<PAGE>
[Logo] M F S (R)
INVESTMENT MANAGEMENT ANNUAL REPORT
We invented the mutual fund(R) DECEMBER 31, 1999
[graphic omitted]
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
MFS(R) 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* Massachusetts Financial Services Company
Chairman and Chief Executive Officer, 500 Boylston Street
MFS Investment Management(R) Boston, MA 02116-3741
Nelson J. Darling, Jr.+ DISTRIBUTOR
Private investor and trustee MFS Fund Distributors, Inc.
500 Boylston Street
William R. Gutow+ Boston, MA 02116-3741
Private investor and real estate consultant;
Vice Chairman, Capitol Entertainment SHAREHOLDER SERVICE CENTER
Management Company (video franchise) MFS Service Center, Inc.
P.O. Box 2281
CHAIRMAN AND PRESIDENT Boston, MA 02107-9906
Jeffrey L. Shames*
For additional information,
PORTFOLIO MANAGER contact your financial consultant.
Geoffrey L. Kurinsky*
CUSTODIAN
TREASURER State Street Bank and Trust Company
W. Thomas London*
AUDITORS
ASSISTANT TREASURERS Deloitte & Touche LLP
Mark E. Bradley*
Ellen Moynihan* WORLD WIDE WEB
James O. Yost* 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,
One could easily argue that the Internet represents the greatest technological
development most of us may see in our lifetimes. There is no disputing that
this new communication medium is changing forever the way we work, play, and
shop. One might also argue that investing in this new technology represents
the investment opportunity of a lifetime. The question for any investor is
whether and how to take advantage of it.
The popular press, it seems, would have us believe that by surfing the Web, we
can learn everything we need to know about investing. Indeed, there is no
doubt that Internet-delivered information and brokerage services enable
individual investors to be well-informed and to trade at bargain prices. But
we believe the facts argue that, for most of us, professionally managed
investment portfolios purchased through a financial consultant will continue
to be one of the best products for long-term investing in this new millennium.
Why do we believe managed portfolios plus professional advice will continue to
define the best course of action for many investors? Let's look at some of the
characteristics of a successful long-term investment approach:
o HAVING A PLAN AND STICKING TO IT: Our experience is that successful investors
-- those whose lives are enriched by the fruits of their investing -- share
two characteristics. They have a plan for reaching their monetary goals, and
they stick with that plan through up markets and down. And for many investors,
working with a financial consultant may be the best way to develop a plan.
Although the Internet abounds with calculators for developing all sorts of
investment plans, none has your consultant's high level of experience and an
understanding of your unique situation. And no calculator can counsel you
during a down market, when you may be tempted to abandon your goals and your
plan.
o DIVERSIFICATION: Few individual investors can afford to own a large number of
holdings, so poor performance of one company can potentially drag down their
entire personal portfolio. This is especially true when investing in volatile
new areas such as the Internet. On the other hand, a diversified,
professionally managed investment portfolio that owns dozens or even hundreds
of holdings is better positioned to survive a disappointment in one or several
investments.
o GOOD IN A DOWN MARKET: As we enter the tenth year of the greatest bull market
in history, it's easy to forget that market downturns are an almost inevitable
part of investing. Few investment portfolios, of course, are going to be up
when the overall market is down. But we believe diversified, professionally
managed investment portfolios may be less likely to suffer the extreme
downturns experienced by a large number of individual holdings when the market
heads south.
o MFS ORIGINAL RESEARCH(R): The Internet is one of the greatest research tools
ever invented, but it's still not the same as being eyeball to eyeball with
the management of a company and discussing their plans for their firm's
future.
o GOOD PERFORMANCE AT AN ACCEPTABLE LEVEL OF RISK: Investing in individual
stocks or bonds does indeed offer the potential of exhilarating performance
that few managed portfolios even attempt. The downside is that the most
exciting investments are also likely to be the ones that give you sleepless
nights. The diversification and professional management of investment
portfolios help make them inherently less risky than individual stock picking,
and managed portfolios are available in a wide range of risk profiles.
We believe that now, more than ever, managed investment portfolios sold by an
investment professional may offer many investors the best way to participate
in whatever investment opportunities the new millennium may bring. The
combination of professional portfolio management and professional advice
recognizes the key reason that investors give us their money: because they
don't want to make a hobby or a second profession out of investing; they
simply want their money to work for them so they have a better likelihood of
realizing their dreams.
As always, we appreciate your confidence in MFS and welcome any questions or
comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
January 15, 2000
Investments in variable products will fluctuate and may be worth more or less
upon redemption. Please see your financial consultant for more information.
The opinions expressed in this letter are those of Jeffrey L. Shames, and no
forecasts can be guaranteed.
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
Dear Shareholders,
For the 12 months ended December 31, 1999, the Series provided a total return
of -1.56% (including the reinvestment of any distributions), which compares to
a -2.15% return for the Lehman Brothers Government/Corporate Bond Index (the
Lehman Index). The Lehman Index is an unmanaged, market-value-weighted index
that includes U.S. Treasury and government-agency securities (excluding
mortgage-backed securities) and investment-grade debt obligations of U.S.
corporations.
Rising interest rates led to negative returns for all types of fixed-income
securities, and the Series' performance reflects that downturn. In addition, a
couple of our holdings were particularly hard hit. Given the unfavorable
interest-rate backdrop, the punishment for companies that disappointed
investors was particularly harsh. Historically, in periods when the interest-
rate backdrop was more favorable, value hunters generally scooped up companies
that disappointed. But for a variety of reasons, including lack of liquidity
caused by investor concerns over the Year 2000 computer problem, there were
far fewer participants bidding for distressed securities. For example, our
position in the drugstore chain Rite Aid suffered when the company encountered
a host of problems, including difficulty in executing its expansion plans.
Home-security business Protection One also suffered losses when it ran into
roadblocks in financing its growth.
That said, there were quite a few holdings that performed reasonably well. Our
high-yield holdings in Cable & Wireless performed quite well when its cable
assets were bought by NTL, a global communication services company. The bond
covenants required that much of its debt be redeemed at very favorable terms
for bondholders. In fact, most of the cable and media sector continued to do
well as the sector's overall credit quality improved. Individual winners
included Time Warner, and Seagram. A number of additional holdings performed
well when they crossed into investment-grade territory or were perceived to
have improving credit quality. Northeast Utilities, which was acquired by the
higher-rated Con Edison, was a good example of that trend.
We felt that the investment-grade corporate market offered some very
attractive opportunities, so we increased our position to about 60% of net
assets. Year-end and year 2000 jitters translated into weak demand, heavy
supply, and cheap prices for many corporate bonds. We emphasized cyclical
companies that we believed could benefit from a strong, albeit somewhat
slower, economy. For example, we've established positions in Georgia Pacific,
which has been a dominant force in many major paper categories. We've also
added to our holdings in auto and auto-related companies, increasing our stake
in Ford Motor, Lear Corporation, and Federal Mogul. We also added American
Airlines, among others, to our airline holdings. The securities we bought,
enhanced-equipment trust certificates, use planes as collateral.
We believe agency securities are attractive because they have become very cheap
due to a structural change in the government bond markets. The supply of U.S.
Treasuries is falling as the government curtails its borrowing needs in light of
a federal budget surplus. In contrast, various federal agencies dramatically
stepped up their issuance as a means of funding growth initiatives. As that
change transpired, the spread between agency and Treasury securities became
quite wide when viewed on a historical basis. We believe that the spread between
agencies and Treasuries will eventually narrow, which would position agencies to
outperform.
We have positioned the Series to be somewhat more sensitive to interest rate
changes than its Lipper peer group because we believe that the recent backup
in interest rates is overdone. Lipper is an independent firm that reports
performance. Given the fact that inflation has remained in check and the
economy shows some signs of slowing, we believe that rates may start to move
back down. So we've positioned the Series to try to benefit from lower rates
by making it slightly more interest-rate sensitive, with a duration of 6.06
years versus a duration of about six years for the average Lipper "BBB"-rated
debt fund.
Respectfully,
/s/ Geoffrey L. 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) Institutional Core Fixed
Income 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, company-oriented, bottom-up process of selecting securities.
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
Size: $24.3 million net assets as of December 31, 1999
PERFORMANCE SUMMARY
The information below illustrates the historical performance of the Series in
comparison to various market indicators. Benchmark comparisons are unmanaged
and do not reflect any fees or expenses. It is not possible to invest directly
in an index. (See Notes to Performance Summary.)
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from the commencement of the Series' investment operations,
October 24, 1995, through December 31, 1999. Index information is from
November 1, 1995.)
Lehman Brothers
Government/Corporate
MFS Bond Series Bond Index
- --------------------------------------------------
10/95 $10,000 $10,000
12/95 10,301 10,314
12/96 10,516 10,614
12/97 11,583 11,649
12/98 12,369 12,753
12/99 12,176 12,479
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 the exchange privilege and all charges and expenses, for any other
MFS product is available from your financial consultant, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
<PAGE>
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN THROUGH DECEMBER 31, 1999
1 Year 3 Years Life*
- -------------------------------------------------------------------------------
Cumulative Total Return -1.56% +15.78% +21.76%
- -------------------------------------------------------------------------------
Average Annual Total Return -1.56% + 5.01% + 4.82%
- -------------------------------------------------------------------------------
COMPARATIVE INDEX(+)
1 Year 3 Years Life*
- -------------------------------------------------------------------------------
Lehman Brothers Government/Corporate Bond
Index# -2.15% + 5.54% + 5.46%
- -------------------------------------------------------------------------------
* For the period from the commencement of the Series' investment operations,
October 24, 1995, through December 31, 1999. Index information is from
November 1, 1995.
(+) Average annual rates of return.
# Source: Standard & Poor's Micropal, Inc.
NOTES TO PERFORMANCE SUMMARY
All results are historical and assume the reinvestment of dividends and
capital gains. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND
UNITS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MORE
RECENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. Performance results reflect any applicable
expense subsidies and waivers, without which the results would have been less
favorable. Subsidies and waivers may be rescinded at any time. See the
prospectus for details.
Returns shown do not reflect the deduction of the mortality and expense risk
charges and administration fees. Please refer to the annuity product's annual
report for performance that reflects the deduction of the fees and charges
imposed by insurance company separate accounts.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS - December 31, 1999
<CAPTION>
Bonds - 97.5%
- -----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Bonds - 84.7%
Aerospace - 0.1%
BE Aerospace, Inc., 8s, 2008 $ 40 $ 34,500
- -----------------------------------------------------------------------------------------------------
Aerospace and Defense - 1.1%
Raytheon Co., 6.3s, 2005 $ 175 $ 165,120
Raytheon Co., 6.5s, 2005 90 85,226
Raytheon Co., 7.2s, 2027 23 20,506
--------------
$ 270,852
- -----------------------------------------------------------------------------------------------------
Airlines - 2.7%
American Airlines Pass-Through Trust, 7.024s, 2009 $ 109 $ 105,867
Atlas Air, Inc., 7.2s, 2019 58 52,720
Continental Airlines Pass-Through Trust, Inc., 6.648s, 2017 5 4,439
Continental Airlines Pass-Through Trust, Inc., 6.545s, 2019 100 90,847
Continental Airlines Pass-Through Trust, Inc., 7.256s, 2020 200 189,142
Continental Airlines, Inc., 9.5s, 2013 5 4,692
Delta Air Lines, Inc., 6.65s, 2004 138 132,081
Jet Equipment Trust, 9.41s, 2010## 5 5,324
Jet Equipment Trust, 8.64s, 2012## 4 4,568
Northwest Airlines Pass-Through Trust, 7.575s, 2019 65 62,067
--------------
$ 651,747
- -----------------------------------------------------------------------------------------------------
Apparel and Textiles - 0.4%
Hilfiger (Tommy) USA, Inc., 6.5s, 2003 $ 15 $ 14,224
J Crew Operating Corp., 10.375s, 2007 90 76,500
Jones Apparel Group, Inc., 6.25s, 2001 14 13,666
--------------
$ 104,390
- -----------------------------------------------------------------------------------------------------
Auto Parts - 1.4%
Lear Corp., 7.96s, 2005## $ 350 $ 336,962
- -----------------------------------------------------------------------------------------------------
Automotive - 1.4%
Federal Mogul Corp., 7.5s, 2004 $ 193 $ 182,634
Ford Motor Co., 7.45s, 2031 170 163,547
--------------
$ 346,181
- -----------------------------------------------------------------------------------------------------
Banks and Credit Companies - 4.4%
Bank United, 8s, 2009 $ 169 $ 155,195
Capital One Financial Corp., 7.25s, 2003 261 253,584
Criimi Mae Commercial Mortgage Trust, 7s, 2011 250 208,906
GS Escrow Corp., 6.75s, 2001 83 79,998
GS Escrow Corp., 7.125s, 2005 148 132,147
MBNA America Bank National Assoc., 6.875s, 2004 197 190,414
Washington Mutual Capital I, 8.375s, 2027 50 47,589
--------------
$ 1,067,833
- -----------------------------------------------------------------------------------------------------
Beverages - 0.7%
J Seagram & Sons, Inc., 7.5s, 2018 $ 135 $ 127,910
J Seagram & Sons, Inc., 7.6s, 2028 49 46,142
--------------
$ 174,052
- -----------------------------------------------------------------------------------------------------
Building - 1.4%
Building Materials Corp., 8s, 2008 $ 340 $ 307,700
Nortek, Inc., 9.25s, 2007 20 19,550
--------------
$ 327,250
- -----------------------------------------------------------------------------------------------------
Chemicals - 1.6%
Lyondell Chemical Co., 9.625s, 2007 $ 340 $ 347,650
Lyondell Chemical Co., 9.875s, 2007 36 36,900
--------------
$ 384,550
- -----------------------------------------------------------------------------------------------------
Computer Services - 0.1%
Unisys Corp., 12s, 2003 $ 23 $ 24,495
- -----------------------------------------------------------------------------------------------------
Consumer Goods and Services - 0.4%
Kindercare Learning Centers, Inc., 9.5s, 2009 $ 25 $ 24,063
Protection One Alarm Monitoring, Inc., 7.375s, 2005 57 45,030
RJR Nabisco, Inc., 7.75s, 2006 38 33,579
--------------
$ 102,672
- -----------------------------------------------------------------------------------------------------
Containers & Glass - 0.1%
Owens-Illinois, Inc., 8.1s, 2007 $ 23 $ 21,732
- -----------------------------------------------------------------------------------------------------
Corporate Asset Backed - 1.2%
Amresco Residential Securities Mortgage Loan, 5.94s, 2015 $ 61 $ 60,066
Contimortgage Home Equity Loan Trust, 6.19s, 2014 125 122,304
Morgan Stanley Capital I, 6.01s, 2030 103 97,966
--------------
$ 280,336
- -----------------------------------------------------------------------------------------------------
Entertainment - 3.1%
Time Warner Entertainment Co., 10.15s, 2012 $ 240 $ 281,177
Time Warner Entertainment Co., 8.375s, 2023 34 35,351
Time Warner Entertainment Co., 8.375s, 2033 424 439,683
--------------
$ 756,211
- -----------------------------------------------------------------------------------------------------
Financial Institutions - 4.5%
Associates Corp., 5.75s, 2003 $ 400 $ 381,524
General Motors Acceptance Corp., 5.95s, 2003 67 64,628
Goldman Sachs Group LP, 5.9s, 2003 160 153,435
Morgan Stanley Dean Witter, 7.125s, 2003 500 499,605
--------------
$ 1,099,192
- -----------------------------------------------------------------------------------------------------
Financial Services - 2.7%
Ford Motor Credit Co., 6.7s, 2004 $ 305 $ 298,519
Ford Motor Credit Co., 7.375s, 2009 258 254,710
General Electric Capital Corp., 8.3s, 2009 104 110,846
--------------
$ 664,075
- -----------------------------------------------------------------------------------------------------
Food and Beverage Products - 0.5%
Coca-Cola Bottling Co., 6.375s, 2009 $ 119 $ 105,808
Nabisco, Inc., 6.375s, 2035 10 9,287
--------------
$ 115,095
- -----------------------------------------------------------------------------------------------------
Forest and Paper Products - 3.5%
Georgia Pacific Corp., 9.95s, 2002 $ 411 $ 433,568
Georgia Pacific Corp., 7.75s, 2029 328 312,564
Georgia-Pacific Corp., 9.5s, 2022 50 53,204
Riverwood International Corp., 10.25s, 2006 35 35,525
U.S. Timberlands, 9.625s, 2007 10 9,275
--------------
$ 844,136
- -----------------------------------------------------------------------------------------------------
Gaming and Hotels - 2.0%
Harrahs Operating Co., Inc., 7.5s, 2009 $ 205 $ 191,408
Park Place Entertainment Co., 8.5s, 2006 300 296,856
--------------
$ 488,264
- -----------------------------------------------------------------------------------------------------
Government National Mortgage Association - 8.2%
GNMA, 8s, 2022 $ 546 $ 551,790
GNMA, 7.5s, 2025 71 69,969
GNMA, 8s, 2025 5 4,882
GNMA, 7.5s, 2026 55 54,297
GNMA, 7s, 2027 105 101,756
GNMA, 7.5s, 2027 206 203,676
GNMA, 6.5s, 2028 52 48,534
GNMA, 7s, 2028 253 244,186
GNMA, 8s, 2029 400 404,040
GNMA, TBA, 7.5s, 2026 185 183,027
GNMA, TBA, 7s, 2028 128 124,071
--------------
$ 1,990,228
- -----------------------------------------------------------------------------------------------------
Industrial - 0.7%
Natexis Ambs Co. LLC, 8.44s, 2049## $ 170 $ 159,681
- -----------------------------------------------------------------------------------------------------
Insurance - 2.0%
Aflac, Inc., 6.5s, 2009 $ 123 $ 112,529
Atlantic Mutual Insurance Co., 8.15s, 2028## 24 18,012
Conseco Finance Corp., 10.25s, 2002 80 82,966
Conseco, Inc., 6.4s, 2001 25 24,379
Conseco, Inc., 6.4s, 2003 158 151,048
Conseco, Inc., 9s, 2006 52 53,586
Providian Capital I, 9.525s, 2027## 42 35,592
--------------
$ 478,112
- -----------------------------------------------------------------------------------------------------
Media - 0.7%
Belo (A.H.) Corp., 7.75s, 2027 $ 78 $ 74,232
Chancellor Media Corp., 8.75s, 2007 10 10,200
Comcast Corp., 9.125s, 2006 54 54,991
Frontiervision Operating Partnership LP, 11s, 2006 20 21,200
Outdoor Systems, Inc., 8.875s, 2007 10 10,312
--------------
$ 170,935
- -----------------------------------------------------------------------------------------------------
Metals and Minerals - 0.1%
Kaiser Aluminum & Chemical Corp., 10.875s, 2006 $ 25 $ 25,063
- -----------------------------------------------------------------------------------------------------
Municipals - 2.0%
Jefferson County Alabama Sewer Revenue, 5.375s, 2036 $ 190 $ 167,759
Massachusetts Turnpike Authority, 5s, 2037 25 20,451
Minneapolis & St. Paul Minnesota Metropolitan, 5s, 2030 190 158,207
New York City, NY Municipal Water Finance, 5.5s, 2024 150 139,167
--------------
$ 485,584
- -----------------------------------------------------------------------------------------------------
Oil Services - 1.5%
McDermott, Inc., 9.375s, 2002 $ 283 $ 282,827
Occidental Petroleum Corp., 6.4s, 2003 84 80,988
Ultramar Diamond Shamrock Corp., 7.2s, 2017 5 4,432
--------------
$ 368,247
- -----------------------------------------------------------------------------------------------------
Railroads - 0.2%
Union Pacific Corp., 6.34s, 2003 $ 56 $ 54,027
- -----------------------------------------------------------------------------------------------------
Real Estate - 0.8%
Socgen Real Estate Co., 7.64s, 2049## $ 226 $ 203,945
- -----------------------------------------------------------------------------------------------------
Retail - 2.2%
K Mart Corp., 8.375s, 2004 $ 150 $ 149,250
Kohl's Corp., 7.25s, 2029 134 122,534
Rite Aid Corp., 6s, 2003## 83 57,270
Rite Aid Corp., 7.125s, 2007 50 38,000
Saks, Inc., 7.25s, 2004 171 162,783
--------------
$ 529,837
- -----------------------------------------------------------------------------------------------------
Steel - 0.6%
USX Corp., 6.65s, 2006 $ 161 $ 152,754
- -----------------------------------------------------------------------------------------------------
Supermarkets - 1.6%
Safeway, Inc., 5.875s, 2001 $ 400 $ 390,668
- -----------------------------------------------------------------------------------------------------
Telecommunications - 7.4%
Cable & Wireless Communications, 6.75s, 2008 $ 273 $ 268,703
Charter Communications Holdings LLC, 8.25s, 2007 500 465,000
Global Crossing Holdings Ltd., 9.625s, 2008 351 350,123
MCI WorldCom, Inc., 8.875s, 2006 5 5,248
Qwest Communications International, Inc., 7.5s, 2008 35 34,026
Sprint Capital Corp., 6.9s, 2019 244 221,913
Sprint Capital Corp., 6.875s, 2028 116 103,091
TCI Communications Financing III, 9.65s, 2027 280 307,826
Telecomunicaciones de Puerto, 6.65s, 2006 45 42,435
--------------
$ 1,798,365
- -----------------------------------------------------------------------------------------------------
Telecommunications and Cable - 0.4%
Adelphia Communications Corp., 0s, 2008 $ 200 $ 86,000
- -----------------------------------------------------------------------------------------------------
U.S. Federal Agencies - 2.9%
Federal Home Loan Banks, 5.7s, 2009 $ 165 $ 149,892
Federal Home Loan Mortgage Corp., 6.5s, 2028 79 74,699
Federal National Mortgage Assn., 6.625s, 2009 135 131,119
Federal National Mortgage Assn., 6.5s, 2028 297 279,903
Federal National Mortgage Assn., 8s, 2029 58 58,313
--------------
$ 693,926
- -----------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 7.8%
U.S. Treasury Bonds, 5.25s, 2028 1,219 $ 1,004,151
U.S. Treasury Notes, 5.875s, 2004 341 334,340
U.S. Treasury Notes, 6s, 2004 107 105,328
U.S. Treasury Notes, 7.875s, 2004 15 15,860
U.S. Treasury Notes, 6s, 2009 452 437,875
--------------
$ 1,897,554
- -----------------------------------------------------------------------------------------------------
Utilities - Electric - 9.4%
AEP Generating, 9.81s, 2022 $ 200 $ 225,539
Beaver Valley Funding Corp. II, 9s, 2017 236 233,614
Cleveland Electric Illuminating Co., 7.88s, 2017 14 13,278
Cleveland Electric Illuminating Co., 9s, 2023 195 204,662
CMS Energy Corp., 8.375s, 2003 205 200,388
Commonwealth Edison Co., 8.5s, 2022 39 40,480
Connecticut Light & Power Co., 7.875s, 2001 101 101,811
Connecticut Light & Power Co., 8.59s, 2003 100 100,384
El Paso Electric Co., 8.9s, 2006 77 80,105
Entergy Mississippi, Inc., 6.2s, 2004 71 67,014
GGIB Funding Corp., 7.43s, 2011 29 28,151
Gulf States Utilities Co., 8.21s, 2002 83 83,708
Long Island Lighting Co., 8.2s, 2023 90 87,764
Midland Cogeneration Venture Corp., 10.33s, 2002 9 9,224
Niagara Mohawk Power Corp., 7.375s, 2003 187 185,942
Niagara Mohawk Power Corp., 7.625s, 2005 15 15,082
Niagara Mohawk Power Corp., 8.5s, 2023 10 9,661
Niagara Mohawk Power Corp., 0s to 2003, 8.5s to 2010 220 164,001
Northeast Utilities, 8.58s, 2006 11 10,708
Salton Sea Funding Corp., 7.84s, 2010 145 138,026
Seabrook Station - Unit 1, 7.83s, 2019 9 8,390
Toledo Edison Co., 7.875s, 2004 161 159,828
Utilicorp United Inc., 7s, 2004 34 32,835
Waterford 3 Funding Entergy Corp., 8.09s, 2017 96 92,589
--------------
$ 2,293,184
- -----------------------------------------------------------------------------------------------------
Utilities - Gas - 2.9%
CE Generation LLC, 7.416s, 2018## $ 92 $ 86,480
Northern Natural Gas Co. of Delaware, 7s, 2011## 280 261,503
Texas Gas Transmission Corp., 7.25s, 2027 202 183,548
Williams Cos., Inc., 7.625s, 2019 175 168,164
--------------
$ 699,695
- -----------------------------------------------------------------------------------------------------
Total U.S. Bonds $ 20,572,330
- -----------------------------------------------------------------------------------------------------
Foreign Bonds - 12.8%
Argentina - 1.0%
Republic of Argentina, 0s, 2001 $ 270 $ 239,625
- -----------------------------------------------------------------------------------------------------
Australia - 0.5%
Cable & Wireless Optus Ltd., 8.125s, 2009
(Telecommunications)## $ 110 $ 109,174
- -----------------------------------------------------------------------------------------------------
Brazil - 0.4%
Federal Republic of Brazil, 11.625s, 2004 $ 45 $ 44,843
Federal Republic of Brazil, 7s, 2009 65 52,325
--------------
$ 97,168
- -----------------------------------------------------------------------------------------------------
Canada - 1.5%
AT&T Canada Inc., 7.65s, 2006 (Telecommunications) $ 272 $ 271,320
Province of Quebec, 7.5s, 2029 104 100,814
--------------
$ 372,134
- -----------------------------------------------------------------------------------------------------
Chile - 1.0%
Empresa Electric Guacolda S.A., 7.6s, 2001 (Utilities
- Electric)## $ 250 $ 245,000
Empresa Nacional de Electric, 7.325s, 2037 (Utilities
- Electric) 5 4,588
--------------
$ 249,588
- -----------------------------------------------------------------------------------------------------
Finland - 0.2%
UPM-Kymmene Corp., 7.45s, 2027 (Forest and Paper Products)## $ 57 $ 51,669
- -----------------------------------------------------------------------------------------------------
Grand Cayman Islands - 0.4%
Enersis S.A., 7.4s, 2016 (Utilities - Electric) $ 116 $ 98,855
- -----------------------------------------------------------------------------------------------------
Israel - 2.4%
Israel Electric Corp. Ltd., 8.25s, 2009 (Utilities -
Electric)## $ 578 $ 576,185
- -----------------------------------------------------------------------------------------------------
Mexico - 0.6%
Nuevo Grupo Isuacell S.A. de C.V., 14.25s, 2006
(Telecommunications) $ 50 $ 52,000
United Mexican States, 10.375s, 2009 55 58,646
United Mexican States, 11.5s, 2026 35 41,696
--------------
$ 152,342
- -----------------------------------------------------------------------------------------------------
Netherlands - 0.8%
Cellco Finance N.V. Turkcell, 12.75s, 2005 (Industrial) $ 100 $ 103,000
Hermes Europe Railtel B.V., 10.375s, 2009
(Telecommunications) 90 89,100
--------------
$ 192,100
- -----------------------------------------------------------------------------------------------------
Philippines - 0.1%
Republic of Philippines, 9.875s, 2019 $ 32 $ 31,600
- -----------------------------------------------------------------------------------------------------
South Korea - 1.2%
Export Import Bank Korea, 7.1s, 2007 (Banks and Credit Cos.) $ 190 $ 186,751
Korea Development Bank, 6.625s, 2003 (Banks and Credit Cos.) 105 99,488
--------------
$ 286,239
- -----------------------------------------------------------------------------------------------------
Sweden - 1.0%
AB Spintab, 6.8s, 2049 (Banks and Credit Cos.)## $ 239 $ 230,566
- -----------------------------------------------------------------------------------------------------
United Kingdom - 1.7%
Abbey National PLC, 6.7s, 2049 (Banks and Credit Cos.) $ 228 $ 205,613
British Sky Broadcasting Group, 6.875s, 2009
(Telecommunications) 119 104,541
British Sky Broadcasting Group, 8.2s, 2009
(Telecommunications)## 115 110,306
--------------
$ 420,460
- -----------------------------------------------------------------------------------------------------
Total Foreign Bonds $ 3,107,705
- -----------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $24,668,971) $ 23,680,035
- -----------------------------------------------------------------------------------------------------
Short-Term Obligations - 0.5%
- -----------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., due 1/03/00, at
Amortized Cost $ 120 $ 119,990
- -----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $24,788,961) $ 23,800,025
Other Assets, Less Liabilities - 2.0% 490,982
- -----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $ 24,291,007
- -----------------------------------------------------------------------------------------------------
## SEC Rule 144A restriction.
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- -------------------------------------------------------------------------------
DECEMBER 31, 1999
- -------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $24,788,961) $ 23,800,025
Cash 2,206
Receivable for Series shares sold 136,427
Interest receivable 378,342
Deferred organization expenses 1,498
Other assets 26
------------
Total assets $ 24,318,524
------------
Liabilities:
Payable for Series shares reacquired $ 26,356
Payable to affiliates -
Management fee 400
Shareholder servicing agent fee 23
Accrued expenses and other liabilities 738
------------
Total liabilities $ 27,517
------------
Net assets $ 24,291,007
============
Net assets consist of:
Paid-in capital $ 24,567,516
Unrealized depreciation on investments and translation of
assets and liabilities in foreign currencies (988,936)
Accumulated distributions in excess of net realized gains on
investments and foreign currency transactions (574,184)
Accumulated undistributed net investment income 1,286,611
------------
Total $ 24,291,007
============
Shares of beneficial interest outstanding 2,221,652
=========
Net asset value per share
(net assets/shares of beneficial interest outstanding) $10.93
======
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- -------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999
- -------------------------------------------------------------------------------
Net investment income:
Interest income $ 1,494,599
------------
Expenses -
Management fee $ 123,453
Trustees' compensation 2,336
Shareholder servicing agent fee 7,201
Administrative fee 2,567
Auditing fees 39,829
Printing 25,874
Custodian fee 10,414
Legal fees 2,099
Amortization of organization expenses 1,837
Miscellaneous 2,200
------------
Total expenses $ 217,810
Fees paid indirectly (1,950)
Reduction of expenses by investment adviser (10,104)
------------
Net expenses $ 205,756
------------
Net investment income $ 1,288,843
------------
Realized and unrealized gain (loss) on investments:
Realized loss (identified cost basis) -
Investment transactions $ (571,721)
Foreign currency transactions (565)
------------
Net realized loss on investments and foreign currency
transactions $ (572,286)
------------
Change in unrealized appreciation (depreciation) -
Investments $ (1,083,914)
Translation of assets and liabilities in foreign currencies 75
------------
Net unrealized loss on investments and foreign currency
translation $ (1,083,839)
------------
Net realized and unrealized loss on investments and
foreign currency $ (1,656,125)
------------
Decrease in net assets from operations $ (367,282)
============
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 1998
- -------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment income $ 1,288,843 $ 424,123
Net realized gain (loss) on investments and
foreign currency transactions (572,286) 28,852
Net unrealized gain (loss) on investments and
foreign currency translation (1,083,839) 37,309
------------ ------------
Increase (decrease) in net assets from
operations $ (367,282) $ 490,284
------------ ------------
Distributions declared to shareholders -
From net investment income $ (424,158) $ (139,107)
From net realized gain on investments and foreign
currency transactions (29,276) (68,528)
In excess of net realized gain on investments and
foreign currency transactions (2,637) --
------------ ------------
Total distributions declared to shareholders $ (456,071) $ (207,635)
------------ ------------
Net increase in net assets from Series share
transactions $ 12,949,839 $ 7,878,318
------------ ------------
Total increase in net assets $ 12,126,486 $ 8,160,967
Net assets:
At beginning of period 12,164,521 4,003,554
------------ ------------
At end of period (including accumulated
undistributed net investment income of
$1,286,611 and $422,665, respectively) $ 24,291,007 $ 12,164,521
============ ============
See notes to financial statements.
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, PERIOD ENDED
------------------------------------------------------------ DECEMBER 31,
1999 1998 1997 1996 1995*
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $11.38 $11.08 $10.06 $10.19 $10.00
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.70 $ 0.64 $ 0.64 $ 0.58 $ 0.09
Net realized and unrealized gain
(loss) on investments and foreign
currency (0.87) 0.09 0.38 (0.36) 0.21
------ ------ ------ ------ ------
Total from investment operations $(0.17) $ 0.73 $ 1.02 $ 0.22 $ 0.30
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(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 $(0.28) $(0.43) $ -- $(0.35) $(0.11)
------ ------ ------ ------ ------
Net asset value - end of period $10.93 $11.38 $11.08 $10.06 $10.19
====== ====== ====== ====== ======
Total return (1.56)% 6.79% 10.14% 2.09% 3.02%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.01% 1.02% 1.01% 1.03% 1.00%+
Net investment income 6.26% 5.76% 6.04% 5.84% 4.89%+
Portfolio turnover 283% 244% 219% 231% 55%
Net assets at end of period (000
Omitted) $24,291 $12,165 $4,004 $853 $228
(S) Subject to reimbursement by the Series, MFS has voluntarily agreed under a temporary expense reimbursement agreement to pay
all of the Fund's operating expenses exclusive of management fee. In consideration, the fund pays MFS a fee not greater than
0.40% of average daily net assets. To the extent that actual expenses were over this limitation, the net investment income
(loss) per share and ratios would have been:
Net investment income (loss) $ 0.69 $ 0.61 $ 0.37 $(0.26) $(0.70)
Ratios (to average net assets):
Expenses## 1.06% 1.23% 3.58% 9.45% 43.85%+
Net investment income (loss) 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>
NOTES TO FINANCIAL STATEMENTS
(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 December 31,
1999, there were 17 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.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that results from fluctuations in foreign currency
exchange rates is not separately disclosed.
Deferred Organization Expenses - Costs incurred by the Series in connection
with its organization have been deferred and are being amortized on a
straight-line basis over a five-year period beginning on the date of
commencement of Series operations.
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.
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 Fund's 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.
Fees Paid Indirectly - The Series' custody fee is calculated as a percentage
of the Series' month end net assets. The fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the Series. This amount is shown as a reduction of expenses on the Statement
of Operations.
Tax Matters and Distributions - The Series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its 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.
During the year ended December 31, 1999, $739 was reclassified from
accumulated undistributed net investment income to accumulated distributions
in excess of net realized gains on investments and foreign currency
transactions due to differences between book and tax accounting for foreign
currency transactions and mortgage-backed securities. This change had no
effect on the net assets or net asset value per share. At December 31, 1999,
distributions in excess of net realized gains on investments and foreign
currency transactions under book accounting were different from tax accounting
due to temporary differences in accounting for capital losses.
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 succeding year until the earlier of its
utilization or expiration on December 31, 2007.
(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 fees. The Series in turn
will pay 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 December 31, 1999, aggregate unreimbursed expenses amounted to
$143,703.
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 and MFS Service
Center, Inc. (MFSC).
Administrator - The Series has an administrative services agreement with MFS
to provide the Series with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Series pays MFS an administrative
fee at the following annual percentages of the Series' average daily net
assets:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the Series' 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 $27,777,247 $26,120,652
----------- -----------
Investments (non-U.S. government securities) $39,993,985 $28,391,012
=========== ===========
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 $24,864,478
-----------
Gross unrealized depreciation $(1,014,967)
Gross unrealized appreciation 26,031
-----------
Net unrealized depreciation $(1,064,453)
===========
(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:
YEAR ENDED DECEMBER 31, 1999 YEAR ENDED DECEMBER 31, 1998
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------
Shares sold 1,640,010 $18,298,783 890,572 $ 9,947,215
Shares issued to
shareholders in
reinvestment
of distributions 40,575 456,070 19,405 207,633
Shares reacquired (527,405) (5,805,014) (202,741) (2,276,530)
--------- ----------- ------- -----------
Net increase 1,153,180 $12,949,839 707,236 $ 7,878,318
========= =========== ======= ===========
(6) Line of Credit
The Series and other affiliated Series participate in an $820 million
unsecured line of credit provided by a syndication of banks under a line of
credit agreement. Borrowings may be made to temporarily finance the repurchase
of Series shares. Interest is charged to each Series, based on its borrowings,
at a rate equal to the bank's base rate. In addition, a commitment fee, based
on the average daily unused portion of the line of credit, is allocated among
the participating Series at the end of each quarter. The commitment fee
allocated to the Series for the year ended December 31, 1999, was $164. The
Series had no significant borrowings during the year.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of the MFS Variable Insurance Trust and Shareholders of MFS
Bond Series:
We have audited the accompanying statement of assets and liabilities of MFS
Bond Series (the Series) (one of the series constituting the MFS Variable
Insurance Trust), including the portfolio of investments, as of December 31,
1999, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1999, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Bond Series as of December 31, 1999, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 3, 2000
<PAGE>
FEDERAL TAX INFORMATION
The Series has designated $9,769 as a capital gain dividend for the year ended
December 31, 1999.
<PAGE>
MFS' YEAR 2000 READINESS DISCLOSURE
MFS Investment Management(R), as an investment adviser and
on behalf of the MFS funds, is committed to the effective
use of technology in managing our portfolio investments,
delivering high-quality service to MFS fund shareholders, [Graphic Omitted]
retirement plan participants, and MFS' institutional
clients, and supporting the financial consultants who sell
our products.
MFS can now say that it is ready for the Year 2000. Our testing has demonstrated
that MFS' computer hardware and software will recognize "00" as the Year 2000
and will not confuse those digits with 1900. All of our critical business
applications and processes have been successfully tested, and we have adopted
companywide policies that will help us maintain our readiness through the
remainder of the year. Any new technology that is brought into the company
before the end of the year will be held to the same stringent standards as our
current technology. We have also developed a vendor readiness survey, contacted
over 700 of our vendors, and established an ongoing process to review responses,
as well as to review readiness statements of new vendors and products.
MFS recognizes that fund shareholders and institutional clients also are
concerned about whether the companies whose securities are held in their
portfolios are addressing Y2K issues. As part of the MFS Original Research(R)
process of evaluating portfolio investments, one of the many relevant factors
that MFS' portfolio managers and research analysts may consider is a company's
Y2K readiness.
Y2K readiness is an enormously complex, worldwide issue. No company or
institution can guarantee that it will be unaffected by the Y2K issue. While MFS
is taking significant steps to protect the integrity of its internal systems,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact on MFS fund shareholders, retirement plan participants, or
institutional clients.
If you have further questions regarding MFS' Year 2000 Readiness Program, please
visit our Web site at WWW.MFS.COM, call our toll-free line, 1-800-637-4406, or
write to the MFS Year 2000 Program Management Office by e-mail at [email protected] or
by letter at 500 Boylston Street, Boston, MA 02116-3741.
<PAGE>
(C) 2000 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116 VFB-2 2/00 5M
