. Short-
term obligations, which mature in 60 days or less, are valued at amortized
cost, which approximates market value. Securities for which there are no such
quotations or valuations are valued in good faith, at fair value, by the
Trustees.
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.
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. Interest payments received in additional
securities are recorded on the 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.
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 $498,667 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, 2007.
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 the 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 0.60%
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 and distribution 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 0.40% 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 $149,204.
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 $26,942,689 $25,912,868
----------- -----------
Investments (non-U.S. government securities) $15,258,422 $15,091,342
----------- -----------
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 $25,696,865
-----------
Gross unrealized depreciation $ (876,854)
Gross unrealized appreciation 116,430
-----------
Net unrealized depreciation $ (760,424)
===========
(5) Shares of Beneficial Interest
The series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
series shares were as follows:
<TABLE>
<CAPTION>
Initial Class Shares
SIX MONTHS ENDED JUNE 30, 2000 YEAR ENDED DECEMBER 31, 1999
------------------------------ ----------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 389,295 $4,248,685 1,640,010 $18,298,783
Shares issued to shareholders in
reinvestment of distributions 123,702 1,291,450 40,575 456,070
Shares reacquired (365,023) (3,972,466) (527,405) (5,805,014)
-------- ---------- -------- -----------
Net increase 147,974 $1,567,669 1,153,180 $12,949,839
======== ========== ========= ===========
<CAPTION>
Service Class Shares
PERIOD ENDED JUNE 30, 2000*
---------------------------
SHARES AMOUNT
-------------------------------------------------------------------
<S> <C> <C>
Shares sold 19 $ 200
Shares issued to shareholders in
reinvestment of distributions -- --
Shares reacquired -- --
-------- ----------
Net increase 19 $ 200
======== ==========
* For the period from the inception of Service Class shares, May 1, 2000, through June 30, 2000
</TABLE>
(6) Line of Credit
The series and other affiliated 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 $74. The series had no borrowings during
the period.
(7) 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 0.30% 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.
DATE OF SHARE/PAR
DESCRIPTION ACQUISITION AMOUNT COST VALUE
-------------------------------------------------------------------------------
Kingdom of Morocco, 7.75s, 2009 4/27/00 85,000 $76,084 $76,075
------- -------
<PAGE>
(c)2000 MFS Investment Management(R).
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
VBF-3 8/00 4M
