UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-08879
MFS VARIABLE INSURANCE TRUST III
(Exact name of registrant as specified in charter)
111 Huntington Avenue, Boston, Massachusetts 02199
(Address of principal executive offices) (Zip code)
Christopher R. Bohane
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, Massachusetts 02199
(Name and address of agents for service)
Registrant’s telephone number, including area code: (617) 954-5000
Date of fiscal year end: December 31
Date of reporting period: December 31, 2020
| ITEM 1. | REPORTS TO STOCKHOLDERS. |
Item 1(a):
Annual Report
December 31, 2020
MFS® Blended Research®
Small Cap Equity Portfolio
MFS® Variable Insurance Trust III
MFS® Blended Research® Small Cap Equity Portfolio
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The report is prepared for the general information of contract owners. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Blended Research Small Cap Equity Portfolio
Dear Contract Owners:
Markets experienced dramatic swings this year as the coronavirus pandemic brought the global economy to a standstill for several months early in the year. The speedy development of vaccines and therapeutics later brightened the economic and market outlook, but a great deal of uncertainty remains as case counts remain high, new variants of the virus are appearing and questions persist over how fast the vaccine can be made widely available. In the United States, political uncertainty eased after former Vice President Joe Biden won the presidential election and the Democrats gained control of a closely divided Senate.
Global central banks have taken aggressive steps to cushion the economic and market fallout related to the virus, and governments are deploying unprecedented levels of fiscal support. Additional U.S. stimulus is anticipated with the Democrats in the White House and in control of both houses of Congress. The measures already put in place have helped build a supportive environment and are encouraging economic recovery; however, if markets disconnect from fundamentals, they can sow the seeds of instability. As such, dramatic increases in speculative retail trading bear watching.
In the aftermath of the crisis, we could see societal changes as households, businesses, and governments adjust to a new reality, and any such alterations could affect the investment landscape. For investors, events such as the COVID-19 outbreak demonstrate the importance of having a deep understanding of company fundamentals, and we have built our global research platform to do just that.
At MFS®, we put our clients’ assets to work responsibly by carefully navigating the increasing complexity of our global markets and economies. Guided by our long-term philosophy and adhering to our commitment to sustainable investing, we tune out the noise and aim to uncover what we believe are the best, most durable investment opportunities in the market. Our unique global investment platform combines collective expertise, long-term discipline and thoughtful risk management to create sustainable value for investors.
Respectfully,
Michael W. Roberge
Chief Executive Officer
MFS Investment Management
February 16, 2021
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
MFS Blended Research Small Cap Equity Portfolio
Top ten holdings
| CNO Financial Group, Inc. | 1.7% |
| Cathay General Bancorp, Inc. | 1.6% |
| Cactus, Inc., “A” | 1.6% |
| Quanta Services, Inc. | 1.5% |
| Texas Roadhouse, Inc. | 1.5% |
| Regal Beloit Corp. | 1.4% |
| Brunswick Corp. | 1.4% |
| Evercore Partners, Inc. | 1.4% |
| TriMas Corp. | 1.4% |
| Element Solutions, Inc. | 1.4% |
GICS equity sectors (g)
| Health Care | 21.2% |
| Industrials | 15.0% |
| Financials | 14.4% |
| Information Technology | 14.1% |
| Consumer Discretionary | 12.2% |
| Real Estate | 7.7% |
| Materials | 4.6% |
| Consumer Staples | 2.9% |
| Communication Services | 2.8% |
| Energy | 2.6% |
| Utilities | 1.9% |
| (g) | The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and S&P Global Market Intelligence Inc. (“S&P Global Market Intelligence”). GICS is a service mark of MSCI and S&P Global Market Intelligence and has been licensed for use by MFS. MFS has applied its own internal sector/industry classification methodology for equity securities and non-equity securities that are unclassified by GICS. |
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of December 31, 2020.
The portfolio is actively managed and current holdings may be different.
MFS Blended Research Small Cap Equity Portfolio
Management Review
Summary of Results
For the twelve months ended December 31, 2020, Initial Class shares of the MFS Blended Research Small Cap Equity Portfolio (fund) provided a total return of 2.23%, while Service Class shares of the fund provided a total return of 2.14%. These compare with a return of 19.96% over the same period for the fund’s benchmark, the Russell 2000® Index.
Market Environment
Markets experienced an extraordinarily sharp selloff early in the period and, in many cases, an unusually rapid recovery later. Central banks and fiscal authorities undertook astonishing levels of stimulus to offset the economic effects of government-imposed social-distancing measures implemented to slow the spread of the COVID-19 virus. At this point, the global economy looks to have experienced the shortest — albeit the deepest and steepest — recession in the postwar period. However, the recovery remains subject to more than the usual number of uncertainties due to questions about the evolution of the virus, what its continued impact will be and how quickly vaccines to guard against it can be manufactured and distributed at scale. There are also worries over the public's willingness to be inoculated.
Around the world, central banks responded quickly and massively to the crisis with programs to improve liquidity and support markets. These programs proved largely successful in helping to restore market function, ease volatility and stimulate a continued market rebound. Late in the period, the US Federal Reserve adopted a new, flexible, average-inflation-targeting framework, which is expected to result in the federal funds rate remaining at low levels longer than under its previous model. In developed countries, monetary easing measures were complemented by unusually large fiscal stimulus initiatives. Due to relatively manageable external liabilities and balances of payments in many countries and persistently low inflation, even emerging market countries were able to implement countercyclical policies — a departure from the usual market-dictated response to risk-off crises.
Compounding market uncertainty earlier in the pandemic was a crash in the price of crude oil due to a sharp drop in global demand and a disagreement between Saudi Arabia and Russia over production cuts, which resulted in an oil price war. The subsequent decline in prices undercut oil exporters, many of which are in emerging markets, as well as a large segment of the high-yield credit market. The OPEC+ group later agreed on output cuts, with shale oil producers in the US also decreasing production, which, along with the gradual reopening of some major economies and the resultant boost in demand, helped stabilize the price of crude oil.
In the immediate aftermath of the market disruption that accompanied the initial phases of the pandemic, many companies that had added significant leverage to their balance sheets in recent years by borrowing to fund dividend payments and stock buybacks halted those activities, and some companies were forced to recapitalize. As markets and the economy stabilized later in the period, in many cases dividend payments and buybacks resumed. Conversely, some companies found themselves flush with liquidity, having borrowed preemptively during the worst of the crisis only to end up with excess cash on their balance sheets.
Detractors from Performance
Security selection within the health care sector detracted from performance relative to the Russell 2000® Index, led by the fund's not holding shares of strong-performing telehealthcare services provider Teladoc. The share price of Teladoc appreciated as the company reported strong financial results during the period and announced an agreement to merge with Livongo, which appeared to have been well received by the markets.
Security selection within both the consumer discretionary and industrials sectors also held back relative returns. Within the consumer discretionary sector, holding shares of footwear company Skechers USA(b) dampened relative results. Within the industrials sector, the fund’s overweight position in industrial supplies company MRC Global(h), and holding shares of chemical and ingredients distributor Univar Solutions(b), hindered relative returns.
Elsewhere, holding shares of independent natural gas and oil company WPX Energy(b)(h) and banking firm First Hawaiian(b) weakened relative performance. The share price of WPX Energy declined early in the period as a simultaneous drop in oil demand, amid the COVID-19 outbreak, and a massive increase in oil supply due to Saudi Arabia and Russia failing to agree on oil production levels, drove oil prices down globally. Additionally, overweight positions in financial services provider Hanmi Financial and real estate investment trust (REIT) Lexington Realty Trust, and the timing of the fund’s ownership in shares of both oilfield service company Liberty Oilfield Services and talent management system provider Cornerstone OnDemand(h), further detracted from relative results.
Contributors to Performance
Although there were no individual securities within the utilities sector, either in the fund or in the benchmark, that were among the fund's top relative contributors, security selection and, to a lesser extent, an underweight position within this sector benefited relative returns.
Stocks in other sectors that supported relative performance included the timing of the fund’s ownership in shares of both cloud contact center software provider Five9 and gambling products and services company Scientific Games. Overweight positions in biotherapeutic company Seres Therapeutics, healthcare services and logistics provider Owens & Minor and biopharmaceutical
MFS Blended Research Small Cap Equity Portfolio
Management Review - continued
company MacroGenics further benefited the fund's relative results. Additionally, holding shares of cloud-based human resources and payroll software solutions provider Paylocity Holding(b), electric power sector solutions company Quanta Services(b), cable and broadband communications provider Cable One(b), health care services company Molina Healthcare(b)(h) and cloud communications and collaboration solutions firm Ringcentral(b)(h) helped relative performance. The share price of Paylocity Holding appreciated as the company reported higher-than-expected revenues and profits, fueled by the addition of new contracts for payroll and HR software applications. The share price of Quanta Services advanced as the company delivered strong financial results, driven by higher-than-expected electrical revenues and better margin performance. Quanta Services also raised its earnings per share guidance figures, citing strong growth, and authorized a new stock repurchase program, which further benefited the stock.
Respectfully,
Portfolio Manager(s)
Jim Fallon, Matt Krummell, Jonathan Sage, and Jed Stocks
| (b) | Security is not a benchmark constituent. |
| (h) | Security was not held in the portfolio at period end. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
MFS Blended Research Small Cap Equity Portfolio
Performance Summary Through 12/31/20
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your units, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a contract holder would pay on fund distributions or the redemption of contract units. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/20
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 7/17/00 | 2.23% | 11.32% | 10.83% |
| Service Class | 5/01/06 | 2.14% | 11.06% | 10.56% |
Comparative benchmark(s)
| Russell 2000® Index (f) | 19.96% | 13.26% | 11.20% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
Russell 2000® Index(h) - constructed to provide a comprehensive barometer for securities in the small-cap segment of the U.S. equity universe. The index includes 2,000 of the smallest U.S. companies based on total market capitalization, representing approximately 10% of the investable U.S. equity market.
It is not possible to invest directly in an index.
| (h) | Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and/or Russell ratings or underlying data and no party may rely on any Russell Indexes and/or Russell ratings and/or underlying data contained in this document. No further distribution of Russell Data is permitted without Russell's express written consent. Russell does not promote, sponsor, or endorse the content of this document. |
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
MFS Blended Research Small Cap Equity Portfolio
Performance Summary – continued
Performance prior to close of business December 7, 2012, reflects time periods when another adviser or subadviser was responsible for selecting investments for the fund under a different investment objective and different investment strategies.
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
MFS Blended Research Small Cap Equity Portfolio
Expense Table
Fund Expenses Borne by the Contract Holders during the Period,
July 1, 2020 through December 31, 2020
As a contract holder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2020 through December 31, 2020.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund's ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
Share
Class | | Annualized
Expense
Ratio | Beginning
Account Value
7/01/20 | Ending
Account Value
12/31/20 | Expenses
Paid During
Period (p)
7/01/20-12/31/20 |
| Initial Class | Actual | 0.54% | $1,000.00 | $1,262.76 | $3.07 |
| Hypothetical (h) | 0.54% | $1,000.00 | $1,022.42 | $2.75 |
| Service Class | Actual | 0.79% | $1,000.00 | $1,261.60 | $4.49 |
| Hypothetical (h) | 0.79% | $1,000.00 | $1,021.17 | $4.01 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). |
MFS Blended Research Small Cap Equity Portfolio
Portfolio of Investments − 12/31/20
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – 99.4% |
| Aerospace – 2.1% | |
| CACI International, Inc., “A” (a) | | 3,016 | $ 751,979 |
| KBR, Inc. | | 37,444 | 1,158,143 |
| Smith & Wesson Brands, Inc. | | 2,431 | 43,150 |
| | | | | $1,953,272 |
| Apparel Manufacturers – 1.4% | |
| Levi Strauss & Co., “A” | | 8,673 | $ 174,154 |
| Skechers USA, Inc., “A” (a) | | 32,110 | 1,154,033 |
| | | | | $1,328,187 |
| Automotive – 0.2% | |
| Stoneridge, Inc. (a) | | 6,490 | $ 196,193 |
| Biotechnology – 8.6% | |
| Adaptive Biotechnologies Corp. (a) | | 11,244 | $ 664,858 |
| AnaptysBio, Inc. (a) | | 8,579 | 184,448 |
| Avid Bioservices, Inc. (a) | | 6,716 | 77,503 |
| Calithera Biosciences, Inc. (a) | | 36,768 | 180,531 |
| Clovis Oncology, Inc. (a)(l) | | 32,142 | 154,282 |
| Coherus BioSciences, Inc. (a) | | 27,572 | 479,201 |
| Concert Pharmaceuticals, Inc. (a) | | 17,368 | 219,532 |
| CymaBay Therapeutics, Inc. (a) | | 32,939 | 189,070 |
| CytomX Therapeutics, Inc. (a) | | 57,182 | 374,542 |
| Eiger BioPharmaceuticals, Inc. (a) | | 7,861 | 96,612 |
| Emergent BioSolutions, Inc. (a) | | 7,052 | 631,859 |
| Exelixis, Inc. (a) | | 10,930 | 219,365 |
| Macrogenics, Inc. (a) | | 25,198 | 576,026 |
| Meridian Bioscience, Inc. (a) | | 19,957 | 372,996 |
| Mersana Therapeutics, Inc. (a) | | 6,644 | 176,797 |
| Novavax, Inc. (a) | | 4,365 | 486,741 |
| Omeros Corp. (a)(l) | | 3,172 | 45,312 |
| Prothena Corp. PLC (a) | | 24,272 | 291,507 |
| Radius Health, Inc. (a) | | 12,328 | 220,178 |
| RAPT Therapeutics, Inc. (a) | | 3,455 | 68,236 |
| Seres Therapeutics, Inc. (a) | | 6,230 | 152,635 |
| Sorrento Therapeutics, Inc. (a)(l) | | 46,999 | 320,768 |
| Translate Bio, Inc. (a) | | 8,551 | 157,595 |
| Travere Therapeutics, Inc. (a) | | 24,696 | 673,089 |
| Vanda Pharmaceuticals, Inc. (a) | | 21,937 | 288,252 |
| Varex Imaging Corp. (a) | | 10,085 | 168,218 |
| Vir Biotechnology, Inc. (a) | | 11,954 | 320,128 |
| Voyager Therapeutics, Inc. (a) | | 25,138 | 179,737 |
| | | | | $7,970,018 |
| Brokerage & Asset Managers – 1.4% | |
| Evercore Partners, Inc. | | 12,033 | $ 1,319,298 |
| Business Services – 2.6% | |
| Bandwidth, Inc. (a) | | 615 | $ 94,507 |
| Forrester Research, Inc. (a) | | 20,242 | 848,140 |
| Proofpoint, Inc. (a) | | 3,863 | 526,952 |
| Rush Enterprises, Inc., “A” | | 12,998 | 538,377 |
| Stamps.com, Inc. (a) | | 2,194 | 430,441 |
| | | | | $2,438,417 |
| Cable TV – 1.3% | |
| Cable One, Inc. | | 522 | $ 1,162,870 |
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Chemicals – 1.4% | |
| Element Solutions, Inc. | | 72,584 | $ 1,286,914 |
| Computer Software – 3.9% | |
| ChannelAdvisor Corp. (a) | | 14,923 | $ 238,470 |
| Everbridge, Inc. (a) | | 1,122 | 167,257 |
| Pagerduty, Inc. (a) | | 23,152 | 965,438 |
| Paylocity Holding Corp. (a) | | 5,314 | 1,094,206 |
| Ping Identity Holding Corp. (a) | | 21,093 | 604,103 |
| Tenable Holdings, Inc. (a) | | 11,488 | 600,363 |
| | | | | $3,669,837 |
| Computer Software - Systems – 3.0% | |
| Box, Inc., “A” (a) | | 45,634 | $ 823,694 |
| Five9, Inc. (a) | | 7,083 | 1,235,275 |
| Verint Systems, Inc. (a) | | 10,825 | 727,223 |
| | | | | $2,786,192 |
| Construction – 2.4% | |
| Eagle Materials, Inc. | | 10,850 | $ 1,099,648 |
| Trex Co., Inc. (a) | | 13,774 | 1,153,159 |
| | | | | $2,252,807 |
| Consumer Products – 2.7% | |
| Energizer Holdings, Inc. | | 23,406 | $ 987,265 |
| Prestige Brands Holdings, Inc. (a) | | 32,454 | 1,131,671 |
| Tupperware Brands Corp. (a) | | 12,299 | 398,365 |
| | | | | $2,517,301 |
| Consumer Services – 1.9% | |
| BrightView Holdings, Inc. (a) | | 30,434 | $ 460,162 |
| Grand Canyon Education, Inc. (a) | | 9,305 | 866,389 |
| Medifast, Inc. | | 542 | 106,416 |
| Planet Fitness, Inc. (a) | | 4,094 | 317,817 |
| | | | | $1,750,784 |
| Electrical Equipment – 1.5% | |
| Resideo Technologies, Inc. (a) | | 2,719 | $ 57,806 |
| TriMas Corp. (a) | | 40,875 | 1,294,511 |
| | | | | $1,352,317 |
| Electronics – 4.5% | |
| Advanced Energy Industries, Inc. (a) | | 4,610 | $ 447,032 |
| Amkor Technology, Inc. | | 60,475 | 911,963 |
| Jabil Circuit, Inc. | | 11,696 | 497,431 |
| Plexus Corp. (a) | | 12,752 | 997,334 |
| Sanmina Corp. (a) | | 13,117 | 418,301 |
| Silicon Laboratories, Inc. (a) | | 7,505 | 955,686 |
| | | | | $4,227,747 |
| Energy - Independent – 0.1% | |
| Diamondback Energy, Inc. | | 1,148 | $ 55,563 |
| Range Resources Corp. (a) | | 10,267 | 68,789 |
| | | | | $124,352 |
MFS Blended Research Small Cap Equity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Engineering - Construction – 1.9% | |
| Quanta Services, Inc. | | 18,822 | $ 1,355,560 |
| Tutor Perini Corp. (a) | | 34,238 | 443,382 |
| | | | | $1,798,942 |
| Food & Beverages – 1.3% | |
| Hostess Brands, Inc. (a) | | 84,669 | $ 1,239,554 |
| Food & Drug Stores – 0.4% | |
| Grocery Outlet Holding Corp. (a) | | 9,065 | $ 355,801 |
| United Natural Foods, Inc. (a) | | 3,723 | 59,457 |
| | | | | $415,258 |
| Forest & Paper Products – 0.8% | |
| Clearwater Paper Corp. (a) | | 10,888 | $ 411,022 |
| Verso Corp., “A” | | 26,951 | 323,951 |
| | | | | $734,973 |
| Gaming & Lodging – 1.1% | |
| Penn National Gaming, Inc. (a) | | 1,551 | $ 133,960 |
| Wyndham Hotels & Resorts, Inc. | | 15,735 | 935,288 |
| | | | | $1,069,248 |
| Insurance – 3.5% | |
| Brighthouse Financial, Inc. (a) | | 5,677 | $ 205,536 |
| CNO Financial Group, Inc. | | 70,670 | 1,570,994 |
| Heritage Insurance Holdings, Inc. | | 12,951 | 131,194 |
| James River Group Holdings, Ltd. | | 3,092 | 151,972 |
| Reinsurance Group of America, Inc. | | 10,535 | 1,221,006 |
| | | | | $3,280,702 |
| Internet – 0.8% | |
| Cars.com, Inc. (a) | | 66,067 | $ 746,557 |
| Leisure & Toys – 3.4% | |
| Brunswick Corp. | | 17,380 | $ 1,325,051 |
| Malibu Boats, Inc., “A” (a) | | 15,778 | 985,179 |
| Nautilus, Inc. (a) | | 2,645 | 47,980 |
| Scientific Games Corp. (a) | | 20,477 | 849,591 |
| | | | | $3,207,801 |
| Machinery & Tools – 3.6% | |
| ACCO Brands Corp. | | 8,911 | $ 75,298 |
| AGCO Corp. | | 9,536 | 983,066 |
| Herman Miller, Inc. | | 4,852 | 163,998 |
| ITT, Inc. | | 6,331 | 487,614 |
| Regal Beloit Corp. | | 10,941 | 1,343,664 |
| Titan Machinery, Inc. (a) | | 16,884 | 330,082 |
| | | | | $3,383,722 |
| Medical & Health Technology & Services – 3.8% | |
| Covetrus, Inc. (a) | | 6,006 | $ 172,613 |
| HMS Holdings Corp. (a) | | 8,966 | 329,501 |
| Owens & Minor, Inc. | | 26,319 | 711,929 |
| Surgery Partners, Inc. (a) | | 14,341 | 416,032 |
| Syneos Health, Inc. (a) | | 13,264 | 903,676 |
| Tenet Healthcare Corp. (a) | | 24,981 | 997,491 |
| | | | | $3,531,242 |
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Medical Equipment – 5.0% | |
| Alphatec Holdings, Inc. (a) | | 23,189 | $ 336,704 |
| AngioDynamics, Inc. (a) | | 20,411 | 312,901 |
| Avanos Medical, Inc. (a) | | 12,800 | 587,264 |
| Bio-Techne Corp. | | 3,375 | 1,071,731 |
| CONMED Corp. | | 1,194 | 133,728 |
| Envista Holdings Corp. (a) | | 3,005 | 101,359 |
| GenMark Diagnostics, Inc. (a) | | 30,827 | 450,074 |
| Integer Holdings Corp. (a) | | 9,502 | 771,467 |
| LivaNova PLC (a) | | 1,513 | 100,176 |
| OraSure Technologies, Inc. (a) | | 20,554 | 217,564 |
| Orthofix Medical, Inc. (a) | | 5,137 | 220,788 |
| Vapotherm, Inc. (a) | | 2,468 | 66,291 |
| Zynex, Inc. (a) | | 22,735 | 306,013 |
| | | | | $4,676,060 |
| Natural Gas - Distribution – 0.4% | |
| MDU Resources Group, Inc. | | 15,536 | $ 409,218 |
| Network & Telecom – 0.2% | |
| QTS Realty Trust, Inc., REIT, “A” | | 2,410 | $ 149,131 |
| Oil Services – 1.8% | |
| Cactus, Inc., “A” | | 56,028 | $ 1,460,650 |
| ChampionX Corp. (a) | | 5,383 | 82,360 |
| Liberty Oilfield Services, Inc. | | 10,468 | 107,925 |
| | | | | $1,650,935 |
| Other Banks & Diversified Financials – 10.9% | |
| Bank OZK | | 40,625 | $ 1,270,344 |
| Cathay General Bancorp, Inc. | | 46,048 | 1,482,285 |
| East West Bancorp, Inc. | | 4,714 | 239,047 |
| Enova International, Inc. (a) | | 4,865 | 120,506 |
| First Hawaiian, Inc. | | 37,290 | 879,298 |
| Hanmi Financial Corp. | | 53,298 | 604,399 |
| Herc Holdings, Inc. (a) | | 11,019 | 731,772 |
| Prosperity Bancshares, Inc. | | 13,310 | 923,182 |
| Signature Bank | | 4,796 | 648,851 |
| SLM Corp. | | 69,537 | 861,563 |
| Triton International Ltd. of Bermuda | | 10,838 | 525,751 |
| UMB Financial Corp. | | 13,936 | 961,445 |
| Wintrust Financial Corp. | | 14,151 | 864,485 |
| | | | | $ 10,112,928 |
| Pharmaceuticals – 2.6% | |
| Amneal Pharmaceuticals, Inc. (a) | | 20,271 | $ 92,639 |
| Aquestive Therapeutics, Inc. (a)(l) | | 13,620 | 72,867 |
| Arcturus Therapeutics Holdings Inc. (a) | | 3,000 | 130,140 |
| Collegium Pharmaceutical, Inc. (a) | | 17,546 | 351,446 |
| G1 Therapeutics, Inc. (a) | | 12,266 | 220,665 |
| IDEAYA Biosciences, Inc. (a) | | 17,029 | 238,406 |
| Immunic, Inc. (a) | | 2,676 | 40,916 |
| Ironwood Pharmaceuticals, Inc. (a) | | 4,203 | 47,872 |
| OPKO Health, Inc. (a) | | 11,037 | 43,596 |
| Phibro Animal Health Corp., “A” | | 15,305 | 297,223 |
| TCR Therapeutics, Inc. (a) | | 5,034 | 155,702 |
| United Therapeutics Corp. (a) | | 5,000 | 758,950 |
| | | | | $2,450,422 |
MFS Blended Research Small Cap Equity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Precious Metals & Minerals – 0.1% | |
| Hecla Mining Co. | | 11,279 | $ 73,088 |
| Printing & Publishing – 0.1% | |
| Cimpress PLC (a) | | 832 | $ 73,000 |
| Railroad & Shipping – 0.2% | |
| Diamond S Shipping, Inc. (a) | | 34,620 | $ 230,569 |
| Real Estate – 7.6% | |
| Industrial Logistics Properties Trust, REIT | | 54,656 | $ 1,272,938 |
| Innovative Industrial Properties, Inc., REIT | | 3,666 | 671,355 |
| Lexington Realty Trust, REIT | | 106,033 | 1,126,071 |
| Life Storage, Inc., REIT | | 348 | 41,548 |
| Office Properties Income Trust, REIT | | 6,046 | 137,365 |
| RE/MAX Holdings, Inc., “A” | | 14,546 | 528,456 |
| Spirit Realty Capital, Inc., REIT | | 24,078 | 967,213 |
| STAG Industrial, Inc., REIT | | 35,288 | 1,105,220 |
| STORE Capital Corp., REIT | | 34,891 | 1,185,596 |
| | | | | $7,035,762 |
| Restaurants – 1.5% | |
| Texas Roadhouse, Inc. | | 17,313 | $ 1,353,184 |
| Specialty Chemicals – 2.9% | |
| Axalta Coating Systems Ltd. (a) | | 33,146 | $ 946,318 |
| Kraton Corp. (a) | | 7,646 | 212,482 |
| Renewable Energy Group, Inc. (a) | | 5,230 | 370,389 |
| Univar Solutions, Inc. (a) | | 61,072 | 1,160,979 |
| | | | | $2,690,168 |
| Specialty Stores – 2.3% | |
| At Home Group, Inc. (a) | | 13,116 | $ 202,774 |
| Camping World Holdings, Inc. “A” | | 15,681 | 408,490 |
| CarParts.com, Inc. (a) | | 32,070 | 397,347 |
| Lumber Liquidators Holdings, Inc. (a) | | 13,784 | 423,720 |
| Overstock.com, Inc. (a) | | 8,604 | 412,734 |
| Urban Outfitters, Inc. (a) | | 12,473 | 319,309 |
| | | | | $2,164,374 |
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Telecommunications - Wireless – 0.3% | |
| Telephone and Data Systems, Inc. | | 14,758 | $ 274,056 |
| Telephone Services – 0.3% | |
| ATN International, Inc. | | 4,382 | $ 182,993 |
| Consolidated Communications Holdings, Inc. (a) | | 26,398 | 129,086 |
| | | | | $312,079 |
| Trucking – 2.1% | |
| Daseke, Inc. (a) | | 13,206 | $ 76,727 |
| Forward Air Corp. | | 14,341 | 1,101,962 |
| Schneider National, Inc. | | 37,420 | 774,594 |
| | | | | $1,953,283 |
| Utilities - Electric Power – 1.5% | |
| Clearway Energy, Inc., “A” | | 32,435 | $ 958,454 |
| NRG Energy, Inc. | | 10,601 | 398,068 |
| | | | | $1,356,522 |
| Total Common Stocks (Identified Cost, $69,849,279) | | $92,709,284 |
| Investment Companies (h) – 0.6% |
| Money Market Funds – 0.6% | |
| MFS Institutional Money Market Portfolio, 0.1% (v) (Identified Cost, $529,846) | | | 529,846 | $ 529,846 |
| Collateral for Securities Loaned – 0.2% |
| State Street Navigator Securities Lending Government Money Market Portfolio, 0.1% (j) (Identified Cost, $174,802) | | | 174,802 | $ 174,802 |
| Other Assets, Less Liabilities – (0.2)% | | (192,711) |
| Net Assets – 100.0% | $93,221,221 |
| (a) | Non-income producing security. | | | |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $529,846 and $92,884,086, respectively. | | | |
| (j) | The rate quoted is the annualized seven-day yield of the fund at period end. | | | |
| (l) | A portion of this security is on loan. See Note 2 for additional information. | | | |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | | | |
| The following abbreviations are used in this report and are defined: |
| REIT | Real Estate Investment Trust |
See Notes to Financial Statements
MFS Blended Research Small Cap Equity Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/20Assets | |
| Investments in unaffiliated issuers, at value, including $261,217 of securities on loan (identified cost, $70,024,081) | $92,884,086 |
| Investments in affiliated issuers, at value (identified cost, $529,846) | 529,846 |
| Receivables for | |
| Fund shares sold | 53,539 |
| Interest and dividends | 82,926 |
| Other assets | 767 |
| Total assets | $93,551,164 |
| Liabilities | |
| Payables for | |
| Fund shares reacquired | $101,511 |
| Collateral for securities loaned, at value (c) | 174,802 |
| Payable to affiliates | |
| Investment adviser | 1,979 |
| Administrative services fee | 123 |
| Shareholder servicing costs | 46 |
| Distribution and/or service fees | 810 |
| Payable for independent Trustees' compensation | 44 |
| Accrued expenses and other liabilities | 50,628 |
| Total liabilities | $329,943 |
| Net assets | $93,221,221 |
| Net assets consist of | |
| Paid-in capital | $73,591,341 |
| Total distributable earnings (loss) | 19,629,880 |
| Net assets | $93,221,221 |
| Shares of beneficial interest outstanding | 8,757,639 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $33,850,386 | 3,101,563 | $10.91 |
| Service Class | 59,370,835 | 5,656,076 | 10.50 |
| (c) | Non-cash collateral is not included. |
See Notes to Financial Statements
MFS Blended Research Small Cap Equity Portfolio
| Financial Statements | Statement of Operations |
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| Year ended 12/31/20 | |
| Net investment income (loss) | |
| Income | |
| Dividends | $1,344,184 |
| Other | 20,717 |
| Income on securities loaned | 10,594 |
| Dividends from affiliated issuers | 4,798 |
| Foreign taxes withheld | (966) |
| Total investment income | $1,379,327 |
| Expenses | |
| Management fee | $345,197 |
| Distribution and/or service fees | 139,122 |
| Shareholder servicing costs | 8,898 |
| Administrative services fee | 22,275 |
| Independent Trustees' compensation | 2,533 |
| Custodian fee | 4,629 |
| Shareholder communications | 13,857 |
| Audit and tax fees | 56,164 |
| Legal fees | 862 |
| Miscellaneous | 24,609 |
| Total expenses | $618,146 |
| Reduction of expenses by investment adviser | (9,495) |
| Net expenses | $608,651 |
| Net investment income (loss) | $770,676 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $(3,204,689) |
| Affiliated issuers | 173 |
| Net realized gain (loss) | $(3,204,516) |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $7,925,642 |
| Net realized and unrealized gain (loss) | $4,721,126 |
| Change in net assets from operations | $5,491,802 |
See Notes to Financial Statements
MFS Blended Research Small Cap Equity Portfolio
| Financial Statements | Statements of Changes in Net Assets |
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | Year ended |
| | 12/31/20 | 12/31/19 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $770,676 | $606,214 |
| Net realized gain (loss) | (3,204,516) | 6,772,706 |
| Net unrealized gain (loss) | 7,925,642 | 14,566,646 |
| Change in net assets from operations | $5,491,802 | $21,945,566 |
| Total distributions to shareholders | $(7,515,113) | $(15,999,143) |
| Change in net assets from fund share transactions | $(1,294,777) | $5,008,803 |
| Total change in net assets | $(3,318,088) | $10,955,226 |
| Net assets | | |
| At beginning of period | 96,539,309 | 85,584,083 |
| At end of period | $93,221,221 | $96,539,309 |
See Notes to Financial Statements
MFS Blended Research Small Cap Equity Portfolio
| Financial Statements | Financial Highlights |
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 |
| Net asset value, beginning of period | $11.66 | $11.25 | $13.47 | $13.23 | $12.29 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.10 | $0.10 | $0.09 | $0.11 | $0.11(c) |
| Net realized and unrealized gain (loss) | 0.01(g) | 2.56 | (0.40) | 1.70 | 2.35 |
| Total from investment operations | $0.11 | $2.66 | $(0.31) | $1.81 | $2.46 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.09) | $(0.10) | $(0.13) | $(0.12) | $(0.16) |
| From net realized gain | (0.77) | (2.15) | (1.78) | (1.45) | (1.36) |
| Total distributions declared to shareholders | $(0.86) | $(2.25) | $(1.91) | $(1.57) | $(1.52) |
| Net asset value, end of period (x) | $10.91 | $11.66 | $11.25 | $13.47 | $13.23 |
| Total return (%) (k)(r)(s)(x) | 2.23 | 26.78 | (5.11) | 14.97 | 20.90(c) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions (f) | 0.55 | 0.54 | 0.54 | 0.53 | 0.42(c) |
| Expenses after expense reductions (f) | 0.54 | 0.53 | 0.53 | 0.52 | 0.41(c) |
| Net investment income (loss) | 1.05 | 0.81 | 0.69 | 0.82 | 0.92(c) |
| Portfolio turnover | 84 | 59 | 72 | 81 | 72 |
| Net assets at end of period (000 omitted) | $33,850 | $35,441 | $29,936 | $36,195 | $28,715 |
| Service Class | Year ended |
| | 12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 |
| Net asset value, beginning of period | $11.24 | $10.92 | $13.12 | $12.92 | $12.03 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.07 | $0.07 | $0.06 | $0.07 | $0.08(c) |
| Net realized and unrealized gain (loss) | 0.02(g) | 2.46 | (0.39) | 1.67 | 2.29 |
| Total from investment operations | $0.09 | $2.53 | $(0.33) | $1.74 | $2.37 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.06) | $(0.06) | $(0.09) | $(0.09) | $(0.12) |
| From net realized gain | (0.77) | (2.15) | (1.78) | (1.45) | (1.36) |
| Total distributions declared to shareholders | $(0.83) | $(2.21) | $(1.87) | $(1.54) | $(1.48) |
| Net asset value, end of period (x) | $10.50 | $11.24 | $10.92 | $13.12 | $12.92 |
| Total return (%) (k)(r)(s)(x) | 2.14 | 26.36 | (5.35) | 14.70 | 20.58(c) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions (f) | 0.80 | 0.79 | 0.79 | 0.78 | 0.67(c) |
| Expenses after expense reductions (f) | 0.79 | 0.78 | 0.78 | 0.77 | 0.66(c) |
| Net investment income (loss) | 0.80 | 0.56 | 0.43 | 0.55 | 0.66(c) |
| Portfolio turnover | 84 | 59 | 72 | 81 | 72 |
| Net assets at end of period (000 omitted) | $59,371 | $61,099 | $55,648 | $71,366 | $74,453 |
See Notes to Financial Statements
MFS Blended Research Small Cap Equity Portfolio
Financial Highlights - continued
| (c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
| (d) | Per share data is based on average shares outstanding. |
| (f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (g) | The per share amount varies from the net realized and unrealized gain/loss for the period because of the timing of sales of fund shares and the per share amount of realized and unrealized gains and losses at such time. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
MFS Blended Research Small Cap Equity Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS Blended Research Small Cap Equity Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust III (the trust). The trust is organized as a Delaware statutory 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, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. 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 increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund will generally focus on securities of small size companies which may be more volatile than those of larger companies.
In March 2020, the FASB issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional, temporary relief with respect to the financial reporting of contracts subject to certain types of modifications due to the planned discontinuation of the London Interbank Offered Rate (LIBOR) and other IBOR-based reference rates as of the end of 2021. The temporary relief provided by ASU 2020-04 is effective for certain reference rate-related contract modifications that occur during the period from March 12, 2020 through December 31, 2022. Management is evaluating the impact of ASU 2020-04 on the fund's investments, derivatives, debt and other contracts that will undergo reference rate-related modifications as a result of the reference rate reform.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S.
MFS Blended Research Small Cap Equity Portfolio
Notes to Financial Statements - continued
markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser's own assumptions in determining the fair value of investments. The following is a summary of the levels used as of December 31, 2020 in valuing the fund's assets or liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities | $92,709,284 | $— | $— | $92,709,284 |
| Mutual Funds | 704,648 | — | — | 704,648 |
| Total | $93,413,932 | $— | $— | $93,413,932 |
For further information regarding security characteristics, see the Portfolio of Investments.
Security Loans — Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. On loans collateralized by cash, the cash collateral is invested in a money market fund. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. The lending agent provides the fund with indemnification against Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the loaned securities. In return, the lending agent assumes the fund's rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the extent that such shortfall is not due to a decline in collateral value resulting from collateral reinvestment for which the fund bears the risk of loss. At period end, the fund had investment securities on loan, all of which were classified as equity securities in the fund's Portfolio of Investments, with a fair value of $261,217. The fair value of the fund's investment securities on loan and a related liability of $174,802 for cash collateral received on securities loaned are both presented gross in the Statement of Assets and Liabilities. Additionally, these loans were collateralized by U.S. Treasury Obligations of $104,513 held by the lending agent. The collateral on securities loaned exceeded the value of securities on loan at period end. The liability for cash collateral for securities loaned is carried at fair value, which is categorized as level 2 within the fair value hierarchy. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is separately reported in the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
MFS Blended Research Small Cap Equity Portfolio
Notes to Financial Statements - continued
Investment Transactions and Income — Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend payments received in additional securities are recorded on the ex-dividend date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/20 | Year ended
12/31/19 |
| Ordinary income (including any short-term capital gains) | $1,857,641 | $4,407,046 |
| Long-term capital gains | 5,657,472 | 11,592,097 |
| Total distributions | $7,515,113 | $15,999,143 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| As of 12/31/20 | |
| Cost of investments | $71,231,238 |
| Gross appreciation | 24,531,199 |
| Gross depreciation | (2,348,505) |
| Net unrealized appreciation (depreciation) | $22,182,694 |
| Undistributed ordinary income | 769,347 |
| Capital loss carryforwards | (3,322,161) |
As of December 31, 2020, the fund had capital loss carryforwards available to offset future realized gains. These net capital losses may be carried forward indefinitely and their character is retained as short-term and/or long-term losses. Such losses are characterized as follows:
| Short-Term | $(2,619,187) |
| Long-Term | (702,974) |
| Total | $(3,322,161) |
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
MFS Blended Research Small Cap Equity Portfolio
Notes to Financial Statements - continued
| | Year
ended
12/31/20 | | Year
ended
12/31/19 |
| Initial Class | $2,607,703 | | $5,626,679 |
| Service Class | 4,907,410 | | 10,372,464 |
| Total | $7,515,113 | | $15,999,143 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at an annual rate of 0.40% of the fund’s average daily net assets. MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. For the year ended December 31, 2020, this management fee reduction amounted to $9,495, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2020 was equivalent to an annual effective rate of 0.39% of the fund's average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 0.60% of average daily net assets for the Initial Class shares and 0.85% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2022. For the year ended December 31, 2020, the fund’s actual operating expenses did not exceed the limit and therefore, the investment adviser did not pay any portion of the fund’s expenses related to this agreement.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent — MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2020, the fee was $8,054, which equated to 0.0093% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2020, these costs amounted to $844.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the year ended December 31, 2020 was equivalent to an annual effective rate of 0.0258% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
The adviser has voluntarily undertaken to reimburse the fund from its own resources on a quarterly basis for the cost of investment research embedded in the cost of the fund’s securities trades. This agreement may be rescinded at any time. For the year ended December 31, 2020, this reimbursement amounted to $20,692, which is included in “Other” income in the Statement of Operations.
MFS Blended Research Small Cap Equity Portfolio
Notes to Financial Statements - continued
(4) Portfolio Securities
For the year ended December 31, 2020, purchases and sales of investments, other than short-term obligations, aggregated $72,270,353 and $79,980,303, respectively.
(5) Shares of Beneficial Interest
The fund's Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
| | Year ended
12/31/20 | | Year ended
12/31/19 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 825,995 | $6,434,636 | | 340,890 | $4,063,323 |
| Service Class | 1,413,665 | 11,455,698 | | 563,636 | 6,702,429 |
| | 2,239,660 | $17,890,334 | | 904,526 | $10,765,752 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 281,002 | $2,607,703 | | 558,757 | $5,626,679 |
| Service Class | 549,542 | 4,907,410 | | 1,067,126 | 10,372,463 |
| | 830,544 | $7,515,113 | | 1,625,883 | $15,999,142 |
| Shares reacquired | | | | | |
| Initial Class | (1,046,160) | $(10,004,310) | | (520,733) | $(6,389,300) |
| Service Class | (1,740,816) | (16,695,914) | | (1,294,674) | (15,366,791) |
| | (2,786,976) | $(26,700,224) | | (1,815,407) | $(21,756,091) |
| Net change | | | | | |
| Initial Class | 60,837 | $(961,971) | | 378,914 | $3,300,702 |
| Service Class | 222,391 | (332,806) | | 336,088 | 1,708,101 |
| | 283,228 | $(1,294,777) | | 715,002 | $5,008,803 |
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.25 billion unsecured committed line of credit of which $1 billion is reserved for use by the fund and certain other U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2020, the fund’s commitment fee and interest expense were $474 and $28, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $757,875 | $26,094,548 | $26,322,750 | $173 | $— | $529,846 |
MFS Blended Research Small Cap Equity Portfolio
Notes to Financial Statements - continued
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $4,798 | $— |
(8) Impacts of COVID-19
The pandemic related to the global spread of novel coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to global business activity and the global economy, as well as the economies of individual countries, the financial performance of individual companies and sectors, and the securities and commodities markets in general. This pandemic, the full effects of which are still unknown, has resulted in substantial market volatility and may have adversely impacted the prices and liquidity of the fund's investments and the fund's performance.
MFS Blended Research Small Cap Equity Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust III and the Shareholders of MFS Blended Research Small Cap Equity Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Blended Research Small Cap Equity Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2020, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2020, and 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 accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2020, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 16, 2021
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS Blended Research Small Cap Equity Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2021, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEES | | |
Robert J. Manning (k)
(age 57) | | Trustee | | February 2004 | | 134 | | Massachusetts Financial Services Company, Non-Executive Chairman (since January 2021); Director; Chairman of the Board; Executive Chairman (January 2017-2020); Co-Chief Executive Officer (2015-2016) | | N/A |
Michael W. Roberge (k)
(age 54) | | Trustee | | January 2021 | | 134 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; President (until December 2018); Chief Investment Officer (until December 2018); Co-Chief Executive Officer (until December 2016) | | N/A |
| INDEPENDENT TRUSTEES | | |
John P. Kavanaugh
(age 66) | | Trustee and Chair of Trustees | | January 2009 | | 134 | | Private investor | | N/A |
Steven E. Buller
(age 69) | | Trustee | | February 2014 | | 134 | | Private investor | | N/A |
John A. Caroselli
(age 66) | | Trustee | | March 2017 | | 134 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 65) | | Trustee | | January 2009 | | 134 | | Private investor | | N/A |
Peter D. Jones
(age 65) | | Trustee | | January 2019 | | 134 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 59) | | Trustee | | January 2019 | | 134 | | Burford Capital Limited (finance and investment management), Chief Financial Officer (since 2019); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016); Morgan Stanley & Co. (financial services), Vice Chairman of Investment Banking, Co-Head of Diversified Financials Coverage – Financial Institutions Investment Banking Group (until 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 64) | | Trustee | | March 2017 | | 134 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
MFS Blended Research Small Cap Equity Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
Maryanne L. Roepke
(age 64) | | Trustee | | May 2014 | | 134 | | Private investor | | N/A |
Laurie J. Thomsen
(age 63) | | Trustee | | March 2005 | | 134 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 47) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 134 | | Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel |
Kino Clark (k)
(age 52) | | Assistant Treasurer | | January 2012 | | 134 | | Massachusetts Financial Services Company, Vice President |
John W. Clark, Jr. (k)
(age 53) | | Assistant Treasurer | | April 2017 | | 134 | | Massachusetts Financial Services Company, Vice President (since March 2017); Deutsche Bank (financial services), Department Head - Treasurer's Office (until February 2017) |
Thomas H. Connors (k)
(age 61) | | Assistant Secretary and Assistant Clerk | | September 2012 | | 134 | | Massachusetts Financial Services Company, Vice President and Senior Counsel |
David L. DiLorenzo (k)
(age 52) | | President | | July 2005 | | 134 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 53) | | Secretary and Clerk | | April 2017 | | 134 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel (since March 2017); Harris Associates (investment management), General Counsel (until January 2017) |
Brian E. Langenfeld (k)
(age 47) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 134 | | Massachusetts Financial Services Company, Vice President and Senior Counsel |
Amanda S. Mooradian (k)
(age 41) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 134 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 134 | | Massachusetts Financial Services Company, Vice President and Assistant General Counsel |
Kasey L. Phillips (k)
(age 50) | | Assistant Treasurer | | September 2012 | | 134 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 46) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 134 | | Massachusetts Financial Services Company, Vice President and Assistant General Counsel |
Martin J. Wolin (k)
(age 53) | | Chief Compliance Officer | | July 2015 | | 134 | | Massachusetts Financial Services Company, Senior Vice President and Chief Compliance Officer |
MFS Blended Research Small Cap Equity Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
James O. Yost (k)
(age 60) | | Treasurer | | September 1990 | | 134 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. For the period from December 15, 2004 until February 22, 2005, Mr. Manning served as Advisory Trustee. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Messrs. Buller, Kilman and Otis and Ms. Roepke are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Lincoln Street
Boston, MA 02111-2900 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
Jim Fallon
Matt Krummell
Jonathan Sage
Jed Stocks | |
MFS Blended Research Small Cap Equity Portfolio
Board Review of Investment Advisory Agreement
MFS Blended Research Small Cap Equity Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times by videoconference (in accordance with Securities and Exchange Commission relief) over the course of three months beginning in May and ending in July, 2020 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2019 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2019, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 1st quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 1st quintile for each of the one- and three-year periods ended December 31, 2019 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
MFS Blended Research Small Cap Equity Portfolio
Board Review of Investment Advisory Agreement - continued
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate and total expense ratio were each lower than the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is not subject to any breakpoints. Taking into account the expense limitation noted above, the Trustees determined not to recommend any advisory fee breakpoints for the Fund at this time. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the group fee waiver was sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
MFS Blended Research Small Cap Equity Portfolio
Board Review of Investment Advisory Agreement - continued
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2020.
MFS Blended Research Small Cap Equity Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit3 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit3 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates $6,224,000 as capital gain dividends paid during the fiscal year.
For corporate shareholders, 45.66% of the ordinary income dividends paid during the fiscal year qualify for the corporate dividends received deduction.
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2020
MFS® Conservative
Allocation Portfolio
MFS® Variable Insurance Trust III
MFS® Conservative Allocation Portfolio
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The report is prepared for the general information of contract owners. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Conservative Allocation Portfolio
Dear Contract Owners:
Markets experienced dramatic swings this year as the coronavirus pandemic brought the global economy to a standstill for several months early in the year. The speedy development of vaccines and therapeutics later brightened the economic and market outlook, but a great deal of uncertainty remains as case counts remain high, new variants of the virus are appearing and questions persist over how fast the vaccine can be made widely available. In the United States, political uncertainty eased after former Vice President Joe Biden won the presidential election and the Democrats gained control of a closely divided Senate.
Global central banks have taken aggressive steps to cushion the economic and market fallout related to the virus, and governments are deploying unprecedented levels of fiscal support. Additional U.S. stimulus is anticipated with the Democrats in the White House and in control of both houses of Congress. The measures already put in place have helped build a supportive environment and are encouraging economic recovery; however, if markets disconnect from fundamentals, they can sow the seeds of instability. As such, dramatic increases in speculative retail trading bear watching.
In the aftermath of the crisis, we could see societal changes as households, businesses, and governments adjust to a new reality, and any such alterations could affect the investment landscape. For investors, events such as the COVID-19 outbreak demonstrate the importance of having a deep understanding of company fundamentals, and we have built our global research platform to do just that.
At MFS®, we put our clients’ assets to work responsibly by carefully navigating the increasing complexity of our global markets and economies. Guided by our long-term philosophy and adhering to our commitment to sustainable investing, we tune out the noise and aim to uncover what we believe are the best, most durable investment opportunities in the market. Our unique global investment platform combines collective expertise, long-term discipline and thoughtful risk management to create sustainable value for investors.
Respectfully,
Michael W. Roberge
Chief Executive Officer
MFS Investment Management
February 16, 2021
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
MFS Conservative Allocation Portfolio
Portfolio target allocation
Portfolio actual allocation
Portfolio holdings
| MFS Total Return Bond Series | 16.8% |
| MFS Limited Maturity Portfolio | 11.7% |
| MFS Inflation-Adjusted Bond Portfolio | 10.0% |
| MFS Government Securities Portfolio | 9.7% |
| MFS Global Governments Portfolio | 8.0% |
| MFS Value Series | 6.1% |
| MFS Research Series | 6.1% |
| MFS Growth Series | 6.0% |
| MFS High Yield Portfolio | 5.0% |
| MFS Mid Cap Growth Series | 4.1% |
| MFS Research International Portfolio | 4.1% |
| MFS Mid Cap Value Portfolio | 4.0% |
| MFS International Growth Portfolio | 2.0% |
| MFS Global Real Estate Portfolio | 2.0% |
| MFS International Intrinsic Value Portfolio | 2.0% |
| MFS New Discovery Series | 1.0% |
| MFS New Discovery Value Portfolio | 1.0% |
| Cash & Cash Equivalents | 0.4% |
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. MFS endeavors to fully invest all MFS funds-of-funds in underlying funds on a daily basis. Any divergence from 0.0% in Cash & Cash Equivalents is typically due to the timing of fund subscriptions/redemptions and the settlement of subsequent investment in/divestment from the underlying funds. While the MFS funds-of-funds' subscriptions/redemptions are processed at the same day NAV of the underlying funds, a positive/negative cash balance will be reflected on the MFS funds-of-funds' Statements of Assets and Liabilities until the trades with the underlying funds settle, which is typically two business days. Please see the fund's Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of December 31, 2020.
The portfolio is actively managed and current holdings may be different.
MFS Conservative Allocation Portfolio
Management Review
Summary of Results
For the twelve months ended December 31, 2020, Initial Class shares of the MFS Conservative Allocation Portfolio (fund) provided a total return of 12.31%, while Service Class shares of the fund provided a total return of 12.06%. These compare with a return of 7.51% for the fund's benchmark, the Bloomberg Barclays U.S. Aggregate Bond Index. The fund’s other benchmark, the MFS Conservative Allocation Portfolio Blended Index (Blended Index), generated a return of 10.93%. The Blended Index reflects the blended returns of various equity and fixed income market indices, with percentage allocations to each index designed to resemble the allocations of the fund. The market indices and related percentage allocations used to compile the Blended Index are set forth in the Performance Summary.
Market Environment
Markets experienced an extraordinarily sharp selloff early in the period and, in many cases, an unusually rapid recovery later. Central banks and fiscal authorities undertook astonishing levels of stimulus to offset the economic effects of government-imposed social-distancing measures implemented to slow the spread of the COVID-19 virus. At this point, the global economy looks to have experienced the shortest — albeit the deepest and steepest — recession in the postwar period. However, the recovery remains subject to more than the usual number of uncertainties due to questions about the evolution of the virus, what its continued impact will be and how quickly vaccines to guard against it can be manufactured and distributed at scale. There are also worries over the public's willingness to be inoculated.
Around the world, central banks responded quickly and massively to the crisis with programs to improve liquidity and support markets. These programs proved largely successful in helping to restore market function, ease volatility and stimulate a continued market rebound. Late in the period, the US Federal Reserve adopted a new, flexible, average-inflation-targeting framework, which is expected to result in the federal funds rate remaining at low levels longer than under its previous model. In developed countries, monetary easing measures were complemented by unusually large fiscal stimulus initiatives. Due to relatively manageable external liabilities and balances of payments in many countries and persistently low inflation, even emerging market countries were able to implement countercyclical policies — a departure from the usual market-dictated response to risk-off crises.
Compounding market uncertainty earlier in the pandemic was a crash in the price of crude oil due to a sharp drop in global demand and a disagreement between Saudi Arabia and Russia over production cuts, which resulted in an oil price war. The subsequent decline in prices undercut oil exporters, many of which are in emerging markets, as well as a large segment of the high-yield credit market. The OPEC+ group later agreed on output cuts, with shale oil producers in the US also decreasing production, which, along with the gradual reopening of some major economies and the resultant boost in demand, helped stabilize the price of crude oil.
In the immediate aftermath of the market disruption that accompanied the initial phases of the pandemic, many companies that had added significant leverage to their balance sheets in recent years by borrowing to fund dividend payments and stock buybacks halted those activities, and some companies were forced to recapitalize. As markets and the economy stabilized later in the period, in many cases dividend payments and buybacks resumed. Conversely, some companies found themselves flush with liquidity, having borrowed preemptively during the worst of the crisis only to end up with excess cash on their balance sheets.
Factors Affecting Performance
During the reporting period, the fund outperformed its benchmark, the Bloomberg Barclays U.S. Aggregate Bond Index, as all asset classes performed strongly during the year. Over the same period, the fund also outperformed the Blended Index. Rebalancing back to target equity weights after equity markets had declined in the first quarter benefited performance relative to the Blended Index, as stocks rebounded later in the year.
Relative to the Blended Index, the international equity segment was a primary contributor to relative performance as both the MFS International Intrinsic Value Portfolio and MFS Research International Portfolio outperformed their respective benchmarks during the reporting period. The fund's investments in the MFS International Growth Portfolio also helped relative results.
The fund's exposure to the fixed income asset class further supported relative performance, led by its allocation to the MFS Inflation-Adjusted Bond Portfolio and MFS Global Governments Portfolio, which outweighed weakness from the fund's exposure to shorter duration portfolios, particularly the MFS Limited Maturity Portfolio, given strong bond market performance during the period, and its exposure to, and the underperformance (relative to its respective benchmark) of, the MFS High Yield Portfolio.
The fund's exposure to the U.S. equity asset class also benefited relative performance. Here, exposure to growth-oriented funds, particularly the MFS Growth Series, MFS Mid Cap Growth Series and MFS New Discovery Series, helped relative returns and offset weakness from the fund's exposure to value-oriented strategies, most notably the MFS Value Series and MFS Mid Cap Value Portfolio.
MFS Conservative Allocation Portfolio
Management Review - continued
Lastly, the specialty segment was another positive contributor to relative performance as the MFS Global Real Estate Portfolio outperformed its respective benchmark.
Respectfully,
Portfolio Manager(s)
Joseph Flaherty and Natalie Shapiro
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
MFS Conservative Allocation Portfolio
Performance Summary Through 12/31/20
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your units, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a contract holder would pay on fund distributions or the redemption of contract units. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/20
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 10/01/08 | 12.31% | 8.37% | 6.54% |
| Service Class | 10/01/08 | 12.06% | 8.10% | 6.27% |
Comparative benchmark(s)
| Bloomberg Barclays U.S. Aggregate Bond Index (f) | 7.51 % | 4.44% | 3.84% |
| MFS Conservative Allocation Portfolio Blended Index (f)(w) | 10.93 % | 7.91% | 7.01% |
| FTSE EPRA Nareit Developed Reat Estate Index (net div) (f) | (9.04)% | 3.74% | 5.44% |
| MSCI EAFE Index (net div) (f) | 7.82 % | 7.45% | 5.51% |
| Standard & Poor's 500 Stock Index (f) | 18.40 % | 15.22% | 13.88% |
| (f) | Source: FactSet Research Systems Inc. |
| (w) | As of December 31, 2020, the MFS Conservative Allocation Portfolio Blended Index (a custom index) was comprised of 62% Bloomberg Barclays U.S. Aggregate Bond Index, 28% Standard & Poor’s 500 Stock Index, 8% MSCI EAFE Index (net div), and 2% FTSE EPRA Nareit Developed Real Estate Index (net div). |
Benchmark Definition(s)
Bloomberg Barclays U.S. Aggregate Bond Index(a) – a market capitalization-weighted index that measures the performance of the U.S. investment-grade, fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities with at least one year to final maturity.
FTSE EPRA Nareit Developed Real Estate Index(c) (net div) – measures the performance of eligible real estate equities worldwide that generate a majority of their revenue and income through the ownership, disposure and development of income-producing real estate.
MSCI EAFE (Europe, Australasia, Far East) Index(e) (net div) - a market capitalization-weighted index that is designed to measure equity market performance in the developed markets, excluding the U.S. and Canada.
MFS Conservative Allocation Portfolio
Performance Summary – continued
Standard & Poor's 500 Stock Index(g) – a market capitalization-weighted index of 500 widely held equity securities, designed to measure broad U.S. equity performance.
It is not possible to invest directly in an index.
| (a) | BLOOMBERG ® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg's licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom, and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. |
| (c) | FTSE International Limited (“FTSE”)© FTSE 2019. “FTSE®” is a trademark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. “FT-SE®”, “FOOTSIE®” and “FTSE4GOOD®” are trademarks of the London Stock Exchange Group companies. “Nareit®” is a trademark of the National Association of Real Estate Investment Trusts (“Nareit”) and “EPRA®” is a trademark of the European Public Real Estate Association (“EPRA”) and all are used by FTSE under license. The FTSE EPRA Nareit Developed Real Estate Index is calculated by FTSE. Neither FTSE, Euronext N.V., Nareit, nor EPRA sponsor, endorse, or promote this product and are not in any way connected to it and do not accept any liability. All intellectual property rights in the index values and constituent list vests in FTSE, Euronext N.V., Nareit, and EPRA. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE's express written consent. |
| (e) | Morgan Stanley Capital International (“MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. |
| (g) | “Standard & Poor's®” and “S&P®” are registered trademarks of Standard & Poor's Financial Services LLC (“S&P”) and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”) and have been licensed for use by S&P Dow Jones Indices LLC and sublicensed for certain purposes by MFS. The S&P 500® is a product of S&P Dow Jones Indices LLC, and has been licensed for use by MFS. MFS's product(s) is not sponsored, endorsed, sold, or promoted by S&P Dow Jones Indices LLC, Dow Jones, S&P, or their respective affiliates, and neither S&P Dow Jones Indices LLC, Dow Jones, S&P, nor their respective affiliates make any representation regarding the advisability of investing in such product(s). |
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance prior to close of business December 7, 2012, reflects time periods when another adviser or subadviser was responsible for selecting investments for the fund under a different investment objective and different investment strategies, underlying fund selections, and underlying fund target weightings of the fund.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
MFS Conservative Allocation Portfolio
Expense Table
Fund Expenses Borne by the Contract Holders during the Period,
July 1, 2020 through December 31, 2020
As a contract holder of the fund, you incur ongoing costs, including distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the fund invests. Because the underlying funds have varied expenses and fee levels and the fund may own different proportions of the underlying funds at different times, the amount of fees and expenses incurred indirectly by the fund will vary. If these indirect costs were included, your costs would have been higher.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2020 through December 31, 2020.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund's ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
Share
Class | | Annualized
Expense
Ratio | Beginning
Account Value
7/01/20 | Ending
Account Value
12/31/20 | Expenses
Paid During
Period (p)
7/01/20-12/31/20 |
| Initial Class | Actual | 0.03% | $1,000.00 | $1,108.55 | $0.16 |
| Hypothetical (h) | 0.03% | $1,000.00 | $1,024.99 | $0.15 |
| Service Class | Actual | 0.28% | $1,000.00 | $1,107.09 | $1.48 |
| Hypothetical (h) | 0.28% | $1,000.00 | $1,023.73 | $1.42 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the fund invests. If these indirect costs were included, your costs would have been higher. |
MFS Conservative Allocation Portfolio
Portfolio of Investments − 12/31/20
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Investment Companies (h) – 100.0% |
| Bond Funds – 61.2% |
| MFS Global Governments Portfolio - Initial Class | | | 2,930,024 | $ 34,251,986 |
| MFS Government Securities Portfolio - Initial Class | | | 3,254,618 | 41,854,392 |
| MFS High Yield Portfolio - Initial Class | | | 3,786,637 | 21,508,098 |
| MFS Inflation-Adjusted Bond Portfolio - Initial Class | | | 3,583,358 | 43,215,292 |
| MFS Limited Maturity Portfolio - Initial Class | | | 4,842,379 | 50,602,857 |
| MFS Total Return Bond Series - Initial Class | | | 5,138,332 | 72,553,252 |
| | | | | $ 263,985,877 |
| International Stock Funds – 8.1% |
| MFS International Growth Portfolio - Initial Class | | | 542,707 | $ 8,732,163 |
| MFS International Intrinsic Value Portfolio - Initial Class | | | 248,411 | 8,706,814 |
| MFS Research International Portfolio - Initial Class | | | 962,259 | 17,455,372 |
| | | | | $34,894,349 |
| Specialty Funds – 2.0% |
| MFS Global Real Estate Portfolio - Initial Class | | | 581,236 | $ 8,706,919 |
| Issuer | | | Shares/Par | Value ($) |
| Investment Companies (h) – continued |
| U.S. Stock Funds – 28.3% |
| MFS Growth Series - Initial Class | | | 353,207 | $ 26,070,201 |
| MFS Mid Cap Growth Series - Initial Class | | | 1,386,821 | 17,529,411 |
| MFS Mid Cap Value Portfolio - Initial Class | | | 2,031,096 | 17,447,117 |
| MFS New Discovery Series - Initial Class | | | 163,217 | 4,400,343 |
| MFS New Discovery Value Portfolio - Initial Class | | | 499,493 | 4,380,552 |
| MFS Research Series - Initial Class | | | 794,619 | 26,119,129 |
| MFS Value Series - Initial Class | | | 1,281,573 | 26,144,086 |
| | | | | $ 122,090,839 |
| Money Market Funds – 0.4% | |
| MFS Institutional Money Market Portfolio, 0.1% (v) | | | 1,658,653 | $ 1,658,652 |
| Total Investment Companies (Identified Cost, $354,878,205) | $ 431,336,636 |
| Other Assets, Less Liabilities – (0.0)% | | (46,502) |
| Net Assets – 100.0% | $ 431,290,134 |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate value of the fund’s investments in affiliated issuers was $431,336,636. | | | |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | | | |
See Notes to Financial Statements
MFS Conservative Allocation Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/20Assets | |
| Investments in affiliated issuers, at value (identified cost, $354,878,205) | $431,336,636 |
| Receivables for | |
| Investments sold | 382,676 |
| Fund shares sold | 200 |
| Other assets | 2,322 |
| Total assets | $431,721,834 |
| Liabilities | |
| Payables for | |
| Fund shares reacquired | $382,877 |
| Payable to affiliates | |
| Administrative services fee | 95 |
| Shareholder servicing costs | 37 |
| Distribution and/or service fees | 5,837 |
| Payable for independent Trustees' compensation | 176 |
| Accrued expenses and other liabilities | 42,678 |
| Total liabilities | $431,700 |
| Net assets | $431,290,134 |
| Net assets consist of | |
| Paid-in capital | $334,413,254 |
| Total distributable earnings (loss) | 96,876,880 |
| Net assets | $431,290,134 |
| Shares of beneficial interest outstanding | 35,978,267 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $3,060,763 | 256,213 | $11.95 |
| Service Class | 428,229,371 | 35,722,054 | 11.99 |
See Notes to Financial Statements
MFS Conservative Allocation Portfolio
| Financial Statements | Statement of Operations |
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| Year ended 12/31/20 | |
| Net investment income (loss) | |
| Income | |
| Dividends from affiliated issuers | $9,467,784 |
| Other | 72 |
| Total investment income | $9,467,856 |
| Expenses | |
| Distribution and/or service fees | $1,038,117 |
| Shareholder servicing costs | 6,967 |
| Administrative services fee | 17,500 |
| Independent Trustees' compensation | 8,548 |
| Custodian fee | 6,919 |
| Shareholder communications | 10,722 |
| Audit and tax fees | 40,765 |
| Legal fees | 3,373 |
| Miscellaneous | 28,433 |
| Total expenses | $1,161,344 |
| Net investment income (loss) | $8,306,512 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Investments in affiliated issuers | $8,006,529 |
| Capital gain distributions from underlying affiliated funds | 7,348,313 |
| Net realized gain (loss) | $15,354,842 |
| Change in unrealized appreciation or depreciation | |
| Affiliated issuers | $23,432,452 |
| Net realized and unrealized gain (loss) | $38,787,294 |
| Change in net assets from operations | $47,093,806 |
See Notes to Financial Statements
MFS Conservative Allocation Portfolio
| Financial Statements | Statements of Changes in Net Assets |
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | Year ended |
| | 12/31/20 | 12/31/19 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $8,306,512 | $9,782,036 |
| Net realized gain (loss) | 15,354,842 | 18,663,699 |
| Net unrealized gain (loss) | 23,432,452 | 40,261,900 |
| Change in net assets from operations | $47,093,806 | $68,707,635 |
| Total distributions to shareholders | $(28,736,522) | $(32,355,395) |
| Change in net assets from fund share transactions | $(22,299,766) | $(46,169,562) |
| Total change in net assets | $(3,942,482) | $(9,817,322) |
| Net assets | | |
| At beginning of period | 435,232,616 | 445,049,938 |
| At end of period | $431,290,134 | $435,232,616 |
See Notes to Financial Statements
MFS Conservative Allocation Portfolio
| Financial Statements | Financial Highlights |
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 |
| Net asset value, beginning of period | $11.44 | $10.58 | $11.61 | $10.95 | $11.09 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d)(l) | $0.27 | $0.28 | $0.27 | $0.22 | $0.22(c) |
| Net realized and unrealized gain (loss) | 1.09 | 1.47 | (0.55) | 1.02 | 0.36 |
| Total from investment operations | $1.36 | $1.75 | $(0.28) | $1.24 | $0.58 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.31) | $(0.31) | $(0.26) | $(0.26) | $(0.32) |
| From net realized gain | (0.54) | (0.58) | (0.49) | (0.32) | (0.40) |
| Total distributions declared to shareholders | $(0.85) | $(0.89) | $(0.75) | $(0.58) | $(0.72) |
| Net asset value, end of period (x) | $11.95 | $11.44 | $10.58 | $11.61 | $10.95 |
| Total return (%) (k)(r)(s)(x) | 12.31 | 16.87 | (2.73) | 11.48 | 5.03(c) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions (f)(h) | 0.03 | 0.03 | 0.03 | 0.02 | 0.02(c) |
| Expenses after expense reductions (f)(h) | N/A | N/A | N/A | N/A | N/A |
| Net investment income (loss) (l) | 2.40 | 2.47 | 2.34 | 1.94 | 1.92(c) |
| Portfolio turnover | 7 | 2 | 1 | 0(b) | 1 |
| Net assets at end of period (000 omitted) | $3,061 | $2,029 | $2,062 | $2,338 | $2,266 |
| Service Class | Year ended |
| | 12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 |
| Net asset value, beginning of period | $11.47 | $10.61 | $11.63 | $10.96 | $11.10 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d)(l) | $0.23 | $0.25 | $0.23 | $0.19 | $0.19(c) |
| Net realized and unrealized gain (loss) | 1.11 | 1.47 | (0.53) | 1.02 | 0.35 |
| Total from investment operations | $1.34 | $1.72 | $(0.30) | $1.21 | $0.54 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.28) | $(0.28) | $(0.23) | $(0.22) | $(0.28) |
| From net realized gain | (0.54) | (0.58) | (0.49) | (0.32) | (0.40) |
| Total distributions declared to shareholders | $(0.82) | $(0.86) | $(0.72) | $(0.54) | $(0.68) |
| Net asset value, end of period (x) | $11.99 | $11.47 | $10.61 | $11.63 | $10.96 |
| Total return (%) (k)(r)(s)(x) | 12.06 | 16.48 | (2.92) | 11.24 | 4.73(c) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions (f)(h) | 0.28 | 0.28 | 0.28 | 0.27 | 0.27(c) |
| Expenses after expense reductions (f)(h) | N/A | N/A | N/A | N/A | N/A |
| Net investment income (loss) (l) | 1.98 | 2.18 | 2.05 | 1.63 | 1.66(c) |
| Portfolio turnover | 7 | 2 | 1 | 0(b) | 1 |
| Net assets at end of period (000 omitted) | $428,229 | $433,203 | $442,988 | $552,579 | $612,965 |
See Notes to Financial Statements
MFS Conservative Allocation Portfolio
Financial Highlights - continued
| (b) | Less than 0.5%. |
| (c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
| (d) | Per share data is based on average shares outstanding. |
| (f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (h) | In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying affiliated funds in which the fund invests. Accordingly, the expense ratio for the fund reflects only those fees and expenses borne directly by the fund. Because the underlying affiliated funds have varied expense and fee levels and the fund may own different proportions of the underlying affiliated funds at different times, the amount of fees and expenses incurred indirectly by the fund will vary. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (l) | The ratios and per share amounts do not include net investment income of the underlying affiliated funds in which the fund invests. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
MFS Conservative Allocation Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS Conservative Allocation Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust III (the trust). The trust is organized as a Delaware statutory 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, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. 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 increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.
The fund is a “fund of funds”, which invests the majority of its assets in other MFS mutual funds (hereafter referred to as “underlying affiliated funds” or “underlying funds”), which may have different fiscal year ends than the funds. The underlying funds, in turn, may engage in a number of investment techniques and practices, which involve certain risks. Certain underlying funds invest their portfolio in high-yield securities rated below investment grade. Investments in below investment grade quality securities can involve a substantially greater risk of default or can already be in default, and their values can decline significantly. Below investment grade quality securities tend to be more sensitive to adverse news about the issuer, or the market or economy in general, than higher quality debt instruments. Certain underlying funds invest a significant portion of their assets in asset-backed and/or mortgage-backed securities. For these securities, the value of the debt instrument also depends on the credit quality and adequacy of the underlying assets or collateral as well as whether there is a security interest in the underlying assets or collateral. Enforcing rights, if any, against the underlying assets or collateral may be difficult. U.S. Government securities not supported as to the payment of principal or interest by the U.S. Treasury, such as those issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, are subject to greater credit risk than are U.S. Government securities supported by the U.S. Treasury, such as those issued by Ginnie Mae. Certain underlying funds invest in foreign securities, including securities of emerging market issuers. 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 market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions. Investments in emerging markets can involve additional and greater risks than the risks associated with investments in developed foreign markets. Emerging markets can have less developed markets, greater custody and operational risk, less developed legal, regulatory, and accounting, and auditing systems, and greater political, social, and economic instability than developed markets.
The accounting policies of the underlying funds in which the fund invests are outlined in the underlying funds’ shareholder reports, which are available without charge by calling 1-800-225-2606, at mfs.com and on the Securities and Exchange Commission (SEC) web site at http://www.sec.gov. The underlying funds' shareholder reports are not covered by this report.
In March 2020, the FASB issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional, temporary relief with respect to the financial reporting of contracts subject to certain types of modifications due to the planned discontinuation of the London Interbank Offered Rate (LIBOR) and other IBOR-based reference rates as of the end of 2021. The temporary relief provided by ASU 2020-04 is effective for certain reference rate-related contract modifications that occur during the period from March 12, 2020 through December 31, 2022. Management is evaluating the impact of ASU 2020-04 on the fund's investments, derivatives, debt and other contracts that will undergo reference rate-related modifications as a result of the reference rate reform.
Investment Valuations — Open-end investment companies (underlying funds) are generally valued at their net asset value per share. The investments of underlying funds managed by the adviser are valued as described below. For purposes of this policy disclosure, “fund” also refers to the underlying funds in which the fund-of-funds invests.
Equity securities, including restricted equity securities and equity securities sold short, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Equity securities sold short, for which there were no sales reported that day, are generally valued at the last quoted daily ask quotation on their primary market or exchange as provided by a third-party pricing service. Debt
MFS Conservative Allocation Portfolio
Notes to Financial Statements - continued
instruments and floating rate loans, including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Debt instruments sold short are generally valued at an evaluated or composite mean as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price on their primary exchange as provided by a third-party pricing service. Exchange-traded options for which there were no sales reported that day are generally valued at the last daily bid quotation on their primary exchange as provided by a third-party pricing service. For put options, the position may be valued at the last daily ask quotation if there are no trades reported during the day. Options not traded on an exchange are generally valued at a broker/dealer bid quotation. Foreign currency options are generally valued at valuations provided by a third-party pricing service. Futures contracts are generally valued at last posted settlement price on their primary exchange as provided by a third-party pricing service. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation on their primary exchange as provided by a third-party pricing service. Forward foreign currency exchange contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates provided by a third-party pricing service for proximate time periods. Swap agreements are generally valued using valuations provided by a third-party pricing service, which for cleared swaps includes an evaluation of any trading activity at the clearinghouses. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser's own assumptions in determining the fair value of investments. The following is a summary of the levels used as of December 31, 2020 in valuing the fund's assets or liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Mutual Funds | $431,336,636 | $— | $— | $431,336,636 |
For further information regarding security characteristics, see the Portfolio of Investments. Please refer to the underlying funds’ shareholder reports for further information regarding the levels used in valuing the underlying funds’ assets or liabilities.
MFS Conservative Allocation Portfolio
Notes to Financial Statements - continued
Derivatives — The fund does not invest in derivatives directly. The fund does invest in underlying funds that may use derivatives primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate or currency exposure, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the underlying funds use derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. Distributions of income and capital gains from the underlying funds are recorded on the ex-dividend date. Recognition of net investment income by the fund is affected by the timing of the declaration of distributions by the underlying funds in which the fund invests. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
The fund and/or the underlying funds may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/20 | Year ended
12/31/19 |
| Ordinary income (including any short-term capital gains) | $10,462,384 | $10,554,250 |
| Long-term capital gains | 18,274,138 | 21,801,145 |
| Total distributions | $28,736,522 | $32,355,395 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| As of 12/31/20 | |
| Cost of investments | $358,328,839 |
| Gross appreciation | 74,080,323 |
| Gross depreciation | (1,072,526) |
| Net unrealized appreciation (depreciation) | $73,007,797 |
| Undistributed ordinary income | 10,076,487 |
| Undistributed long-term capital gain | 13,792,596 |
MFS Conservative Allocation Portfolio
Notes to Financial Statements - continued
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year
ended
12/31/20 | | Year
ended
12/31/19 |
| Initial Class | $204,461 | | $147,454 |
| Service Class | 28,532,061 | | 32,207,941 |
| Total | $28,736,522 | | $32,355,395 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. MFS receives no compensation under this agreement; however MFS receives management fees from the underlying MFS funds.
The investment adviser has agreed in writing to pay a portion of the fund’s operating expenses, excluding distribution and/or service fees, interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses such as fees and expenses associated with investments in investment companies and other similar investment vehicles such that fund operating expenses do not exceed 0.20% annually of the fund’s average daily net assets. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2022. For the year ended December 31, 2020, the fund’s actual operating expenses did not exceed the limit and therefore, the investment adviser did not pay any portion of the fund’s expenses related to this agreement.
In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the fund invests. Accordingly, the expense ratio for the fund reflects only those fees and expenses borne directly by the fund.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent — MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2020, the fee was $6,789, which equated to 0.0016% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2020, these costs amounted to $178.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund pays an annual fixed amount of $17,500. The administrative services fee incurred for the year ended December 31, 2020 was equivalent to an annual effective rate of 0.0042% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
MFS Conservative Allocation Portfolio
Notes to Financial Statements - continued
(4) Portfolio Securities
For the year ended December 31, 2020, purchases and sales of shares of underlying funds, excluding the MFS Institutional Money Market Portfolio, aggregated $29,934,839 and $82,117,317, respectively.
(5) Shares of Beneficial Interest
The fund's Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
| | Year ended
12/31/20 | | Year ended
12/31/19 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 128,703 | $1,465,862 | | 2,446 | $28,344 |
| Service Class | 685,857 | 7,863,331 | | 478,870 | 5,577,424 |
| | 814,560 | $9,329,193 | | 481,316 | $5,605,768 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 18,062 | $204,461 | | 13,344 | $147,454 |
| Service Class | 2,509,416 | 28,532,061 | | 2,901,616 | 32,207,941 |
| | 2,527,478 | $28,736,522 | | 2,914,960 | $32,355,395 |
| Shares reacquired | | | | | |
| Initial Class | (67,990) | $(753,310) | | (33,251) | $(360,901) |
| Service Class | (5,236,313) | (59,612,171) | | (7,379,617) | (83,769,824) |
| | (5,304,303) | $(60,365,481) | | (7,412,868) | $(84,130,725) |
| Net change | | | | | |
| Initial Class | 78,775 | $917,013 | | (17,461) | $(185,103) |
| Service Class | (2,041,040) | (23,216,779) | | (3,999,131) | (45,984,459) |
| | (1,962,265) | $(22,299,766) | | (4,016,592) | $(46,169,562) |
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.25 billion unsecured committed line of credit of which $1 billion is reserved for use by the fund and certain other U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2020, the fund’s commitment fee and interest expense were $2,277 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Global Governments Portfolio | $34,684,158 | $2,800,042 | $6,087,224 | $(118,472) | $2,973,482 | $34,251,986 |
| MFS Global Real Estate Portfolio | 8,712,875 | 1,957,386 | 1,790,432 | 175,125 | (348,035) | 8,706,919 |
| MFS Government Securities Portfolio | 43,272,484 | 5,516,495 | 8,257,115 | (427,359) | 1,749,887 | 41,854,392 |
| MFS Growth Series | 26,039,297 | 2,797,474 | 8,538,873 | 3,579,669 | 2,192,634 | 26,070,201 |
MFS Conservative Allocation Portfolio
Notes to Financial Statements - continued
| Affiliated Issuers − continued | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS High Yield Portfolio | $21,684,412 | $1,956,152 | $2,038,402 | $(259,627) | $165,563 | $21,508,098 |
| MFS Inflation-Adjusted Bond Portfolio | 43,317,842 | 1,258,917 | 5,805,569 | 104,963 | 4,339,139 | 43,215,292 |
| MFS Institutional Money Market Portfolio | 1,669,745 | 1,337,237 | 1,348,313 | (34) | 17 | 1,658,652 |
| MFS International Growth Portfolio | 8,680,310 | 1,029,842 | 2,120,616 | 311,022 | 831,605 | 8,732,163 |
| MFS International Intrinsic Value Portfolio | 8,673,639 | 692,138 | 2,049,752 | 660,647 | 730,142 | 8,706,814 |
| MFS Limited Maturity Portfolio | 52,041,281 | 3,817,067 | 5,605,282 | (127,508) | 477,299 | 50,602,857 |
| MFS Mid Cap Growth Series | 17,368,614 | 2,861,669 | 7,137,578 | 1,793,477 | 2,643,229 | 17,529,411 |
| MFS Mid Cap Value Portfolio | 17,383,710 | 4,281,752 | 4,723,897 | (195,119) | 700,671 | 17,447,117 |
| MFS New Discovery Series | 4,328,209 | 1,074,430 | 2,420,843 | 443,739 | 974,808 | 4,400,343 |
| MFS New Discovery Value Portfolio | 4,342,216 | 1,548,701 | 1,565,950 | (145,052) | 200,637 | 4,380,552 |
| MFS Research International Portfolio | 17,357,618 | 2,698,366 | 4,065,293 | 534,689 | 929,992 | 17,455,372 |
| MFS Research Series | 26,045,148 | 3,598,505 | 6,753,207 | 1,148,292 | 2,080,391 | 26,119,129 |
| MFS Total Return Bond Series | 73,626,602 | 3,721,270 | 8,093,807 | 16,563 | 3,282,624 | 72,553,252 |
| MFS Value Series | 26,055,991 | 5,131,691 | 5,063,477 | 511,514 | (491,633) | 26,144,086 |
| | $435,284,151 | $48,079,134 | $83,465,630 | $8,006,529 | $23,432,452 | $431,336,636 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Global Governments Portfolio | $439,691 | $— |
| MFS Global Real Estate Portfolio | 458,145 | 165,027 |
| MFS Government Securities Portfolio | 1,207,648 | — |
| MFS Growth Series | — | 1,552,981 |
| MFS High Yield Portfolio | 1,170,328 | — |
| MFS Inflation-Adjusted Bond Portfolio | 248,227 | 488,175 |
| MFS Institutional Money Market Portfolio | 9,039 | — |
| MFS International Growth Portfolio | 141,706 | 84,276 |
| MFS International Intrinsic Value Portfolio | 91,455 | 156,265 |
| MFS Limited Maturity Portfolio | 1,581,176 | — |
| MFS Mid Cap Growth Series | 62,918 | 1,156,359 |
| MFS Mid Cap Value Portfolio | 332,711 | 596,219 |
| MFS New Discovery Series | 116,515 | 271,304 |
| MFS New Discovery Value Portfolio | 112,461 | 310,923 |
| MFS Research International Portfolio | 355,234 | 563,020 |
| MFS Research Series | 269,429 | 900,609 |
| MFS Total Return Bond Series | 2,439,524 | — |
| MFS Value Series | 431,577 | 1,103,155 |
| | $9,467,784 | $7,348,313 |
(8) Impacts of COVID-19
The pandemic related to the global spread of novel coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to global business activity and the global economy, as well as the economies of individual countries, the financial performance of individual companies and sectors, and the securities and commodities markets in general. This pandemic, the full effects of which are still unknown, has resulted in substantial market volatility and may have adversely impacted the prices and liquidity of the fund's investments and the fund's performance.
MFS Conservative Allocation Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust III and the Shareholders of MFS Conservative Allocation Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Conservative Allocation Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2020, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2020, and 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 accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2020, by correspondence with the transfer agent. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 16, 2021
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS Conservative Allocation Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2021, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEES | | |
Robert J. Manning (k)
(age 57) | | Trustee | | February 2004 | | 134 | | Massachusetts Financial Services Company, Non-Executive Chairman (since January 2021); Director; Chairman of the Board; Executive Chairman (January 2017-2020); Co-Chief Executive Officer (2015-2016) | | N/A |
Michael W. Roberge (k)
(age 54) | | Trustee | | January 2021 | | 134 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; President (until December 2018); Chief Investment Officer (until December 2018); Co-Chief Executive Officer (until December 2016) | | N/A |
| INDEPENDENT TRUSTEES | | |
John P. Kavanaugh
(age 66) | | Trustee and Chair of Trustees | | January 2009 | | 134 | | Private investor | | N/A |
Steven E. Buller
(age 69) | | Trustee | | February 2014 | | 134 | | Private investor | | N/A |
John A. Caroselli
(age 66) | | Trustee | | March 2017 | | 134 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 65) | | Trustee | | January 2009 | | 134 | | Private investor | | N/A |
Peter D. Jones
(age 65) | | Trustee | | January 2019 | | 134 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 59) | | Trustee | | January 2019 | | 134 | | Burford Capital Limited (finance and investment management), Chief Financial Officer (since 2019); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016); Morgan Stanley & Co. (financial services), Vice Chairman of Investment Banking, Co-Head of Diversified Financials Coverage – Financial Institutions Investment Banking Group (until 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 64) | | Trustee | | March 2017 | | 134 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
MFS Conservative Allocation Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
Maryanne L. Roepke
(age 64) | | Trustee | | May 2014 | | 134 | | Private investor | | N/A |
Laurie J. Thomsen
(age 63) | | Trustee | | March 2005 | | 134 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 47) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 134 | | Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel |
Kino Clark (k)
(age 52) | | Assistant Treasurer | | January 2012 | | 134 | | Massachusetts Financial Services Company, Vice President |
John W. Clark, Jr. (k)
(age 53) | | Assistant Treasurer | | April 2017 | | 134 | | Massachusetts Financial Services Company, Vice President (since March 2017); Deutsche Bank (financial services), Department Head - Treasurer's Office (until February 2017) |
Thomas H. Connors (k)
(age 61) | | Assistant Secretary and Assistant Clerk | | September 2012 | | 134 | | Massachusetts Financial Services Company, Vice President and Senior Counsel |
David L. DiLorenzo (k)
(age 52) | | President | | July 2005 | | 134 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 53) | | Secretary and Clerk | | April 2017 | | 134 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel (since March 2017); Harris Associates (investment management), General Counsel (until January 2017) |
Brian E. Langenfeld (k)
(age 47) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 134 | | Massachusetts Financial Services Company, Vice President and Senior Counsel |
Amanda S. Mooradian (k)
(age 41) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 134 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 134 | | Massachusetts Financial Services Company, Vice President and Assistant General Counsel |
Kasey L. Phillips (k)
(age 50) | | Assistant Treasurer | | September 2012 | | 134 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 46) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 134 | | Massachusetts Financial Services Company, Vice President and Assistant General Counsel |
Martin J. Wolin (k)
(age 53) | | Chief Compliance Officer | | July 2015 | | 134 | | Massachusetts Financial Services Company, Senior Vice President and Chief Compliance Officer |
MFS Conservative Allocation Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
James O. Yost (k)
(age 60) | | Treasurer | | September 1990 | | 134 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. For the period from December 15, 2004 until February 22, 2005, Mr. Manning served as Advisory Trustee. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Messrs. Buller, Kilman and Otis and Ms. Roepke are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Lincoln Street
Boston, MA 02111-2900 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
Joseph Flaherty
Natalie Shapiro | |
MFS Conservative Allocation Portfolio
Board Review of Investment Advisory Agreement
MFS Conservative Allocation Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times by videoconference (in accordance with Securities and Exchange Commission relief) over the course of three months beginning in May and ending in July, 2020 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2019 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s fees and expenses and the fees and expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information as to whether and to what extent applicable expense waivers and reimbursements are observed for the Fund, (iv) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (v) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vi) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (vii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2019, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 1st quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 1st quintile for each of the one- and three-year periods ended December 31, 2019 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
MFS Conservative Allocation Portfolio
Board Review of Investment Advisory Agreement - continued
The Trustees considered that MFS does not charge an advisory fee for providing investment advisory services to the Fund, but that the Fund pays its pro rata share of the advisory fees paid by the underlying funds in which it invests (the “Underlying Funds”).
In assessing the reasonableness of the Fund’s expenses, the Trustees considered, among other information, the Fund’s total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s total expense ratio was approximately at the Broadridge expense group median. Because the Fund does not pay an advisory fee, the Trustees did not consider the extent to which economies of scale would be realized due to the Fund’s growth of assets, whether fee levels reflect economies of scale for shareholders, or the fees paid by similar funds to other investment advisers or by similar clients of MFS.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s or the Underlying Funds’ behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2020.
MFS Conservative Allocation Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit3 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit3 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates $20,102,000 as capital gain dividends paid during the fiscal year.
For corporate shareholders, 12.01% of the ordinary income dividends paid during the fiscal year qualify for the corporate dividends received deduction.
The fund intends to pass through the maximum amount allowable as Section 163(j) Interest Dividends as defined in Treasury Regulation §1.163(j)-1(b).
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2020
MFS® Global Real
Estate Portfolio
MFS® Variable Insurance Trust III
MFS® Global Real Estate Portfolio
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The report is prepared for the general information of contract owners. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Global Real Estate Portfolio
Dear Contract Owners:
Markets experienced dramatic swings this year as the coronavirus pandemic brought the global economy to a standstill for several months early in the year. The speedy development of vaccines and therapeutics later brightened the economic and market outlook, but a great deal of uncertainty remains as case counts remain high, new variants of the virus are appearing and questions persist over how fast the vaccine can be made widely available. In the United States, political uncertainty eased after former Vice President Joe Biden won the presidential election and the Democrats gained control of a closely divided Senate.
Global central banks have taken aggressive steps to cushion the economic and market fallout related to the virus, and governments are deploying unprecedented levels of fiscal support. Additional U.S. stimulus is anticipated with the Democrats in the White House and in control of both houses of Congress. The measures already put in place have helped build a supportive environment and are encouraging economic recovery; however, if markets disconnect from fundamentals, they can sow the seeds of instability. As such, dramatic increases in speculative retail trading bear watching.
In the aftermath of the crisis, we could see societal changes as households, businesses, and governments adjust to a new reality, and any such alterations could affect the investment landscape. For investors, events such as the COVID-19 outbreak demonstrate the importance of having a deep understanding of company fundamentals, and we have built our global research platform to do just that.
At MFS®, we put our clients’ assets to work responsibly by carefully navigating the increasing complexity of our global markets and economies. Guided by our long-term philosophy and adhering to our commitment to sustainable investing, we tune out the noise and aim to uncover what we believe are the best, most durable investment opportunities in the market. Our unique global investment platform combines collective expertise, long-term discipline and thoughtful risk management to create sustainable value for investors.
Respectfully,
Michael W. Roberge
Chief Executive Officer
MFS Investment Management
February 16, 2021
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
MFS Global Real Estate Portfolio
Portfolio structure
Top ten holdings
| Prologis, Inc., REIT | 5.1% |
| Welltower, Inc., REIT | 3.4% |
| Deutsche Wohnen SE | 3.1% |
| Goodman Group, REIT | 2.7% |
| AvalonBay Communities, Inc., REIT | 2.5% |
| Extra Space Storage, Inc., REIT | 2.5% |
| American Homes 4 Rent, “A”, REIT | 2.5% |
| STORE Capital Corp., REIT | 2.4% |
| Katitas Co. Ltd. | 2.4% |
| Equinix, Inc., REIT | 2.2% |
GICS equity industries (g)
| Real Estate | 94.7% |
| Communication Services | 2.7% |
Issuer country weightings (x)
| United States | 55.0% |
| Japan | 7.5% |
| United Kingdom | 6.1% |
| Germany | 5.1% |
| Hong Kong | 4.9% |
| Australia | 4.3% |
| Belgium | 3.4% |
| Canada | 2.9% |
| Singapore | 2.8% |
| Other Countries | 8.0% |
Currency exposure weightings (y)
| United States Dollar | 55.1% |
| Euro | 9.5% |
| British Pound Sterling | 7.9% |
| Japanese Yen | 7.5% |
| Hong Kong Dollar | 6.7% |
| Australian Dollar | 4.3% |
| Canadian Dollar | 2.9% |
| Singapore Dollar | 2.8% |
| Mexican Peso | 1.8% |
| Other Currencies | 1.5% |
| (g) | The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and S&P Global Market Intelligence Inc. (“S&P Global Market Intelligence”). GICS is a service mark of MSCI and S&P Global Market Intelligence and has been licensed for use by MFS. MFS has applied its own internal sector/industry classification methodology for equity securities and non-equity securities that are unclassified by GICS. |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. For purposes of this presentation, United States includes Cash & Cash Equivalents. |
| (y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio's net assets. For purposes of this presentation, United States Dollar includes Cash & Cash Equivalents. |
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of December 31, 2020.
The portfolio is actively managed and current holdings may be different.
MFS Global Real Estate Portfolio
Management Review
Summary of Results
For the twelve months ended December 31, 2020, Initial Class shares of the MFS Global Real Estate Portfolio (fund) provided a total return of 1.49%, while Service Class shares of the fund provided a total return of 1.15%. These compare with a return of (9.04)% over the same period for the fund’s benchmark, the FTSE EPRA Nareit Developed Real Estate Index (net div).
Market Environment
Markets experienced an extraordinarily sharp selloff early in the period and, in many cases, an unusually rapid recovery later. Central banks and fiscal authorities undertook astonishing levels of stimulus to offset the economic effects of government-imposed social-distancing measures implemented to slow the spread of the COVID-19 virus. At this point, the global economy looks to have experienced the shortest — albeit the deepest and steepest — recession in the postwar period. However, the recovery remains subject to more than the usual number of uncertainties due to questions about the evolution of the virus, what its continued impact will be and how quickly vaccines to guard against it can be manufactured and distributed at scale. There are also worries over the public's willingness to be inoculated.
Around the world, central banks responded quickly and massively to the crisis with programs to improve liquidity and support markets. These programs proved largely successful in helping to restore market function, ease volatility and stimulate a continued market rebound. Late in the period, the US Federal Reserve adopted a new, flexible, average-inflation-targeting framework, which is expected to result in the federal funds rate remaining at low levels longer than under its previous model. In developed countries, monetary easing measures were complemented by unusually large fiscal stimulus initiatives. Due to relatively manageable external liabilities and balances of payments in many countries and persistently low inflation, even emerging market countries were able to implement countercyclical policies — a departure from the usual market-dictated response to risk-off crises.
Compounding market uncertainty earlier in the pandemic was a crash in the price of crude oil due to a sharp drop in global demand and a disagreement between Saudi Arabia and Russia over production cuts, which resulted in an oil price war. The subsequent decline in prices undercut oil exporters, many of which are in emerging markets, as well as a large segment of the high-yield credit market. The OPEC+ group later agreed on output cuts, with shale oil producers in the US also decreasing production, which, along with the gradual reopening of some major economies and the resultant boost in demand, helped stabilize the price of crude oil.
In the immediate aftermath of the market disruption that accompanied the initial phases of the pandemic, many companies that had added significant leverage to their balance sheets in recent years by borrowing to fund dividend payments and stock buybacks halted those activities, and some companies were forced to recapitalize. As markets and the economy stabilized later in the period, in many cases dividend payments and buybacks resumed. Conversely, some companies found themselves flush with liquidity, having borrowed preemptively during the worst of the crisis only to end up with excess cash on their balance sheets.
Contributors to Performance
Relative to the FTSE EPRA Nareit Developed Real Estate Index, security selection within US real estate investments contributed to performance, led by the fund's holdings of data center operator Equinix(b), and its overweight position in real estate investment trust American Homes 4 Rent.
Stock selection within Australian real estate investments further contributed to relative results. Here, the fund's holdings of industrial property and business space management firm Goodman Group(b) (Australia), and its overweight position in self-storage solutions provider National Storage (Australia), further benefited relative returns.
Elsewhere, the fund's holdings of logistics real estate development firm ESR Cayman(b) (Hong Kong) and home buyer and seller KATITAS(b) (Japan) positively impacted relative performance. The fund's overweight positions in real estate investment trust Warehouses De Pauw (Belgium), logistics real estate asset owner Mapletree Logistics Trust (Singapore), investment holding company Hang Lung Group(h) (Hong Kong) and real estate investment trust company Japan Logistics Fund (Japan) further benefited relative returns.
Detractors from Performance
Notable relative detractors during the reporting period included the fund's not owning shares of strong-performing residential real estate management company Vonovia (Germany), real estate investment trust Digital Realty Trust and real estate development company Duke Realty. The timing of the fund's ownership in shares of real estate investment trust Simon Property Trust and data center infrastructure solutions provider QTS Realty Trust also held back relative returns. Overweight positions in property investment services provider Shaftsbury(h) (United Kingdom), and real estate investment trusts, Urban Edge Properties, Kenedix Office Investment (Japan) and Brixmor Property Group, further detracted from relative results.
The timing of the fund’s cash and/or cash equivalents position during the period was also a detracted from relative performance. Under normal market conditions, the fund strives to be fully invested and generally holds cash to buy new holdings and to provide liquidity.
MFS Global Real Estate Portfolio
Management Review - continued
Respectfully,
Portfolio Manager(s)
Rick Gable
| (b) | Security is not a benchmark constituent. |
| (h) | Security was not held in the portfolio at period end. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
MFS Global Real Estate Portfolio
Performance Summary Through 12/31/20
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your units, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a contract holder would pay on fund distributions or the redemption of contract units. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/20
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 12/07/98 | 1.49% | 8.84% | 8.42% |
| Service Class | 2/01/04 | 1.15% | 8.57% | 8.15% |
Comparative benchmark(s)
| FTSE EPRA Nareit Developed Real Estate Index (net div) (f) | (9.04)% | 3.74% | 5.44% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
FTSE EPRA Nareit Developed Real Estate Index(c) (net div) – measures the performance of eligible real estate equities worldwide that generate a majority of their revenue and income through the ownership, disposure and development of income-producing real estate.
It is not possible to invest directly in an index.
| (c) | FTSE International Limited (“FTSE”)© FTSE 2019. “FTSE®” is a trademark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. “FT-SE®”, “FOOTSIE®” and “FTSE4GOOD®” are trademarks of the London Stock Exchange Group companies. “Nareit®” is a trademark of the National Association of Real Estate Investment Trusts (“Nareit”) and “EPRA®” is a trademark of the European Public Real Estate Association (“EPRA”) and all are used by FTSE under license. The FTSE EPRA Nareit Developed Real Estate Index is calculated by FTSE. Neither FTSE, Euronext N.V., Nareit, nor EPRA sponsor, endorse, or promote this product and are not in any way connected to it and do not accept any liability. All intellectual property rights in the index values and constituent list vests in FTSE, Euronext N.V., Nareit, and EPRA. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE's express written consent. |
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
MFS Global Real Estate Portfolio
Performance Summary – continued
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
MFS Global Real Estate Portfolio
Expense Table
Fund Expenses Borne by the Contract Holders during the Period,
July 1, 2020 through December 31, 2020
As a contract holder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2020 through December 31, 2020.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund's ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
Share
Class | | Annualized
Expense
Ratio | Beginning
Account Value
7/01/20 | Ending
Account Value
12/31/20 | Expenses
Paid During
Period (p)
7/01/20-12/31/20 |
| Initial Class | Actual | 0.92% | $1,000.00 | $1,166.64 | $5.01 |
| Hypothetical (h) | 0.92% | $1,000.00 | $1,020.51 | $4.67 |
| Service Class | Actual | 1.17% | $1,000.00 | $1,164.57 | $6.37 |
| Hypothetical (h) | 1.17% | $1,000.00 | $1,019.25 | $5.94 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). |
MFS Global Real Estate Portfolio
Portfolio of Investments − 12/31/20
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – 97.5% |
| Construction – 6.9% | |
| American Homes 4 Rent, “A”, REIT | | 152,306 | $ 4,569,180 |
| AvalonBay Communities, Inc., REIT | | 29,105 | 4,669,315 |
| Mid-America Apartment Communities, Inc., REIT | | 27,931 | 3,538,579 |
| | | | | $12,777,074 |
| Network & Telecom – 4.5% | |
| CoreSite Realty Corp., REIT | | 18,631 | $ 2,334,092 |
| Equinix, Inc., REIT | | 5,670 | 4,049,400 |
| QTS Realty Trust, Inc., REIT, “A” | | 30,233 | 1,870,818 |
| | | | | $8,254,310 |
| Real Estate – 82.0% | |
| Advance Residence Investment Corp., REIT | | 975 | $ 2,922,498 |
| Alexandria Real Estate Equities, Inc., REIT | | 20,353 | 3,627,312 |
| Ascendas India Trust, REIT | | 1,693,900 | 1,768,752 |
| Big Yellow Group PLC, REIT | | 194,345 | 2,915,463 |
| Boardwalk, REIT | | 112,744 | 2,988,438 |
| Boston Properties, Inc., REIT | | 22,853 | 2,160,294 |
| Brixmor Property Group, Inc., REIT | | 183,525 | 3,037,339 |
| Corporacion Inmobiliaria Vesta S.A.B. de C.V. | | 830,467 | 1,618,825 |
| Corporate Office Properties Trust, REIT | | 71,350 | 1,860,808 |
| Deutsche Wohnen SE | | 109,564 | 5,847,857 |
| Douglas Emmett, Inc. | | 52,626 | 1,535,627 |
| Embassy Office Parks, REIT | | 405,800 | 1,916,299 |
| Empire State Realty Trust, REIT, “A” | | 235,985 | 2,199,380 |
| Entra ASA | | 41,995 | 951,154 |
| EPR Properties, REIT | | 29,804 | 968,630 |
| Equity Lifestyle Properties, Inc., REIT | | 51,646 | 3,272,291 |
| ESR Cayman Ltd. (a) | | 991,000 | 3,553,689 |
| Extra Space Storage, Inc., REIT | | 40,214 | 4,659,194 |
| Fibra Uno Administracion S.A. de C.V., REIT | | 1,555,262 | �� 1,758,506 |
| Goodman Group, REIT | | 349,085 | 5,089,193 |
| Grainger PLC | | 861,148 | 3,339,732 |
| Granite REIT | | 40,158 | 2,457,623 |
| Host Hotels & Resorts, Inc., REIT | | 205,661 | 3,008,820 |
| Japan Logistics Fund, Inc., REIT | | 885 | 2,609,874 |
| Katitas Co. Ltd. | | 136,700 | 4,401,990 |
| Kenedix, Inc. | | 537,500 | 3,893,758 |
| LEG Immobilien AG | | 23,324 | 3,620,418 |
| Link REIT | | 305,864 | 2,785,442 |
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Real Estate – continued | |
| Mapletree Logistics Trust, REIT | | 2,282,631 | $ 3,471,616 |
| Medical Properties Trust, Inc., REIT | | 103,694 | 2,259,492 |
| National Storage, REIT | | 1,907,531 | 2,808,867 |
| Omega Healthcare Investors, Inc., REIT | | 74,520 | 2,706,566 |
| Prologis, Inc., REIT | | 94,811 | 9,448,864 |
| Rayonier, Inc., REIT | | 90,563 | 2,660,741 |
| Shaftesbury PLC, REIT | | 467,651 | 3,616,647 |
| Shurgard Self Storage S.A. | | 53,684 | 2,328,199 |
| Simon Property Group, Inc., REIT | | 41,247 | 3,517,544 |
| Sino Land Co. Ltd. | | 1,946,613 | 2,536,075 |
| STAG Industrial, Inc., REIT | | 103,811 | 3,251,361 |
| STORE Capital Corp., REIT | | 132,597 | 4,505,646 |
| Sun Communities, Inc., REIT | | 20,458 | 3,108,593 |
| Swire Properties Ltd. | | 1,252,800 | 3,650,837 |
| Unite Group PLC, REIT (a) | | 105,260 | 1,504,206 |
| Urban Edge Properties, REIT | | 237,643 | 3,075,100 |
| VICI Properties, Inc., REIT | | 156,711 | 3,996,130 |
| W.P. Carey, Inc., REIT | | 36,622 | 2,584,781 |
| Warehouses De Pauw, REIT | | 116,151 | 4,019,666 |
| Welltower, Inc., REIT | | 98,532 | 6,367,138 |
| | | | | $ 152,187,275 |
| Telecommunications - Wireless – 2.3% | |
| American Tower Corp., REIT | | 11,543 | $ 2,590,942 |
| Cellnex Telecom S.A. | | 28,938 | 1,736,496 |
| | | | | $4,327,438 |
| Telephone Services – 1.8% | |
| Helios Tower PLC (a) | | 1,564,737 | $ 3,273,862 |
| Total Common Stocks (Identified Cost, $131,272,995) | | $180,819,959 |
| Investment Companies (h) – 2.2% |
| Money Market Funds – 2.2% | |
| MFS Institutional Money Market Portfolio, 0.1% (v) (Identified Cost, $4,097,142) | | | 4,097,142 | $ 4,097,142 |
| Other Assets, Less Liabilities – 0.3% | | 640,410 |
| Net Assets – 100.0% | $185,557,511 |
| (a) | Non-income producing security. | | | |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $4,097,142 and $180,819,959, respectively. | | | |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | | | |
| The following abbreviations are used in this report and are defined: |
| REIT | Real Estate Investment Trust |
See Notes to Financial Statements
MFS Global Real Estate Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/20Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $131,272,995) | $180,819,959 |
| Investments in affiliated issuers, at value (identified cost, $4,097,142) | 4,097,142 |
| Receivables for | |
| Fund shares sold | 59,296 |
| Dividends | 746,508 |
| Receivable from investment adviser | 2,374 |
| Other assets | 1,233 |
| Total assets | $185,726,512 |
| Liabilities | |
| Payables for | |
| Fund shares reacquired | $110,190 |
| Payable to affiliates | |
| Administrative services fee | 180 |
| Shareholder servicing costs | 56 |
| Distribution and/or service fees | 789 |
| Payable for independent Trustees' compensation | 73 |
| Accrued expenses and other liabilities | 57,713 |
| Total liabilities | $169,001 |
| Net assets | $185,557,511 |
| Net assets consist of | |
| Paid-in capital | $140,978,134 |
| Total distributable earnings (loss) | 44,579,377 |
| Net assets | $185,557,511 |
| Shares of beneficial interest outstanding | 11,800,677 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $127,522,988 | 8,515,107 | $14.98 |
| Service Class | 58,034,523 | 3,285,570 | 17.66 |
See Notes to Financial Statements
MFS Global Real Estate Portfolio
| Financial Statements | Statement of Operations |
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| Year ended 12/31/20 | |
| Net investment income (loss) | |
| Income | |
| Dividends | $5,127,821 |
| Other | 22,607 |
| Dividends from affiliated issuers | 17,418 |
| Foreign taxes withheld | (154,550) |
| Total investment income | $5,013,296 |
| Expenses | |
| Management fee | $1,545,875 |
| Distribution and/or service fees | 129,890 |
| Shareholder servicing costs | 9,815 |
| Administrative services fee | 33,511 |
| Independent Trustees' compensation | 4,235 |
| Custodian fee | 41,894 |
| Shareholder communications | 16,315 |
| Audit and tax fees | 63,659 |
| Legal fees | 1,566 |
| Miscellaneous | 28,508 |
| Total expenses | $1,875,268 |
| Reduction of expenses by investment adviser | (162,934) |
| Net expenses | $1,712,334 |
| Net investment income (loss) | $3,300,962 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $(532,425) |
| Affiliated issuers | (244) |
| Foreign currency | 32,228 |
| Net realized gain (loss) | $(500,441) |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers (net of $8,967 decrease in deferred country tax) | $2,026,338 |
| Translation of assets and liabilities in foreign currencies | 1,987 |
| Net unrealized gain (loss) | $2,028,325 |
| Net realized and unrealized gain (loss) | $1,527,884 |
| Change in net assets from operations | $4,828,846 |
See Notes to Financial Statements
MFS Global Real Estate Portfolio
| Financial Statements | Statements of Changes in Net Assets |
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | Year ended |
| | 12/31/20 | 12/31/19 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $3,300,962 | $3,811,530 |
| Net realized gain (loss) | (500,441) | 5,127,159 |
| Net unrealized gain (loss) | 2,028,325 | 30,649,985 |
| Change in net assets from operations | $4,828,846 | $39,588,674 |
| Total distributions to shareholders | $(11,999,202) | $(6,971,115) |
| Change in net assets from fund share transactions | $1,689,470 | $5,017,570 |
| Total change in net assets | $(5,480,886) | $37,635,129 |
| Net assets | | |
| At beginning of period | 191,038,397 | 153,403,268 |
| At end of period | $185,557,511 | $191,038,397 |
See Notes to Financial Statements
MFS Global Real Estate Portfolio
| Financial Statements | Financial Highlights |
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 |
| Net asset value, beginning of period | $15.91 | $13.10 | $14.27 | $14.01 | $13.55 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.28 | $0.35 | $0.42 | $0.37 | $0.37(c) |
| Net realized and unrealized gain (loss) | (0.14) | 3.14 | (0.79) | 1.42 | 0.74 |
| Total from investment operations | $0.14 | $3.49 | $(0.37) | $1.79 | $1.11 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.70) | $(0.58) | $(0.58) | $(0.63) | $(0.39) |
| From net realized gain | (0.37) | (0.10) | (0.22) | (0.90) | (0.26) |
| Total distributions declared to shareholders | $(1.07) | $(0.68) | $(0.80) | $(1.53) | $(0.65) |
| Net asset value, end of period (x) | $14.98 | $15.91 | $13.10 | $14.27 | $14.01 |
| Total return (%) (k)(r)(s)(x) | 1.49 | 26.87 | (3.03) | 13.33 | 7.94(c) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions (f) | 1.02 | 1.01 | 1.01 | 1.00 | 0.97(c) |
| Expenses after expense reductions (f) | 0.92 | 0.92 | 0.92 | 0.92 | 0.91(c) |
| Net investment income (loss) | 2.00 | 2.31 | 3.00 | 2.56 | 2.63(c) |
| Portfolio turnover | 43 | 36 | 24 | 24 | 30 |
| Net assets at end of period (000 omitted) | $127,523 | $132,530 | $99,826 | $114,198 | $115,023 |
| Service Class | Year ended |
| | 12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 |
| Net asset value, beginning of period | $18.56 | $15.17 | $16.41 | $15.89 | $15.28 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.29 | $0.36 | $0.44 | $0.38 | $0.38(c) |
| Net realized and unrealized gain (loss) | (0.17)(g) | 3.66 | (0.93) | 1.62 | 0.83 |
| Total from investment operations | $0.12 | $4.02 | $(0.49) | $2.00 | $1.21 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.65) | $(0.53) | $(0.53) | $(0.58) | $(0.34) |
| From net realized gain | (0.37) | (0.10) | (0.22) | (0.90) | (0.26) |
| Total distributions declared to shareholders | $(1.02) | $(0.63) | $(0.75) | $(1.48) | $(0.60) |
| Net asset value, end of period (x) | $17.66 | $18.56 | $15.17 | $16.41 | $15.89 |
| Total return (%) (k)(r)(s)(x) | 1.15 | 26.68 | (3.33) | 13.07 | 7.70(c) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions (f) | 1.27 | 1.26 | 1.26 | 1.25 | 1.22(c) |
| Expenses after expense reductions (f) | 1.17 | 1.17 | 1.17 | 1.17 | 1.16(c) |
| Net investment income (loss) | 1.75 | 2.07 | 2.74 | 2.31 | 2.37(c) |
| Portfolio turnover | 43 | 36 | 24 | 24 | 30 |
| Net assets at end of period (000 omitted) | $58,035 | $58,508 | $53,577 | $70,167 | $75,253 |
See Notes to Financial Statements
MFS Global Real Estate Portfolio
Financial Highlights - continued
| (c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
| (d) | Per share data is based on average shares outstanding. |
| (f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (g) | The per share amount varies from the net realized and unrealized gain/loss for the period because of the timing of sales of fund shares and the per share amount of realized and unrealized gains and losses at such time. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
MFS Global Real Estate Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS Global Real Estate Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust III (the trust). The trust is organized as a Delaware statutory 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, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. 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 increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests a significant amount of its net assets in U.S. and foreign real estate related investments and as a result is subject to certain risks associated with the direct ownership of real estate and the real estate industry in general. These include risks related to general, regional and local economic conditions; difficulties in valuing and disposing of real estate; fluctuations in interest rates and property tax rates, shifts in zoning laws, environmental regulations and other governmental action; cash flow dependency; increased operating expenses; lack of availability of mortgage funds; losses due to natural disasters; overbuilding; losses due to casualty or condemnation; changes in property values and rental rates; the management skill and creditworthiness of the manager; and other factors. The fund invests 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 market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions.
In March 2020, the FASB issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional, temporary relief with respect to the financial reporting of contracts subject to certain types of modifications due to the planned discontinuation of the London Interbank Offered Rate (LIBOR) and other IBOR-based reference rates as of the end of 2021. The temporary relief provided by ASU 2020-04 is effective for certain reference rate-related contract modifications that occur during the period from March 12, 2020 through December 31, 2022. Management is evaluating the impact of ASU 2020-04 on the fund's investments, derivatives, debt and other contracts that will undergo reference rate-related modifications as a result of the reference rate reform.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in
MFS Global Real Estate Portfolio
Notes to Financial Statements - continued
good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser's own assumptions in determining the fair value of investments. The following is a summary of the levels used as of December 31, 2020 in valuing the fund's assets or liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities: | | | | |
| United States | $97,433,977 | $— | $— | $97,433,977 |
| Japan | 13,828,120 | — | — | 13,828,120 |
| United Kingdom | 7,759,401 | 3,616,647 | — | 11,376,048 |
| Germany | 9,468,275 | — | — | 9,468,275 |
| Hong Kong | 5,321,517 | 3,650,837 | — | 8,972,354 |
| Australia | 7,898,060 | — | — | 7,898,060 |
| Belgium | 2,328,199 | 4,019,666 | — | 6,347,865 |
| Canada | 5,446,061 | — | — | 5,446,061 |
| Singapore | 5,240,368 | — | — | 5,240,368 |
| Other Countries | 12,892,532 | 1,916,299 | — | 14,808,831 |
| Mutual Funds | 4,097,142 | — | — | 4,097,142 |
| Total | $171,713,652 | $13,203,449 | $— | $184,917,101 |
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation — 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 or on the reporting date for foreign denominated receivables and payables. 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 receivables, payables, 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.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
MFS Global Real Estate Portfolio
Notes to Financial Statements - continued
Investment Transactions and Income — Investment transactions are recorded on the trade date. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend payments received in additional securities are recorded on the ex-dividend date in an amount equal to the value of the security on such date. Distributions from REITs may be characterized as ordinary income, net capital gain, or a return of capital to the fund. The proper characterization of REIT distributions is generally not known until after the end of each calendar year. As such, estimates are used in reporting the character of income and distributions for financial statement purposes. The fund receives substantial distributions from holdings in REITs.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to passive foreign investment companies and wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/20 | Year ended
12/31/19 |
| Ordinary income (including any short-term capital gains) | $8,783,594 | $5,904,085 |
| Long-term capital gains | 3,215,608 | 1,067,030 |
| Total distributions | $11,999,202 | $6,971,115 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| As of 12/31/20 | |
| Cost of investments | $140,307,603 |
| Gross appreciation | 46,706,779 |
| Gross depreciation | (2,097,281) |
| Net unrealized appreciation (depreciation) | $44,609,498 |
| Undistributed ordinary income | 2,731,243 |
| Capital loss carryforwards | (2,762,236) |
| Other temporary differences | 872 |
As of December 31, 2020, the fund had capital loss carryforwards available to offset future realized gains. These net capital losses may be carried forward indefinitely and their character is retained as short-term and/or long-term losses. Such losses are characterized as follows:
MFS Global Real Estate Portfolio
Notes to Financial Statements - continued
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year
ended
12/31/20 | | Year
ended
12/31/19 |
| Initial Class | $8,887,288 | | $4,992,128 |
| Service Class | 3,111,914 | | 1,978,987 |
| Total | $11,999,202 | | $6,971,115 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $1 billion | 0.90% |
| In excess of $1 billion and up to $2.5 billion | 0.75% |
| In excess of $2.5 billion | 0.65% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. For the year ended December 31, 2020, this management fee reduction amounted to $18,853, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2020 was equivalent to an annual effective rate of 0.89% of the fund's average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 0.92% of average daily net assets for the Initial Class shares and 1.17% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2022. For the year ended December 31, 2020, this reduction amounted to $144,081, which is included in the reduction of total expenses in the Statement of Operations.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent — MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2020, the fee was $9,126, which equated to 0.0053% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2020, these costs amounted to $689.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the year ended December 31, 2020 was equivalent to an annual effective rate of 0.0195% of the fund's average daily net assets.
MFS Global Real Estate Portfolio
Notes to Financial Statements - continued
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
The fund is permitted to engage in purchase and sale transactions with funds and accounts for which MFS serves as investment adviser or sub-adviser (“cross-trades”) pursuant to a policy adopted by the Board of Trustees. This policy has been designed to ensure that cross-trades conducted by the fund comply with Rule 17a-7 under the Investment Company Act of 1940. During the year ended December 31, 2020, the fund engaged in sale transactions pursuant to this policy, which amounted to $174,308. The sales transactions resulted in net realized gains (losses) of $31,608.
The adviser has voluntarily undertaken to reimburse the fund from its own resources on a quarterly basis for the cost of investment research embedded in the cost of the fund’s securities trades. This agreement may be rescinded at any time. For the year ended December 31, 2020, this reimbursement amounted to $21,159, which is included in “Other” income in the Statement of Operations.
(4) Portfolio Securities
For the year ended December 31, 2020, purchases and sales of investments, other than short-term obligations, aggregated $71,846,170 and $79,526,846, respectively.
(5) Shares of Beneficial Interest
The fund's Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
| | Year ended
12/31/20 | | Year ended
12/31/19 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 1,465,745 | $18,719,764 | | 1,801,254 | $28,192,886 |
| Service Class | 582,456 | 9,074,052 | | 218,233 | 3,885,205 |
| | 2,048,201 | $27,793,816 | | 2,019,487 | $32,078,091 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 646,819 | $8,887,288 | | 328,646 | $4,992,128 |
| Service Class | 191,857 | 3,111,914 | | 111,618 | 1,978,987 |
| | 838,676 | $11,999,202 | | 440,264 | $6,971,115 |
| Shares reacquired | | | | | |
| Initial Class | (1,925,007) | $(27,485,394) | | (1,424,762) | $(21,540,563) |
| Service Class | (641,479) | (10,618,154) | | (708,013) | (12,491,073) |
| | (2,566,486) | $(38,103,548) | | (2,132,775) | $(34,031,636) |
| Net change | | | | | |
| Initial Class | 187,557 | $121,658 | | 705,138 | $11,644,451 |
| Service Class | 132,834 | 1,567,812 | | (378,162) | (6,626,881) |
| | 320,391 | $1,689,470 | | 326,976 | $5,017,570 |
The fund is one of several mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Moderate Allocation Portfolio, the MFS Growth Allocation Portfolio, and the MFS Conservative Allocation Portfolio were the owners of record of approximately 24%, 10%, and 5%, respectively, of the value of outstanding voting shares of the fund.
MFS Global Real Estate Portfolio
Notes to Financial Statements - continued
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.25 billion unsecured committed line of credit of which $1 billion is reserved for use by the fund and certain other U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2020, the fund’s commitment fee and interest expense were $903 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $3,254,887 | $56,380,956 | $55,538,457 | $(244) | $— | $4,097,142 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $17,418 | $— |
(8) Impacts of COVID-19
The pandemic related to the global spread of novel coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to global business activity and the global economy, as well as the economies of individual countries, the financial performance of individual companies and sectors, and the securities and commodities markets in general. This pandemic, the full effects of which are still unknown, has resulted in substantial market volatility and may have adversely impacted the prices and liquidity of the fund's investments and the fund's performance.
MFS Global Real Estate Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust III and the Shareholders of MFS Global Real Estate Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Global Real Estate Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2020, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2020, and 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 accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2020, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 16, 2021
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS Global Real Estate Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2021, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEES | | |
Robert J. Manning (k)
(age 57) | | Trustee | | February 2004 | | 134 | | Massachusetts Financial Services Company, Non-Executive Chairman (since January 2021); Director; Chairman of the Board; Executive Chairman (January 2017-2020); Co-Chief Executive Officer (2015-2016) | | N/A |
Michael W. Roberge (k)
(age 54) | | Trustee | | January 2021 | | 134 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; President (until December 2018); Chief Investment Officer (until December 2018); Co-Chief Executive Officer (until December 2016) | | N/A |
| INDEPENDENT TRUSTEES | | |
John P. Kavanaugh
(age 66) | | Trustee and Chair of Trustees | | January 2009 | | 134 | | Private investor | | N/A |
Steven E. Buller
(age 69) | | Trustee | | February 2014 | | 134 | | Private investor | | N/A |
John A. Caroselli
(age 66) | | Trustee | | March 2017 | | 134 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 65) | | Trustee | | January 2009 | | 134 | | Private investor | | N/A |
Peter D. Jones
(age 65) | | Trustee | | January 2019 | | 134 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 59) | | Trustee | | January 2019 | | 134 | | Burford Capital Limited (finance and investment management), Chief Financial Officer (since 2019); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016); Morgan Stanley & Co. (financial services), Vice Chairman of Investment Banking, Co-Head of Diversified Financials Coverage – Financial Institutions Investment Banking Group (until 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 64) | | Trustee | | March 2017 | | 134 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
MFS Global Real Estate Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
Maryanne L. Roepke
(age 64) | | Trustee | | May 2014 | | 134 | | Private investor | | N/A |
Laurie J. Thomsen
(age 63) | | Trustee | | March 2005 | | 134 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 47) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 134 | | Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel |
Kino Clark (k)
(age 52) | | Assistant Treasurer | | January 2012 | | 134 | | Massachusetts Financial Services Company, Vice President |
John W. Clark, Jr. (k)
(age 53) | | Assistant Treasurer | | April 2017 | | 134 | | Massachusetts Financial Services Company, Vice President (since March 2017); Deutsche Bank (financial services), Department Head - Treasurer's Office (until February 2017) |
Thomas H. Connors (k)
(age 61) | | Assistant Secretary and Assistant Clerk | | September 2012 | | 134 | | Massachusetts Financial Services Company, Vice President and Senior Counsel |
David L. DiLorenzo (k)
(age 52) | | President | | July 2005 | | 134 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 53) | | Secretary and Clerk | | April 2017 | | 134 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel (since March 2017); Harris Associates (investment management), General Counsel (until January 2017) |
Brian E. Langenfeld (k)
(age 47) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 134 | | Massachusetts Financial Services Company, Vice President and Senior Counsel |
Amanda S. Mooradian (k)
(age 41) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 134 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 134 | | Massachusetts Financial Services Company, Vice President and Assistant General Counsel |
Kasey L. Phillips (k)
(age 50) | | Assistant Treasurer | | September 2012 | | 134 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 46) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 134 | | Massachusetts Financial Services Company, Vice President and Assistant General Counsel |
Martin J. Wolin (k)
(age 53) | | Chief Compliance Officer | | July 2015 | | 134 | | Massachusetts Financial Services Company, Senior Vice President and Chief Compliance Officer |
MFS Global Real Estate Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
James O. Yost (k)
(age 60) | | Treasurer | | September 1990 | | 134 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. For the period from December 15, 2004 until February 22, 2005, Mr. Manning served as Advisory Trustee. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Messrs. Buller, Kilman and Otis and Ms. Roepke are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Lincoln Street
Boston, MA 02111-2900 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
| Rick Gable | |
MFS Global Real Estate Portfolio
Board Review of Investment Advisory Agreement
MFS Global Real Estate Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times by videoconference (in accordance with Securities and Exchange Commission relief) over the course of three months beginning in May and ending in July, 2020 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2019 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2019, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 1st quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 1st quintile for each of the one- and three-year periods ended December 31, 2019 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
MFS Global Real Estate Portfolio
Board Review of Investment Advisory Agreement - continued
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate and total expense ratio were each higher than the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to contractual breakpoints that reduce the Fund’s advisory fee rate on average daily net assets over $1 billion and $2.5 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoints and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
MFS Global Real Estate Portfolio
Board Review of Investment Advisory Agreement - continued
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2020.
MFS Global Real Estate Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit3 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit3 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates $3,538,000 as capital gain dividends paid during the fiscal year.
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2020
MFS® Growth Allocation Portfolio
MFS® Variable Insurance Trust III
MFS® Growth Allocation Portfolio
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The report is prepared for the general information of contract owners. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Growth Allocation Portfolio
Dear Contract Owners:
Markets experienced dramatic swings this year as the coronavirus pandemic brought the global economy to a standstill for several months early in the year. The speedy development of vaccines and therapeutics later brightened the economic and market outlook, but a great deal of uncertainty remains as case counts remain high, new variants of the virus are appearing and questions persist over how fast the vaccine can be made widely available. In the United States, political uncertainty eased after former Vice President Joe Biden won the presidential election and the Democrats gained control of a closely divided Senate.
Global central banks have taken aggressive steps to cushion the economic and market fallout related to the virus, and governments are deploying unprecedented levels of fiscal support. Additional U.S. stimulus is anticipated with the Democrats in the White House and in control of both houses of Congress. The measures already put in place have helped build a supportive environment and are encouraging economic recovery; however, if markets disconnect from fundamentals, they can sow the seeds of instability. As such, dramatic increases in speculative retail trading bear watching.
In the aftermath of the crisis, we could see societal changes as households, businesses, and governments adjust to a new reality, and any such alterations could affect the investment landscape. For investors, events such as the COVID-19 outbreak demonstrate the importance of having a deep understanding of company fundamentals, and we have built our global research platform to do just that.
At MFS®, we put our clients’ assets to work responsibly by carefully navigating the increasing complexity of our global markets and economies. Guided by our long-term philosophy and adhering to our commitment to sustainable investing, we tune out the noise and aim to uncover what we believe are the best, most durable investment opportunities in the market. Our unique global investment platform combines collective expertise, long-term discipline and thoughtful risk management to create sustainable value for investors.
Respectfully,
Michael W. Roberge
Chief Executive Officer
MFS Investment Management
February 16, 2021
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
MFS Growth Allocation Portfolio
Portfolio target allocation
Portfolio actual allocation
Portfolio holdings
| MFS Value Series | 11.1% |
| MFS Growth Series | 10.9% |
| MFS Research Series | 10.1% |
| MFS Mid Cap Value Portfolio | 9.1% |
| MFS Research International Portfolio | 9.1% |
| MFS Mid Cap Growth Series | 9.1% |
| MFS International Growth Portfolio | 5.1% |
| MFS International Intrinsic Value Portfolio | 5.0% |
| MFS Global Real Estate Portfolio | 5.0% |
| MFS Inflation-Adjusted Bond Portfolio | 4.9% |
| MFS High Yield Portfolio | 4.9% |
| MFS Total Return Bond Series | 4.7% |
| MFS Global Governments Portfolio | 3.8% |
| MFS New Discovery Value Portfolio | 2.1% |
| MFS New Discovery Series | 2.1% |
| MFS Limited Maturity Portfolio | 1.9% |
| MFS Emerging Markets Equity Portfolio | 1.0% |
| Cash & Cash Equivalents | 0.1% |
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. MFS endeavors to fully invest all MFS funds-of-funds in underlying funds on a daily basis. Any divergence from 0.0% in Cash & Cash Equivalents is typically due to the timing of fund subscriptions/redemptions and the settlement of subsequent investment in/divestment from the underlying funds. While the MFS funds-of-funds' subscriptions/redemptions are processed at the same day NAV of the underlying funds, a positive/negative cash balance will be reflected on the MFS funds-of-funds' Statements of Assets and Liabilities until the trades with the underlying funds settle, which is typically two business days. Please see the fund's Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of December 31, 2020.
The portfolio is actively managed and current holdings may be different.
MFS Growth Allocation Portfolio
Management Review
Summary of Results
For the twelve months ended December 31, 2020, Initial Class shares of the MFS Growth Allocation Portfolio (fund) provided a total return of 15.80%, while Service Class shares of the fund provided a total return of 15.46%. These compare with a return of 18.40% for the fund’s benchmark, the Standard & Poor's 500 Stock Index (S&P 500 Index). The fund’s other benchmark, the MFS Growth Allocation Portfolio Blended Index (Blended Index), generated a return of 13.06%. The Blended Index reflects the blended returns of various equity and fixed income market indices, with percentage allocations to each index designed to resemble the allocations of the fund. The market indices and related percentage allocations used to compile the Blended Index are set forth in the Performance Summary.
Market Environment
Markets experienced an extraordinarily sharp selloff early in the period and, in many cases, an unusually rapid recovery later. Central banks and fiscal authorities undertook astonishing levels of stimulus to offset the economic effects of government-imposed social-distancing measures implemented to slow the spread of the COVID-19 virus. At this point, the global economy looks to have experienced the shortest — albeit the deepest and steepest — recession in the postwar period. However, the recovery remains subject to more than the usual number of uncertainties due to questions about the evolution of the virus, what its continued impact will be and how quickly vaccines to guard against it can be manufactured and distributed at scale. There are also worries over the public's willingness to be inoculated.
Around the world, central banks responded quickly and massively to the crisis with programs to improve liquidity and support markets. These programs proved largely successful in helping to restore market function, ease volatility and stimulate a continued market rebound. Late in the period, the US Federal Reserve adopted a new, flexible, average-inflation-targeting framework, which is expected to result in the federal funds rate remaining at low levels longer than under its previous model. In developed countries, monetary easing measures were complemented by unusually large fiscal stimulus initiatives. Due to relatively manageable external liabilities and balances of payments in many countries and persistently low inflation, even emerging market countries were able to implement countercyclical policies — a departure from the usual market-dictated response to risk-off crises.
Compounding market uncertainty earlier in the pandemic was a crash in the price of crude oil due to a sharp drop in global demand and a disagreement between Saudi Arabia and Russia over production cuts, which resulted in an oil price war. The subsequent decline in prices undercut oil exporters, many of which are in emerging markets, as well as a large segment of the high-yield credit market. The OPEC+ group later agreed on output cuts, with shale oil producers in the US also decreasing production, which, along with the gradual reopening of some major economies and the resultant boost in demand, helped stabilize the price of crude oil.
In the immediate aftermath of the market disruption that accompanied the initial phases of the pandemic, many companies that had added significant leverage to their balance sheets in recent years by borrowing to fund dividend payments and stock buybacks halted those activities, and some companies were forced to recapitalize. As markets and the economy stabilized later in the period, in many cases dividend payments and buybacks resumed. Conversely, some companies found themselves flush with liquidity, having borrowed preemptively during the worst of the crisis only to end up with excess cash on their balance sheets.
Factors Affecting Performance
During the reporting period, the fund underperformed its benchmark, the S&P 500 Index, primarily due to its allocation to the fixed income markets, which performed well, but underperformed the comparatively strong-performing S&P 500 Index. Over the same period, the fund outperformed the Blended Index. Rebalancing back to target equity weights after equity markets had declined in the first quarter benefited performance relative to the Blended Index, as stocks rebounded later in the year.
Relative to the Blended Index, the fund's exposure to the international equity asset class was a primary contributor to relative performance. Here, both the MFS International Intrinsic Value Portfolio and MFS Research International Portfolio outperformed their respective benchmarks. Additionally, the fund's exposure to the MFS International Growth Portfolio also supported relative results.
The specialty segment was another positive contributor to performance relative to the Blended Index as the MFS Global Real Estate Portfolio outperformed its respective benchmark.
The fund's exposure to the fixed income asset class further supported performance relative to the Blended Index, led by its allocation to the MFS Inflation-Adjusted Bond Portfolio and MFS Global Governments Portfolio, which outweighed weakness from the fund's exposure to shorter duration portfolios, particularly the MFS High Yield Portfolio and MFS Limited Maturity Portfolio, given strong bond market performance during the period.
MFS Growth Allocation Portfolio
Management Review - continued
Lastly, the fund's exposure to the U.S. equity asset class also helped performance relative to the Blended Index. Here, exposure to growth-oriented funds, particularly the MFS Growth Series, MFS Mid Cap Growth Series and MFS New Discovery Series helped relative returns and offset weakness from the fund's exposure to value-oriented strategies, most notably the MFS Value Series and MFS Mid Cap Value Portfolio.
Respectfully,
Portfolio Manager(s)
Joseph Flaherty and Natalie Shapiro
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
MFS Growth Allocation Portfolio
Performance Summary Through 12/31/20
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your units, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a contract holder would pay on fund distributions or the redemption of contract units. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/20
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 10/01/08 | 15.80% | 12.35% | 9.71% |
| Service Class | 10/01/08 | 15.46% | 12.06% | 9.42% |
Comparative benchmark(s)
| Standard & Poor's 500 Stock Index (f) | 18.40 % | 15.22% | 13.88% |
| MFS Growth Allocation Portfolio Blended Index (f)(w) | 13.06 % | 11.01% | 9.83% |
| Bloomberg Barclays U.S. Aggregate Bond Index (f) | 7.51 % | 4.44% | 3.84% |
| FTSE EPRA Nareit Developed Real Estate Index (net div) (f) | (9.04)% | 3.74% | 5.44% |
| MSCI EAFE Index (net div) (f) | 7.82 % | 7.45% | 5.51% |
| (f) | Source: FactSet Research Systems Inc. |
| (w) | As of December 31, 2020, the MFS Growth Allocation Portfolio Blended Index (a custom index) was comprised of 54% Standard & Poor’s 500 Stock Index, 21% Bloomberg Barclays U.S. Aggregate Bond Index, 20% MSCI EAFE Index (net div), and 5% FTSE EPRA Nareit Developed Real Estate Index (net div). |
Benchmark Definition(s)
Bloomberg Barclays U.S. Aggregate Bond Index(a) – a market capitalization-weighted index that measures the performance of the U.S. investment-grade, fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities with at least one year to final maturity.
FTSE EPRA Nareit Developed Real Estate Index(c) (net div) – measures the performance of eligible real estate equities worldwide that generate a majority of their revenue and income through the ownership, disposure and development of income-producing real estate.
MSCI EAFE (Europe, Australasia, Far East) Index(e) (net div) - a market capitalization-weighted index that is designed to measure equity market performance in the developed markets, excluding the U.S. and Canada.
MFS Growth Allocation Portfolio
Performance Summary – continued
Standard & Poor's 500 Stock Index(g) – a market capitalization-weighted index of 500 widely held equity securities, designed to measure broad U.S. equity performance.
It is not possible to invest directly in an index.
| (a) | BLOOMBERG ® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg's licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom, and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. |
| (c) | FTSE International Limited (“FTSE”)© FTSE 2019. “FTSE®” is a trademark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. “FT-SE®”, “FOOTSIE®” and “FTSE4GOOD®” are trademarks of the London Stock Exchange Group companies. “Nareit®” is a trademark of the National Association of Real Estate Investment Trusts (“Nareit”) and “EPRA®” is a trademark of the European Public Real Estate Association (“EPRA”) and all are used by FTSE under license. The FTSE EPRA Nareit Developed Real Estate Index is calculated by FTSE. Neither FTSE, Euronext N.V., Nareit, nor EPRA sponsor, endorse, or promote this product and are not in any way connected to it and do not accept any liability. All intellectual property rights in the index values and constituent list vests in FTSE, Euronext N.V., Nareit, and EPRA. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE's express written consent. |
| (e) | Morgan Stanley Capital International (“MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. |
| (g) | “Standard & Poor's®” and “S&P®” are registered trademarks of Standard & Poor's Financial Services LLC (“S&P”) and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”) and have been licensed for use by S&P Dow Jones Indices LLC and sublicensed for certain purposes by MFS. The S&P 500® is a product of S&P Dow Jones Indices LLC, and has been licensed for use by MFS. MFS's product(s) is not sponsored, endorsed, sold, or promoted by S&P Dow Jones Indices LLC, Dow Jones, S&P, or their respective affiliates, and neither S&P Dow Jones Indices LLC, Dow Jones, S&P, nor their respective affiliates make any representation regarding the advisability of investing in such product(s). |
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance prior to close of business December 7, 2012, reflects time periods when another adviser or subadviser was responsible for selecting investments for the fund under a different investment objective and different investment strategies, underlying fund selections, and underlying fund target weightings of the fund.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
MFS Growth Allocation Portfolio
Expense Table
Fund Expenses Borne by the Contract Holders during the Period,
July 1, 2020 through December 31, 2020
As a contract holder of the fund, you incur ongoing costs, including distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the fund invests. Because the underlying funds have varied expenses and fee levels and the fund may own different proportions of the underlying funds at different times, the amount of fees and expenses incurred indirectly by the fund will vary. If these indirect costs were included, your costs would have been higher.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2020 through December 31, 2020.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund's ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
Share
Class | | Annualized
Expense
Ratio | Beginning
Account Value
7/01/20 | Ending
Account Value
12/31/20 | Expenses
Paid During
Period (p)
7/01/20-12/31/20 |
| Initial Class | Actual | 0.03% | $1,000.00 | $1,188.86 | $0.17 |
| Hypothetical (h) | 0.03% | $1,000.00 | $1,024.99 | $0.15 |
| Service Class | Actual | 0.28% | $1,000.00 | $1.187.38 | $1.54 |
| Hypothetical (h) | 0.28% | $1,000.00 | $1,023.73 | $1.42 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the fund invests. If these indirect costs were included, your costs would have been higher. |
MFS Growth Allocation Portfolio
Portfolio of Investments − 12/31/20
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Investment Companies (h) – 100.0% |
| Bond Funds – 20.2% |
| MFS Global Governments Portfolio - Initial Class | | | 1,173,878 | $ 13,722,638 |
| MFS High Yield Portfolio - Initial Class | | | 3,072,032 | 17,449,141 |
| MFS Inflation-Adjusted Bond Portfolio - Initial Class | | | 1,451,316 | 17,502,873 |
| MFS Limited Maturity Portfolio - Initial Class | | | 646,507 | 6,756,000 |
| MFS Total Return Bond Series - Initial Class | | | 1,209,419 | 17,076,988 |
| | | | | $72,507,640 |
| International Stock Funds – 20.2% |
| MFS Emerging Markets Equity Portfolio - Initial Class | | | 212,197 | $ 3,666,772 |
| MFS International Growth Portfolio - Initial Class | | | 1,127,862 | 18,147,299 |
| MFS International Intrinsic Value Portfolio - Initial Class | | | 516,222 | 18,093,576 |
| MFS Research International Portfolio - Initial Class | | | 1,803,149 | 32,709,118 |
| | | | | $72,616,765 |
| Specialty Funds – 5.0% |
| MFS Global Real Estate Portfolio - Initial Class | | | 1,205,990 | $ 18,065,736 |
| Issuer | | | Shares/Par | Value ($) |
| Investment Companies (h) – continued |
| U.S. Stock Funds – 54.5% |
| MFS Growth Series - Initial Class | | | 532,472 | $ 39,301,739 |
| MFS Mid Cap Growth Series - Initial Class | | | 2,586,954 | 32,699,102 |
| MFS Mid Cap Value Portfolio - Initial Class | | | 3,813,935 | 32,761,701 |
| MFS New Discovery Series - Initial Class | | | 273,568 | 7,375,385 |
| MFS New Discovery Value Portfolio - Initial Class | | | 841,697 | 7,381,681 |
| MFS Research Series - Initial Class | | | 1,100,110 | 36,160,614 |
| MFS Value Series - Initial Class | | | 1,953,513 | 39,851,677 |
| | | | | $ 195,531,899 |
| Money Market Funds – 0.1% | |
| MFS Institutional Money Market Portfolio, 0.1% (v) | | | 192,576 | $ 192,576 |
| Total Investment Companies (Identified Cost, $249,191,464) | $ 358,914,616 |
| Other Assets, Less Liabilities – (0.0)% | | (42,264) |
| Net Assets – 100.0% | $ 358,872,352 |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate value of the fund’s investments in affiliated issuers was $358,914,616. | | | |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | | | |
See Notes to Financial Statements
MFS Growth Allocation Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/20Assets | |
| Investments in affiliated issuers, at value (identified cost, $249,191,464) | $358,914,616 |
| Receivables for | |
| Investments sold | 256,685 |
| Fund shares sold | 172 |
| Other assets | 1,986 |
| Total assets | $359,173,459 |
| Liabilities | |
| Payables for | |
| Fund shares reacquired | $256,856 |
| Payable to affiliates | |
| Administrative services fee | 96 |
| Shareholder servicing costs | 32 |
| Distribution and/or service fees | 4,821 |
| Payable for independent Trustees' compensation | 151 |
| Accrued expenses and other liabilities | 39,151 |
| Total liabilities | $301,107 |
| Net assets | $358,872,352 |
| Net assets consist of | |
| Paid-in capital | $224,793,166 |
| Total distributable earnings (loss) | 134,079,186 |
| Net assets | $358,872,352 |
| Shares of beneficial interest outstanding | 28,941,887 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $4,601,901 | 371,856 | $12.38 |
| Service Class | 354,270,451 | 28,570,031 | 12.40 |
See Notes to Financial Statements
MFS Growth Allocation Portfolio
| Financial Statements | Statement of Operations |
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| Year ended 12/31/20 | |
| Net investment income (loss) | |
| Income | |
| Dividends from affiliated issuers | $6,160,950 |
| Other | 61 |
| Total investment income | $6,161,011 |
| Expenses | |
| Distribution and/or service fees | $818,331 |
| Shareholder servicing costs | 5,884 |
| Administrative services fee | 17,500 |
| Independent Trustees' compensation | 8,467 |
| Custodian fee | 5,533 |
| Shareholder communications | 8,406 |
| Audit and tax fees | 40,740 |
| Legal fees | 2,686 |
| Miscellaneous | 27,602 |
| Total expenses | $935,149 |
| Net investment income (loss) | $5,225,862 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Investments in affiliated issuers | $9,662,891 |
| Capital gain distributions from underlying affiliated funds | 11,233,570 |
| Net realized gain (loss) | $20,896,461 |
| Change in unrealized appreciation or depreciation | |
| Affiliated issuers | $23,000,370 |
| Net realized and unrealized gain (loss) | $43,896,831 |
| Change in net assets from operations | $49,122,693 |
See Notes to Financial Statements
MFS Growth Allocation Portfolio
| Financial Statements | Statements of Changes in Net Assets |
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | Year ended |
| | 12/31/20 | 12/31/19 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $5,225,862 | $6,027,033 |
| Net realized gain (loss) | 20,896,461 | 28,618,497 |
| Net unrealized gain (loss) | 23,000,370 | 48,715,269 |
| Change in net assets from operations | $49,122,693 | $83,360,799 |
| Total distributions to shareholders | $(34,751,411) | $(39,693,390) |
| Change in net assets from fund share transactions | $(10,633,184) | $(22,623,140) |
| Total change in net assets | $3,738,098 | $21,044,269 |
| Net assets | | |
| At beginning of period | 355,134,254 | 334,089,985 |
| At end of period | $358,872,352 | $355,134,254 |
See Notes to Financial Statements
MFS Growth Allocation Portfolio
| Financial Statements | Financial Highlights |
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 |
| Net asset value, beginning of period | $11.93 | $10.64 | $12.21 | $10.97 | $11.27 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d)(l) | $0.23 | $0.22 | $0.26 | $0.21 | $0.20(c) |
| Net realized and unrealized gain (loss) | 1.53 | 2.53 | (0.78) | 1.91 | 0.62 |
| Total from investment operations | $1.76 | $2.75 | $(0.52) | $2.12 | $0.82 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.25) | $(0.29) | $(0.23) | $(0.23) | $(0.32) |
| From net realized gain | (1.06) | (1.17) | (0.82) | (0.65) | (0.80) |
| Total distributions declared to shareholders | $(1.31) | $(1.46) | $(1.05) | $(0.88) | $(1.12) |
| Net asset value, end of period (x) | $12.38 | $11.93 | $10.64 | $12.21 | $10.97 |
| Total return (%) (k)(r)(s)(x) | 15.80 | 26.96 | (5.20) | 19.86 | 7.15(c) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions (f)(h) | 0.04 | 0.03 | 0.03 | 0.03 | 0.03(c) |
| Expenses after expense reductions (f)(h) | N/A | N/A | N/A | N/A | N/A |
| Net investment income (loss) (l) | 2.02 | 1.88 | 2.13 | 1.75 | 1.81(c) |
| Portfolio turnover | 6 | 0(b) | 2 | 2 | 1 |
| Net assets at end of period (000 omitted) | $4,602 | $3,905 | $3,770 | $4,116 | $3,140 |
| Service Class | Year ended |
| | 12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 |
| Net asset value, beginning of period | $11.95 | $10.65 | $12.22 | $10.98 | $11.27 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d)(l) | $0.18 | $0.20 | $0.22 | $0.17 | $0.17(c) |
| Net realized and unrealized gain (loss) | 1.55 | 2.52 | (0.77) | 1.92 | 0.63 |
| Total from investment operations | $1.73 | $2.72 | $(0.55) | $2.09 | $0.80 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.22) | $(0.25) | $(0.20) | $(0.20) | $(0.29) |
| From net realized gain | (1.06) | (1.17) | (0.82) | (0.65) | (0.80) |
| Total distributions declared to shareholders | $(1.28) | $(1.42) | $(1.02) | $(0.85) | $(1.09) |
| Net asset value, end of period (x) | $12.40 | $11.95 | $10.65 | $12.22 | $10.98 |
| Total return (%) (k)(r)(s)(x) | 15.46 | 26.66 | (5.46) | 19.51 | 6.94(c) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions (f)(h) | 0.29 | 0.28 | 0.28 | 0.28 | 0.28(c) |
| Expenses after expense reductions (f)(h) | N/A | N/A | N/A | N/A | N/A |
| Net investment income (loss) (l) | 1.57 | 1.70 | 1.80 | 1.40 | 1.50(c) |
| Portfolio turnover | 6 | 0(b) | 2 | 2 | 1 |
| Net assets at end of period (000 omitted) | $354,270 | $351,229 | $330,320 | $415,923 | $420,657 |
See Notes to Financial Statements
MFS Growth Allocation Portfolio
Financial Highlights - continued
| (b) | Less than 0.5%. |
| (c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
| (d) | Per share data is based on average shares outstanding. |
| (f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (h) | In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying affiliated funds in which the fund invests. Accordingly, the expense ratio for the fund reflects only those fees and expenses borne directly by the fund. Because the underlying affiliated funds have varied expense and fee levels and the fund may own different proportions of the underlying affiliated funds at different times, the amount of fees and expenses incurred indirectly by the fund will vary. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (l) | The ratios and per share amounts do not include net investment income of the underlying affiliated funds in which the fund invests. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
MFS Growth Allocation Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS Growth Allocation Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust III (the trust). The trust is organized as a Delaware statutory 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, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. 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 increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.
The fund is a “fund of funds”, which invests the majority of its assets in other MFS mutual funds (hereafter referred to as “underlying affiliated funds” or “underlying funds”), which may have different fiscal year ends than the funds. The underlying funds, in turn, may engage in a number of investment techniques and practices, which involve certain risks. Certain underlying funds invest their portfolio in high-yield securities rated below investment grade. Investments in below investment grade quality securities can involve a substantially greater risk of default or can already be in default, and their values can decline significantly. Below investment grade quality securities tend to be more sensitive to adverse news about the issuer, or the market or economy in general, than higher quality debt instruments. Certain underlying funds invest a significant portion of their assets in asset-backed and/or mortgage-backed securities. For these securities, the value of the debt instrument also depends on the credit quality and adequacy of the underlying assets or collateral as well as whether there is a security interest in the underlying assets or collateral. Enforcing rights, if any, against the underlying assets or collateral may be difficult. U.S. Government securities not supported as to the payment of principal or interest by the U.S. Treasury, such as those issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, are subject to greater credit risk than are U.S. Government securities supported by the U.S. Treasury, such as those issued by Ginnie Mae. Certain underlying funds invest in foreign securities, including securities of emerging market issuers. 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 market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions. Investments in emerging markets can involve additional and greater risks than the risks associated with investments in developed foreign markets. Emerging markets can have less developed markets, greater custody and operational risk, less developed legal, regulatory, and accounting, and auditing systems, and greater political, social, and economic instability than developed markets.
The accounting policies of the underlying funds in which the fund invests are outlined in the underlying funds’ shareholder reports, which are available without charge by calling 1-800-225-2606, at mfs.com and on the Securities and Exchange Commission (SEC) web site at http://www.sec.gov. The underlying funds' shareholder reports are not covered by this report.
In March 2020, the FASB issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional, temporary relief with respect to the financial reporting of contracts subject to certain types of modifications due to the planned discontinuation of the London Interbank Offered Rate (LIBOR) and other IBOR-based reference rates as of the end of 2021. The temporary relief provided by ASU 2020-04 is effective for certain reference rate-related contract modifications that occur during the period from March 12, 2020 through December 31, 2022. Management is evaluating the impact of ASU 2020-04 on the fund's investments, derivatives, debt and other contracts that will undergo reference rate-related modifications as a result of the reference rate reform.
Investment Valuations — Open-end investment companies (underlying funds) are generally valued at their net asset value per share. The investments of underlying funds managed by the adviser are valued as described below. For purposes of this policy disclosure, “fund” also refers to the underlying funds in which the fund-of-funds invests.
Equity securities, including restricted equity securities and equity securities sold short, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Equity securities sold short, for which there were no sales reported that day, are generally valued at the last quoted daily ask quotation on their primary market or exchange as provided by a third-party pricing service. Debt
MFS Growth Allocation Portfolio
Notes to Financial Statements - continued
instruments and floating rate loans, including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Debt instruments sold short are generally valued at an evaluated or composite mean as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price on their primary exchange as provided by a third-party pricing service. Exchange-traded options for which there were no sales reported that day are generally valued at the last daily bid quotation on their primary exchange as provided by a third-party pricing service. For put options, the position may be valued at the last daily ask quotation if there are no trades reported during the day. Options not traded on an exchange are generally valued at a broker/dealer bid quotation. Foreign currency options are generally valued at valuations provided by a third-party pricing service. Futures contracts are generally valued at last posted settlement price on their primary exchange as provided by a third-party pricing service. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation on their primary exchange as provided by a third-party pricing service. Forward foreign currency exchange contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates provided by a third-party pricing service for proximate time periods. Swap agreements are generally valued using valuations provided by a third-party pricing service, which for cleared swaps includes an evaluation of any trading activity at the clearinghouses. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser's own assumptions in determining the fair value of investments. The following is a summary of the levels used as of December 31, 2020 in valuing the fund's assets or liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Mutual Funds | $358,914,616 | $— | $— | $358,914,616 |
For further information regarding security characteristics, see the Portfolio of Investments. Please refer to the underlying funds’ shareholder reports for further information regarding the levels used in valuing the underlying funds’ assets or liabilities.
MFS Growth Allocation Portfolio
Notes to Financial Statements - continued
Derivatives — The fund does not invest in derivatives directly. The fund does invest in underlying funds that may use derivatives primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate or currency exposure, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the underlying funds use derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. Distributions of income and capital gains from the underlying funds are recorded on the ex-dividend date. Recognition of net investment income by the fund is affected by the timing of the declaration of distributions by the underlying funds in which the fund invests. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
The fund and/or the underlying funds may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/20 | Year ended
12/31/19 |
| Ordinary income (including any short-term capital gains) | $6,588,358 | $7,018,206 |
| Long-term capital gains | 28,163,053 | 32,675,184 |
| Total distributions | $34,751,411 | $39,693,390 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| As of 12/31/20 | |
| Cost of investments | $251,145,540 |
| Gross appreciation | 108,214,938 |
| Gross depreciation | (445,862) |
| Net unrealized appreciation (depreciation) | $107,769,076 |
| Undistributed ordinary income | 6,856,590 |
| Undistributed long-term capital gain | 19,453,520 |
MFS Growth Allocation Portfolio
Notes to Financial Statements - continued
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year
ended
12/31/20 | | Year
ended
12/31/19 |
| Initial Class | $473,162 | | $439,473 |
| Service Class | 34,278,249 | | 39,253,917 |
| Total | $34,751,411 | | $39,693,390 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. MFS receives no compensation under this agreement; however MFS receives management fees from the underlying MFS funds.
The investment adviser has agreed in writing to pay a portion of the fund’s operating expenses, excluding distribution and/or service fees, interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses such as fees and expenses associated with investments in investment companies and other similar investment vehicles such that fund operating expenses do not exceed 0.20% annually of the fund’s average daily net assets. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2022. For the year ended December 31, 2020, the fund’s actual operating expenses did not exceed the limit and therefore, the investment adviser did not pay any portion of the fund’s expenses related to this agreement.
In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the fund invests. Accordingly, the expense ratio for the fund reflects only those fees and expenses borne directly by the fund.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent — MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2020, the fee was $5,671, which equated to 0.0017% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2020, these costs amounted to $213.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund pays an annual fixed amount of $17,500. The administrative services fee incurred for the year ended December 31, 2020 was equivalent to an annual effective rate of 0.0053% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
MFS Growth Allocation Portfolio
Notes to Financial Statements - continued
(4) Portfolio Securities
For the year ended December 31, 2020, purchases and sales of shares of underlying funds, excluding the MFS Institutional Money Market Portfolio, aggregated $20,440,198 and $66,691,542, respectively.
(5) Shares of Beneficial Interest
The fund's Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
| | Year ended
12/31/20 | | Year ended
12/31/19 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 57,049 | $708,716 | | 12,218 | $144,020 |
| Service Class | 750,638 | 7,706,079 | | 152,356 | 1,789,932 |
| | 807,687 | $8,414,795 | | 164,574 | $1,933,952 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 41,836 | $473,162 | | 39,843 | $439,473 |
| Service Class | 3,022,773 | 34,278,249 | | 3,549,179 | 39,253,917 |
| | 3,064,609 | $34,751,411 | | 3,589,022 | $39,693,390 |
| Shares reacquired | | | | | |
| Initial Class | (54,241) | $(634,499) | | (79,249) | $(957,183) |
| Service Class | (4,587,950) | (53,164,891) | | (5,335,070) | (63,293,299) |
| | (4,642,191) | $(53,799,390) | | (5,414,319) | $(64,250,482) |
| Net change | | | | | |
| Initial Class | 44,644 | $547,379 | | (27,188) | $(373,690) |
| Service Class | (814,539) | (11,180,563) | | (1,633,535) | (22,249,450) |
| | (769,895) | $(10,633,184) | | (1,660,723) | $(22,623,140) |
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.25 billion unsecured committed line of credit of which $1 billion is reserved for use by the fund and certain other U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2020, the fund’s commitment fee and interest expense were $1,803 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Emerging Markets Equity Portfolio | $3,600,110 | $571,063 | $635,619 | $42,201 | $89,017 | $3,666,772 |
| MFS Global Governments Portfolio | 13,638,361 | 2,319,463 | 3,321,187 | (83,329) | 1,169,330 | 13,722,638 |
| MFS Global Real Estate Portfolio | 17,444,547 | 3,054,781 | 2,082,165 | 333,955 | (685,382) | 18,065,736 |
MFS Growth Allocation Portfolio
Notes to Financial Statements - continued
| Affiliated Issuers − continued | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Growth Series | $39,381,667 | $2,583,112 | $10,692,661 | $4,856,246 | $3,173,375 | $39,301,739 |
| MFS High Yield Portfolio | 17,696,214 | 1,520,689 | 1,571,564 | (243,486) | 47,288 | 17,449,141 |
| MFS Inflation-Adjusted Bond Portfolio | 17,197,803 | 2,088,810 | 3,432,382 | 9,922 | 1,638,720 | 17,502,873 |
| MFS Institutional Money Market Portfolio | 263,585 | 1,180,241 | 1,251,237 | (18) | 5 | 192,576 |
| MFS International Growth Portfolio | 17,885,547 | 539,629 | 2,317,379 | 211,668 | 1,827,834 | 18,147,299 |
| MFS International Intrinsic Value Portfolio | 17,839,754 | 502,650 | 2,781,355 | 934,579 | 1,597,948 | 18,093,576 |
| MFS Limited Maturity Portfolio | 6,961,289 | 1,083,398 | 1,303,765 | (33,662) | 48,740 | 6,756,000 |
| MFS Mid Cap Growth Series | 32,099,606 | 3,008,097 | 10,104,185 | 1,954,561 | 5,741,023 | 32,699,102 |
| MFS Mid Cap Value Portfolio | 32,216,646 | 5,835,238 | 6,405,511 | (555,723) | 1,671,051 | 32,761,701 |
| MFS New Discovery Series | 7,150,811 | 1,054,325 | 3,020,012 | 592,039 | 1,598,222 | 7,375,385 |
| MFS New Discovery Value Portfolio | 7,142,586 | 1,779,574 | 1,614,018 | (204,507) | 278,046 | 7,381,681 |
| MFS Research International Portfolio | 32,198,485 | 2,094,015 | 3,788,846 | 451,078 | 1,754,386 | 32,709,118 |
| MFS Research Series | 35,788,600 | 2,569,458 | 6,189,815 | 966,876 | 3,025,495 | 36,160,614 |
| MFS Total Return Bond Series | 17,351,149 | 2,084,733 | 2,975,635 | (155,887) | 772,628 | 17,076,988 |
| MFS Value Series | 39,323,802 | 5,144,296 | 4,455,443 | 586,378 | (747,356) | 39,851,677 |
| | $355,180,562 | $39,013,572 | $67,942,779 | $9,662,891 | $23,000,370 | $358,914,616 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Emerging Markets Equity Portfolio | $151,131 | $138,004 |
| MFS Global Governments Portfolio | 172,603 | — |
| MFS Global Real Estate Portfolio | 905,541 | 326,183 |
| MFS Growth Series | — | 2,261,433 |
| MFS High Yield Portfolio | 920,137 | — |
| MFS Inflation-Adjusted Bond Portfolio | 97,891 | 192,517 |
| MFS Institutional Money Market Portfolio | 1,387 | — |
| MFS International Growth Portfolio | 281,481 | 167,403 |
| MFS International Intrinsic Value Portfolio | 181,728 | 310,508 |
| MFS Limited Maturity Portfolio | 205,441 | — |
| MFS Mid Cap Growth Series | 112,286 | 2,063,682 |
| MFS Mid Cap Value Portfolio | 590,285 | 1,057,793 |
| MFS New Discovery Series | 184,432 | 429,448 |
| MFS New Discovery Value Portfolio | 176,330 | 487,505 |
| MFS Research International Portfolio | 635,062 | 1,006,527 |
| MFS Research Series | 355,978 | 1,189,909 |
| MFS Total Return Bond Series | 562,244 | — |
| MFS Value Series | 626,993 | 1,602,658 |
| | $6,160,950 | $11,233,570 |
(8) Impacts of COVID-19
The pandemic related to the global spread of novel coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to global business activity and the global economy, as well as the economies of individual countries, the financial performance of individual companies and sectors, and the securities and commodities markets in general. This pandemic, the full effects of which are still unknown, has resulted in substantial market volatility and may have adversely impacted the prices and liquidity of the fund's investments and the fund's performance.
MFS Growth Allocation Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust III and the Shareholders of MFS Growth Allocation Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Growth Allocation Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2020, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2020, and 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 accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2020, by correspondence with the transfer agent. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 16, 2021
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS Growth Allocation Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2021, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEES | | |
Robert J. Manning (k)
(age 57) | | Trustee | | February 2004 | | 134 | | Massachusetts Financial Services Company, Non-Executive Chairman (since January 2021); Director; Chairman of the Board; Executive Chairman (January 2017-2020); Co-Chief Executive Officer (2015-2016) | | N/A |
Michael W. Roberge (k)
(age 54) | | Trustee | | January 2021 | | 134 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; President (until December 2018); Chief Investment Officer (until December 2018); Co-Chief Executive Officer (until December 2016) | | N/A |
| INDEPENDENT TRUSTEES | | |
John P. Kavanaugh
(age 66) | | Trustee and Chair of Trustees | | January 2009 | | 134 | | Private investor | | N/A |
Steven E. Buller
(age 69) | | Trustee | | February 2014 | | 134 | | Private investor | | N/A |
John A. Caroselli
(age 66) | | Trustee | | March 2017 | | 134 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 65) | | Trustee | | January 2009 | | 134 | | Private investor | | N/A |
Peter D. Jones
(age 65) | | Trustee | | January 2019 | | 134 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 59) | | Trustee | | January 2019 | | 134 | | Burford Capital Limited (finance and investment management), Chief Financial Officer (since 2019); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016); Morgan Stanley & Co. (financial services), Vice Chairman of Investment Banking, Co-Head of Diversified Financials Coverage – Financial Institutions Investment Banking Group (until 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 64) | | Trustee | | March 2017 | | 134 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
MFS Growth Allocation Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
Maryanne L. Roepke
(age 64) | | Trustee | | May 2014 | | 134 | | Private investor | | N/A |
Laurie J. Thomsen
(age 63) | | Trustee | | March 2005 | | 134 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 47) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 134 | | Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel |
Kino Clark (k)
(age 52) | | Assistant Treasurer | | January 2012 | | 134 | | Massachusetts Financial Services Company, Vice President |
John W. Clark, Jr. (k)
(age 53) | | Assistant Treasurer | | April 2017 | | 134 | | Massachusetts Financial Services Company, Vice President (since March 2017); Deutsche Bank (financial services), Department Head - Treasurer's Office (until February 2017) |
Thomas H. Connors (k)
(age 61) | | Assistant Secretary and Assistant Clerk | | September 2012 | | 134 | | Massachusetts Financial Services Company, Vice President and Senior Counsel |
David L. DiLorenzo (k)
(age 52) | | President | | July 2005 | | 134 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 53) | | Secretary and Clerk | | April 2017 | | 134 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel (since March 2017); Harris Associates (investment management), General Counsel (until January 2017) |
Brian E. Langenfeld (k)
(age 47) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 134 | | Massachusetts Financial Services Company, Vice President and Senior Counsel |
Amanda S. Mooradian (k)
(age 41) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 134 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 134 | | Massachusetts Financial Services Company, Vice President and Assistant General Counsel |
Kasey L. Phillips (k)
(age 50) | | Assistant Treasurer | | September 2012 | | 134 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 46) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 134 | | Massachusetts Financial Services Company, Vice President and Assistant General Counsel |
Martin J. Wolin (k)
(age 53) | | Chief Compliance Officer | | July 2015 | | 134 | | Massachusetts Financial Services Company, Senior Vice President and Chief Compliance Officer |
MFS Growth Allocation Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
James O. Yost (k)
(age 60) | | Treasurer | | September 1990 | | 134 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. For the period from December 15, 2004 until February 22, 2005, Mr. Manning served as Advisory Trustee. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Messrs. Buller, Kilman and Otis and Ms. Roepke are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Lincoln Street
Boston, MA 02111-2900 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
Joseph Flaherty
Natalie Shapiro | |
MFS Growth Allocation Portfolio
Board Review of Investment Advisory Agreement
MFS Growth Allocation Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times by videoconference (in accordance with Securities and Exchange Commission relief) over the course of three months beginning in May and ending in July, 2020 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2019 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s fees and expenses and the fees and expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information as to whether and to what extent applicable expense waivers and reimbursements are observed for the Fund, (iv) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (v) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vi) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (vii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2019, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 1st quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 1st quintile for each of the one- and three-year periods ended December 31, 2019 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
MFS Growth Allocation Portfolio
Board Review of Investment Advisory Agreement - continued
The Trustees considered that MFS does not charge an advisory fee for providing investment advisory services to the Fund, but that the Fund pays its pro rata share of the advisory fees paid by the underlying funds in which it invests (the “Underlying Funds”).
In assessing the reasonableness of the Fund’s expenses, the Trustees considered, among other information, the Fund’s total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s total expense ratio was lower than the Broadridge expense group median. Because the Fund does not pay an advisory fee, the Trustees did not consider the extent to which economies of scale would be realized due to the Fund’s growth of assets, whether fee levels reflect economies of scale for shareholders, or the fees paid by similar funds to other investment advisers or by similar clients of MFS.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s or the Underlying Funds’ behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2020.
MFS Growth Allocation Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit3 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit3 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates $30,980,000 as capital gain dividends paid during the fiscal year.
For corporate shareholders, 31.18% of the ordinary income dividends paid during the fiscal year qualify for the corporate dividends received deduction.
The fund intends to pass through the maximum amount allowable as Section 163(j) Interest Dividends as defined in Treasury Regulation §1.163(j)-1(b).
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2020
MFS® Inflation-Adjusted
Bond Portfolio
MFS® Variable Insurance Trust III
MFS® Inflation-Adjusted Bond Portfolio
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The report is prepared for the general information of contract owners. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Inflation-Adjusted Bond Portfolio
Dear Contract Owners:
Markets experienced dramatic swings this year as the coronavirus pandemic brought the global economy to a standstill for several months early in the year. The speedy development of vaccines and therapeutics later brightened the economic and market outlook, but a great deal of uncertainty remains as case counts remain high, new variants of the virus are appearing and questions persist over how fast the vaccine can be made widely available. In the United States, political uncertainty eased after former Vice President Joe Biden won the presidential election and the Democrats gained control of a closely divided Senate.
Global central banks have taken aggressive steps to cushion the economic and market fallout related to the virus, and governments are deploying unprecedented levels of fiscal support. Additional U.S. stimulus is anticipated with the Democrats in the White House and in control of both houses of Congress. The measures already put in place have helped build a supportive environment and are encouraging economic recovery; however, if markets disconnect from fundamentals, they can sow the seeds of instability. As such, dramatic increases in speculative retail trading bear watching.
In the aftermath of the crisis, we could see societal changes as households, businesses, and governments adjust to a new reality, and any such alterations could affect the investment landscape. For investors, events such as the COVID-19 outbreak demonstrate the importance of having a deep understanding of company fundamentals, and we have built our global research platform to do just that.
At MFS®, we put our clients’ assets to work responsibly by carefully navigating the increasing complexity of our global markets and economies. Guided by our long-term philosophy and adhering to our commitment to sustainable investing, we tune out the noise and aim to uncover what we believe are the best, most durable investment opportunities in the market. Our unique global investment platform combines collective expertise, long-term discipline and thoughtful risk management to create sustainable value for investors.
Respectfully,
Michael W. Roberge
Chief Executive Officer
MFS Investment Management
February 16, 2021
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
MFS Inflation-Adjusted Bond Portfolio
Portfolio structure (i)
Fixed income sectors (i)
| Non-U.S. Government Bonds | 47.2% |
| U.S. Treasury Securities | 38.9% |
| Municipal Bonds | 1.5% |
| Emerging Markets Bonds | 1.3% |
| Collateralized Debt Obligations | 1.3% |
| Investment Grade Corporates | 1.0% |
| Commercial Mortgage-Backed Securities | 0.6% |
| Mortgage-Backed Securities | 0.5% |
| U.S. Government Agencies | 0.2% |
Composition including fixed income credit quality (a)(i)
| AAA | 6.4% |
| AA | 29.1% |
| A | 3.6% |
| BBB | 15.9% |
| BB | 0.7% |
| U.S. Government | 42.8% |
| Federal Agencies | 0.7% |
| Not Rated | (6.7)% |
| Cash & Cash Equivalents | 0.5% |
| Other | 7.0% |
Portfolio facts (i)
| Average Duration (d) | 4.3 |
| Average Effective Maturity (m) | 14.2 yrs. |
Issuer country weightings (i)(x)
| United States | 51.2% |
| United Kingdom | 25.0% |
| Italy | 10.0% |
| Spain | 4.0% |
| Japan | 3.1% |
| Canada | 2.5% |
| Australia | 1.4% |
| France | 1.4% |
| Germany | (1.0)% |
| Other Countries | 2.4% |
Currency exposure weightings (i)(y)
| United States Dollar | 42.7% |
| British Pound Sterling | 28.7% |
| Euro | 19.0% |
| Japanese Yen | 2.9% |
| Australian Dollar | 2.3% |
| Canadian Dollar | 1.8% |
| Norwegian Krone | 1.2% |
| Swedish Krona | 0.7% |
| New Zealand Dollar | 0.5% |
| Other Currencies | 0.2% |
| (a) | For all securities other than those specifically described below, ratings are assigned to underlying securities utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. If none of the 3 rating agencies above assign a rating, but the security is rated by DBRS Morningstar, then the DBRS Morningstar rating is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). Securities rated BBB or higher are considered investment grade. All ratings are subject to change.U.S. Government includes securities issued by the U.S. Department of the Treasury. Federal Agencies includes rated and unrated U.S. Agency fixed-income securities, U.S. Agency mortgage-backed securities, and collateralized mortgage obligations of U.S. Agency mortgage-backed securities.Not Rated includes fixed income securities and fixed income derivatives that have not been rated by any rating agency.The fund may or may not have held all of these instruments on this date. The fund is not rated by these agencies. |
| (d) | Duration is a measure of how much a bond’s price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a bond with a 5-year duration is likely to lose about 5.00% of its value due to the interest rate move. |
MFS Inflation-Adjusted Bond Portfolio
Portfolio Composition - continued
| (i) | For purposes of this presentation, the components include the value of securities, and reflect the impact of the equivalent exposure of derivative positions, if any. These amounts may be negative from time to time. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than value. The bond component will include any accrued interest amounts. |
| (m) | In determining each instrument’s effective maturity for purposes of calculating the fund’s dollar-weighted average effective maturity, MFS uses the instrument’s stated maturity or, if applicable, an earlier date on which MFS believes it is probable that a maturity-shortening device (such as a put, pre-refunding or prepayment) will cause the instrument to be repaid. Such an earlier date can be substantially shorter than the instrument’s stated maturity. |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. For purposes of this presentation, United States includes Cash & Cash Equivalents and Other. |
| (y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio's net assets. For purposes of this presentation, United States Dollar includes Cash & Cash Equivalents. |
Where the fund holds convertible bonds, they are treated as part of the equity portion of the portfolio.
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Other includes equivalent exposure from currency derivatives and/or any offsets to derivative positions.
Percentages are based on net assets as of December 31, 2020.
The portfolio is actively managed and current holdings may be different.
MFS Inflation-Adjusted Bond Portfolio
Management Review
Summary of Results
For the twelve months ended December 31, 2020, Initial Class shares of the MFS Inflation-Adjusted Bond Portfolio (fund) provided a total return of 13.55%, while Service Class shares of the fund provided a total return of 13.21%. These compare with a return of 12.54% over the same period for the fund’s benchmark, the Bloomberg Barclays World Government Inflation-Linked Bond Index.
Market Environment
Markets experienced an extraordinarily sharp selloff early in the period and, in many cases, an unusually rapid recovery later. Central banks and fiscal authorities undertook astonishing levels of stimulus to offset the economic effects of government-imposed social-distancing measures implemented to slow the spread of the COVID-19 virus. At this point, the global economy looks to have experienced the shortest — albeit the deepest and steepest — recession in the postwar period. However, the recovery remains subject to more than the usual number of uncertainties due to questions about the evolution of the virus, what its continued impact will be and how quickly vaccines to guard against it can be manufactured and distributed at scale. There are also worries over the public's willingness to be inoculated.
Around the world, central banks responded quickly and massively to the crisis with programs to improve liquidity and support markets. These programs proved largely successful in helping to restore market function, ease volatility and stimulate a continued market rebound. Late in the period, the US Federal Reserve adopted a new, flexible, average-inflation-targeting framework, which is expected to result in the federal funds rate remaining at low levels longer than under its previous model. In developed countries, monetary easing measures were complemented by unusually large fiscal stimulus initiatives. Due to relatively manageable external liabilities and balances of payments in many countries and persistently low inflation, even emerging market countries were able to implement countercyclical policies — a departure from the usual market-dictated response to risk-off crises.
Compounding market uncertainty earlier in the pandemic was a crash in the price of crude oil due to a sharp drop in global demand and a disagreement between Saudi Arabia and Russia over production cuts, which resulted in an oil price war. The subsequent decline in prices undercut oil exporters, many of which are in emerging markets, as well as a large segment of the high-yield credit market. The OPEC+ group later agreed on output cuts, with shale oil producers in the US also decreasing production, which, along with the gradual reopening of some major economies and the resultant boost in demand, helped stabilize the price of crude oil.
In the immediate aftermath of the market disruption that accompanied the initial phases of the pandemic, many companies that had added significant leverage to their balance sheets in recent years by borrowing to fund dividend payments and stock buybacks halted those activities, and some companies were forced to recapitalize. As markets and the economy stabilized later in the period, in many cases dividend payments and buybacks resumed. Conversely, some companies found themselves flush with liquidity, having borrowed preemptively during the worst of the crisis only to end up with excess cash on their balance sheets.
Factors Affecting Performance
Relative to the Bloomberg Barclays World Government Inflation-Linked Bond Index, the fund's asset allocation decisions were a primary contributor to relative performance. Notably, from a country perspective, the fund's greater exposure to Italian and Greek issuers, and its lesser exposure to British and French bonds, benefited relative returns.
The fund's asset allocation decisions, as they related to its holdings of inflation-linked securities, which capture the impact from changes in breakeven rates across various maturities, also supported relative results. The breakeven rate is the difference between the yield on a conventional Treasury bond and the real yield (i.e., inflation-adjusted interest rates) on an inflation-linked bond of similar maturity and credit quality. Here, the fund's underweight allocation to bonds with less than 3-year maturities, and to bonds with maturities of 25 to 30 years, coupled with its overweight allocation to securities with 7 to 10-year maturities, strengthened relative returns.
Although interest rates generally declined during the reporting period, the fund's shorter relative duration(d) stance, most notably during the first quarter of the year, aided relative performance.
The fund's yield curve(y) positioning, which was impacted by changes in nominal interest rates (i.e., interest rates before accounting for inflation), also added to relative returns, led by its a lesser exposure to 5 and 10-year key rates in the United States, its lesser exposure to the 2-year key rate in Europe, and its greater exposure to the 10-year key rate in Canada.
From a currency perspective, the fund's long positions in the Norwegian krone, New Zealand dollar and Japanese yen supported relative returns and outweighed the negative impacts from the fund's long position in the Australian dollar.
MFS Inflation-Adjusted Bond Portfolio
Management Review - continued
Conversely, bond selection detracted from the fund's relative performance, notably within the United States and in bonds with less than 3-, 10- and 15-year maturities.
Respectfully,
Portfolio Manager(s)
Robert Spector and Erik Weisman
| (d) | Duration is a measure of how much a bond’s price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a bond with a 5-year duration is likely to lose about 5.00% of its value. |
| (y) | A yield curve graphically depicts the yields of different maturity bonds of the same credit quality and type; a normal yield curve is upward sloping, with short-term rates lower than long-term rates. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
MFS Inflation-Adjusted Bond Portfolio
Performance Summary Through 12/31/20
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your units, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a contract holder would pay on fund distributions or the redemption of contract units. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/20
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 10/01/08 | 13.55% | 5.46% | 3.93% |
| Service Class | 10/01/08 | 13.21% | 5.21% | 3.68% |
Comparative benchmark(s)
| Bloomberg Barclays World Government Inflation-Linked Bond Index (f) | 12.54% | 5.69% | 3.95% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
Bloomberg Barclays World Government Inflation-Linked Bond Index(a) – measures the performance of the major government inflation-linked bond markets.
It is not possible to invest directly in an index.
| (a) | BLOOMBERG ® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg's licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom, and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. |
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
MFS Inflation-Adjusted Bond Portfolio
Performance Summary – continued
Performance prior to close of business December 7, 2012, reflects time periods when another adviser or subadviser was responsible for selecting investments for the fund under a different investment objective and different investment strategies.
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
MFS Inflation-Adjusted Bond Portfolio
Expense Table
Fund Expenses Borne by the Contract Holders during the Period,
July 1, 2020 through December 31, 2020
As a contract holder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2020 through December 31, 2020.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund's ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
Share
Class | | Annualized
Expense
Ratio | Beginning
Account Value
7/01/20 | Ending
Account Value
12/31/20 | Expenses
Paid During
Period (p)
7/01/20-12/31/20 |
| Initial Class | Actual | 0.57% | $1,000.00 | $1,084.32 | $2.99 |
| Hypothetical (h) | 0.57% | $1,000.00 | $1,022.27 | $2.90 |
| Service Class | Actual | 0.82% | $1,000.00 | $1,083.44 | $4.29 |
| Hypothetical (h) | 0.82% | $1,000.00 | $1,021.01 | $4.17 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). |
MFS Inflation-Adjusted Bond Portfolio
Portfolio of Investments − 12/31/20
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Bonds – 98.9% |
| Asset-Backed & Securitized – 1.9% |
| Bancorp Commercial Mortgage Trust, 2019-CRE6, “A”, FLR, 1.208% (LIBOR - 1mo. + 1.05%), 9/15/2036 (n) | | $ | 380,122 | $ 379,161 |
| Benchmark Mortgage Trust, 2019-B12, “A5”, 3.115%, 8/15/2052 | | | 710,554 | 801,113 |
| Galaxy CLO Ltd., 2018-29A, “A”, FLR, 1.011% (LIBOR - 3mo. + 0.79%), 11/15/2026 (n) | | | 328,607 | 327,411 |
| Loomis, Sayles & Co., CLO, 2015-2A, “A2R”, FLR, 1.636% (LIBOR - 3mo. + 1.4%), 4/15/2028 (n) | | | 854,664 | 847,299 |
| Madison Park Funding Ltd., 2014-13A, “BR2”, FLR, 1.717% (LIBOR - 3mo. + 1.5%), 4/19/2030 (n) | | | 901,666 | 902,997 |
| MF1 Multi-Family Housing Mortgage Loan Trust, 2020-FL4, “A”, FLR, 1.858% (LIBOR - 1mo. + 1.7%), 11/15/2035 (n) | | | 467,000 | 467,400 |
| Symphony CLO Ltd., 2016-17A, “BR”, FLR, 1.436% (LIBOR - 3mo. + 1.2%), 4/15/2028 (n) | | | 764,124 | 755,323 |
| Wells Fargo Commercial Mortgage Trust, 2019-C54, “A4”, 3.146%, 12/15/2052 | | | 392,680 | 442,176 |
| | | | | $4,922,880 |
| Automotive – 0.4% |
| Hyundai Capital America, 2.85%, 11/01/2022 (n) | | $ | 444,000 | $ 460,101 |
| Hyundai Capital America, 2.375%, 2/10/2023 (n) | | | 225,000 | 231,877 |
| Volkswagen Group of America Co., 2.7%, 9/26/2022 (n) | | | 441,000 | 457,189 |
| | | | | $1,149,167 |
| Consumer Services – 0.1% |
| Conservation Fund, 3.474%, 12/15/2029 | | $ | 312,000 | $ 337,580 |
| Emerging Market Sovereign – 1.3% |
| Hellenic Republic (Republic of Greece), 3.875%, 3/12/2029 | | EUR | 1,150,000 | $ 1,780,011 |
| Republic of Croatia, 1.125%, 6/19/2029 | | | 1,250,000 | 1,604,530 |
| | | | | $3,384,541 |
| Industrial – 0.1% |
| Howard University, Washington D.C., 2.738%, 10/01/2022 | | $ | 55,000 | $ 56,662 |
| Howard University, Washington D.C., 2.801%, 10/01/2023 | | | 60,000 | 62,289 |
| Howard University, Washington D.C., AGM, 2.638%, 10/01/2021 | | | 52,000 | 52,452 |
| Howard University, Washington D.C., AGM, 2.416%, 10/01/2024 | | | 66,000 | 68,419 |
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Industrial – continued |
| Howard University, Washington D.C., AGM, 2.516%, 10/01/2025 | | $ | 82,000 | $ 85,357 |
| | | | | $325,179 |
| International Market Sovereign – 49.9% |
| Commonwealth of Australia, Inflation Linked Bond, 3%, 9/20/2025 | | AUD | 792,416 | $ 737,237 |
| Commonwealth of Australia, Inflation Linked Bond, 0.75%, 11/21/2027 | | | 209,220 | 182,522 |
| Commonwealth of Australia, Inflation Linked Bond, 2.5%, 9/20/2030 | | | 340,844 | 350,040 |
| Commonwealth of Australia, Inflation Linked Bond, 1.25%, 8/21/2040 | | | 2,452,315 | 2,463,236 |
| Federal Republic of Germany, Inflation Linked Bond, 0.5%, 4/15/2030 | | EUR | 2,769,250 | 4,061,851 |
| Government of Canada, Inflation Linked Bond, 4.25%, 12/01/2026 | | CAD | 649,815 | 674,365 |
| Government of Canada, Inflation Linked Bond, 4%, 12/01/2031 | | | 597,437 | 718,248 |
| Government of Canada, Inflation Linked Bond, 3%, 12/01/2036 | | | 4,036,461 | 4,979,982 |
| Government of Japan, Inflation Linked Bond, 0.1%, 3/10/2026 | | JPY | 819,784,800 | 7,963,238 |
| Government of New Zealand, Inflation Linked Bond, 2.5%, 9/20/2035 | | NZD | 324,690 | 322,898 |
| Government of New Zealand, Inflation Linked Bond, 2.5%, 9/20/2040 | | | 428,440 | 449,844 |
| Kingdom of Spain, Inflation Linked Bond, 1.8%, 11/30/2024 | | EUR | 1,360,229 | 1,873,162 |
| Kingdom of Spain, Inflation Linked Bond, 0.65%, 11/30/2027 | | | 885,232 | 1,218,842 |
| Kingdom of Spain, Inflation Linked Bond, 1%, 11/30/2030 | | | 881,724 | 1,292,686 |
| Kingdom of Spain, Inflation Linked Bond, 0.7%, 11/30/2033 (n) | | | 4,053,292 | 5,950,117 |
| Republic of France, Inflation Linked Bond, 0.7%, 7/25/2030 | | | 576,306 | 854,488 |
| Republic of France, Inflation Linked Bond, 3.15%, 7/25/2032 | | | 450,873 | 863,782 |
| Republic of France, Inflation Linked Bond, 1.8%, 7/25/2040 | | | 418,849 | 848,710 |
| Republic of France, Inflation Linked Bond, 0.1%, 7/25/2047 | | | 638,243 | 1,072,098 |
| Republic of Italy, 2.25%, 9/01/2036 | | | 660,000 | 959,661 |
| Republic of Italy, Inflation Linked Bond, 0.1%, 5/15/2022 | | | 2,106,720 | 2,607,132 |
| Republic of Italy, Inflation Linked Bond, 2.35%, 9/15/2024 | | | 2,415,207 | 3,298,861 |
| Republic of Italy, Inflation Linked Bond, 3.1%, 9/15/2026 | | | 1,883,821 | 2,801,228 |
MFS Inflation-Adjusted Bond Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| International Market Sovereign – continued |
| Republic of Italy, Inflation Linked Bond, 1.3%, 5/15/2028 | | EUR | 4,121,904 | $ 5,649,355 |
| Republic of Italy, Inflation Linked Bond, 0.4%, 5/15/2030 | | | 2,528,200 | 3,275,682 |
| Republic of Italy, Inflation Linked Bond, 2.35%, 9/15/2035 | | | 1,461,494 | 2,454,150 |
| Republic of Italy, Inflation Linked Bond, 2.55%, 9/15/2041 | | | 2,593,002 | 4,763,396 |
| Republic of Portugal, 0.9%, 10/12/2035 (n) | | | 1,450,000 | 1,898,246 |
| United Kingdom Treasury, 4.5%, 12/07/2042 | | GBP | 2,265,000 | 5,509,308 |
| United Kingdom Treasury, Inflation Linked Bond, 0.75%, 3/22/2034 | | | 1,450,658 | 3,108,124 |
| United Kingdom Treasury, Inflation Linked Bond, 2%, 1/26/2035 | | | 1,925,558 | 4,760,239 |
| United Kingdom Treasury, Inflation Linked Bond, 0.125%, 11/22/2036 | | | 2,036,772 | 4,346,143 |
| United Kingdom Treasury, Inflation Linked Bond, 1.125%, 11/22/2037 | | | 1,032,908 | 2,574,675 |
| United Kingdom Treasury, Inflation Linked Bond, 0.625%, 3/22/2040 | | | 1,145,511 | 2,809,499 |
| United Kingdom Treasury, Inflation Linked Bond, 0.625%, 11/22/2042 | | | 1,370,962 | 3,567,826 |
| United Kingdom Treasury, Inflation Linked Bond, 0.125%, 3/22/2044 | | | 1,778,041 | 4,349,832 |
| United Kingdom Treasury, Inflation Linked Bond, 0.125%, 3/22/2046 | | | 918,771 | 2,334,346 |
| United Kingdom Treasury, Inflation Linked Bond, 0.75%, 11/22/2047 | | | 1,016,774 | 3,019,402 |
| United Kingdom Treasury, Inflation Linked Bond, 0.125%, 8/10/2048 | | | 240,908 | 643,859 |
| United Kingdom Treasury, Inflation Linked Bond, 0.5%, 3/22/2050 | | | 1,443,541 | 4,284,731 |
| United Kingdom Treasury, Inflation Linked Bond, 0.25%, 3/22/2052 | | | 1,270,239 | 3,721,175 |
| United Kingdom Treasury, Inflation Linked Bond, 1.25%, 11/22/2055 | | | 725,604 | 2,805,139 |
| United Kingdom Treasury, Inflation Linked Bond, 0.125%, 11/22/2056 | | | 694,225 | 2,156,475 |
| United Kingdom Treasury, Inflation Linked Bond, 0.125%, 3/22/2058 | | | 1,431,157 | 4,541,639 |
| United Kingdom Treasury, Inflation Linked Bond, 0.375%, 3/22/2062 | | | 1,165,268 | 4,248,834 |
| United Kingdom Treasury, Inflation Linked Bond, 0.125%, 11/22/2065 | | | 434,950 | 1,624,254 |
| United Kingdom Treasury, Inflation Linked Bond, 0.125%, 3/22/2068 | | | 1,072,253 | 4,311,517 |
| | | | | $ 129,302,074 |
| Medical & Health Technology & Services – 0.3% |
| ProMedica Toledo Hospital, “B”, AGM, 5.325%, 11/15/2028 | | $ | 487,000 | $ 585,875 |
| ProMedica Toledo Hospital, “B”, AGM, 5.75%, 11/15/2038 | | | 144,000 | 172,554 |
| | | | | $758,429 |
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Mortgage-Backed – 0.5% | |
| Freddie Mac, 3.85%, 5/25/2028 | | $ | 390,000 | $ 464,748 |
| Freddie Mac, 3.854%, 6/25/2028 | | | 555,000 | 661,427 |
| Freddie Mac, 1.662%, 5/25/2030 (i) | | | 1,221,668 | 170,091 |
| Freddie Mac, 1.169%, 9/25/2030 (i) | | | 646,322 | 67,023 |
| | | | | $1,363,289 |
| Municipals – 1.5% |
| California Department of Water Resources Rev. (Central Valley Project Water System), “BC”, 1.409%, 12/01/2029 | | $ | 320,000 | $ 320,682 |
| Chicago, IL, Board of Education, “E”, BAM, 6.138%, 12/01/2039 | | | 550,000 | 704,797 |
| Florida State Board of Administration Finance Corp. Rev., “A”, 1.705%, 7/01/2027 | | | 458,000 | 475,399 |
| Illinois Sales Tax Securitization Corp., Second Lien, “B”, BAM, 3.411%, 1/01/2043 | | | 480,000 | 509,477 |
| Port Authority of NY & NJ, “AAA”, 1.086%, 7/01/2023 | | | 410,000 | 416,109 |
| Texas Transportation Commission, Central Texas Turnpike System First Tier Refunding Rev., Taxable, “B”, 1.98%, 8/15/2042 | | | 380,000 | 383,580 |
| University of California, General Taxable Rev., “BG”, 1.614%, 5/15/2030 | | | 410,000 | 414,313 |
| University of Missouri Curators Facilities Rev, “A”, 2.012%, 11/01/2027 | | | 585,000 | 619,392 |
| | | | | $3,843,749 |
| U.S. Government Agencies and Equivalents – 0.2% |
| Tennessee Valley Authority, 0.75%, 5/15/2025 | | $ | 394,000 | $ 398,966 |
| U.S. Treasury Inflation Protected Securities – 42.7% |
| U.S. Treasury Bonds, 0.375%, 7/15/2023 | | $ | 1,766,633 | $ 1,871,207 |
| U.S. Treasury Bonds, 0.625%, 1/15/2024 | | | 946,283 | 1,015,457 |
| U.S. Treasury Bonds, 0.25%, 1/15/2025 | | | 1,942,463 | 2,095,661 |
| U.S. Treasury Bonds, 2.375%, 1/15/2025 | | | 3,692,242 | 4,313,693 |
| U.S. Treasury Bonds, 0.625%, 1/15/2026 | | | 2,082,001 | 2,323,431 |
| U.S. Treasury Bonds, 2%, 1/15/2026 | | | 2,071,411 | 2,462,341 |
| U.S. Treasury Bonds, 0.375%, 1/15/2027 | | | 5,501,499 | 6,137,478 |
| U.S. Treasury Bonds, 2.375%, 1/15/2027 | | | 2,779,781 | 3,454,967 |
| U.S. Treasury Bonds, 1.75%, 1/15/2028 | | | 9,195,847 | 11,276,009 |
| U.S. Treasury Bonds, 3.625%, 4/15/2028 | | | 5,906,430 | 8,118,052 |
| U.S. Treasury Bonds, 2.5%, 1/15/2029 | | | 662,151 | 869,507 |
MFS Inflation-Adjusted Bond Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| U.S. Treasury Inflation Protected Securities – continued |
| U.S. Treasury Bonds, 3.875%, 4/15/2029 | | $ | 3,628,577 | $ 5,226,506 |
| U.S. Treasury Bonds, 2.125%, 2/15/2040 | | | 3,068,243 | 4,748,095 |
| U.S. Treasury Bonds, 2.125%, 2/15/2041 | | | 1,482,633 | 2,323,065 |
| U.S. Treasury Bonds, 0.75%, 2/15/2042 (f) | | | 6,142,858 | 7,810,676 |
| U.S. Treasury Bonds, 0.625%, 2/15/2043 | | | 3,040,736 | 3,786,241 |
| U.S. Treasury Bonds, 1.375%, 2/15/2044 | | | 822,259 | 1,182,798 |
| U.S. Treasury Bonds, 1%, 2/15/2046 | | | 1,060,419 | 1,444,456 |
| U.S. Treasury Bonds, 1%, 2/15/2048 | | | 2,566,796 | 3,568,744 |
| U.S. Treasury Bonds, 1%, 2/15/2049 | | | 1,014,026 | 1,425,998 |
| U.S. Treasury Notes, 0.125%, 1/15/2022 (f) | | | 6,380,063 | 6,493,852 |
| U.S. Treasury Notes, 0.125%, 1/15/2023 | | | 2,270,704 | 2,358,559 |
| U.S. Treasury Notes, 0.125%, 7/15/2024 | | | 4,195,438 | 4,491,411 |
| U.S. Treasury Notes, 0.375%, 7/15/2025 | | | 2,951,290 | 3,240,819 |
| U.S. Treasury Notes, 0.125%, 7/15/2026 | | | 3,569,385 | 3,924,360 |
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| U.S. Treasury Inflation Protected Securities – continued |
| U.S. Treasury Notes, 0.375%, 7/15/2027 | | $ | 3,193,200 | $ 3,591,441 |
| U.S. Treasury Notes, 0.5%, 1/15/2028 | | | 4,934,790 | 5,593,656 |
| U.S. Treasury Notes, 0.25%, 7/15/2029 | | | 2,177,288 | 2,463,750 |
| U.S. Treasury Notes, 0.125%, 1/15/2030 | | | 1,214,412 | 1,354,197 |
| U.S. Treasury Notes, 0.125%, 7/15/2030 | | | 1,381,121 | 1,548,564 |
| | | | | $ 110,514,991 |
| Total Bonds (Identified Cost, $213,289,679) | | $256,300,845 |
| Investment Companies (h) – 0.6% |
| Money Market Funds – 0.6% | |
| MFS Institutional Money Market Portfolio, 0.1% (v) (Identified Cost, $1,558,229) | | | 1,558,230 | $ 1,558,229 |
| Other Assets, Less Liabilities – 0.5% | | 1,188,729 |
| Net Assets – 100.0% | $259,047,803 |
| (f) | All or a portion of the security has been segregated as collateral for open futures contracts. | | | |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $1,558,229 and $256,300,845, respectively. | | | |
| (i) | Interest only security for which the fund receives interest on notional principal (Par amount). Par amount shown is the notional principal and does not reflect the cost of the security. | | | |
| (n) | Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate value of these securities was $12,677,121, representing 4.9% of net assets. | | | |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | | | |
| The following abbreviations are used in this report and are defined: |
| AGM | Assured Guaranty Municipal |
| BAM | Build America Mutual |
| CLO | Collateralized Loan Obligation |
| FLR | Floating Rate. Interest rate resets periodically based on the parenthetically disclosed reference rate plus a spread (if any). The period-end rate reported may not be the current rate. All reference rates are USD unless otherwise noted. |
| LIBOR | London Interbank Offered Rate |
| Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below: |
| AUD | Australian Dollar |
| CAD | Canadian Dollar |
| DKK | Danish Krone |
| EUR | Euro |
| GBP | British Pound |
| JPY | Japanese Yen |
| NOK | Norwegian Krone |
| NZD | New Zealand Dollar |
| SEK | Swedish Krona |
MFS Inflation-Adjusted Bond Portfolio
Portfolio of Investments – continued
| Derivative Contracts at 12/31/20 |
| Forward Foreign Currency Exchange Contracts |
Currency
Purchased | Currency
Sold | Counterparty | Settlement
Date | Unrealized
Appreciation
(Depreciation) |
| Asset Derivatives |
| AUD | 1,703,000 | USD | 1,273,258 | Brown Brothers Harriman | 1/15/2021 | $ 39,846 |
| AUD | 1,930,000 | USD | 1,398,850 | Goldman Sachs International | 1/15/2021 | 89,283 |
| AUD | 2,453,490 | USD | 1,803,806 | JPMorgan Chase Bank N.A. | 1/15/2021 | 87,966 |
| AUD | 1,617,000 | USD | 1,201,093 | Merrill Lynch International | 1/15/2021 | 45,701 |
| AUD | 710,000 | USD | 541,214 | Morgan Stanley Capital Services, Inc. | 1/15/2021 | 6,234 |
| CAD | 786,000 | USD | 599,713 | Brown Brothers Harriman | 1/15/2021 | 17,812 |
| CAD | 1,469,753 | USD | 1,119,472 | JPMorgan Chase Bank N.A. | 1/15/2021 | 35,247 |
| CAD | 1,000,000 | USD | 775,658 | Merrill Lynch International | 1/15/2021 | 9,997 |
| DKK | 3,519,185 | USD | 556,767 | JPMorgan Chase Bank N.A. | 1/15/2021 | 21,021 |
| EUR | 460,000 | USD | 559,937 | Barclays Bank PLC | 1/15/2021 | 2,175 |
| EUR | 270,000 | USD | 326,372 | Brown Brothers Harriman | 1/15/2021 | 3,563 |
| EUR | 1,488,117 | USD | 1,780,961 | Citibank N.A. | 1/15/2021 | 37,492 |
| EUR | 835,000 | USD | 992,593 | Credit Suisse Group | 1/15/2021 | 27,763 |
| EUR | 4,297,832 | USD | 5,087,959 | JPMorgan Chase Bank N.A. | 1/15/2021 | 163,917 |
| EUR | 612,000 | USD | 728,001 | State Street Bank Corp. | 1/15/2021 | 19,853 |
| GBP | 8,852,369 | USD | 11,459,121 | JPMorgan Chase Bank N.A. | 1/15/2021 | 647,718 |
| GBP | 768,000 | USD | 1,025,629 | Merrill Lynch International | 1/15/2021 | 24,718 |
| GBP | 205,000 | USD | 276,209 | Morgan Stanley Capital Services, Inc. | 1/15/2021 | 4,157 |
| GBP | 1,102,945 | USD | 1,468,950 | State Street Bank Corp. | 1/15/2021 | 39,480 |
| JPY | 130,032,000 | USD | 1,248,422 | JPMorgan Chase Bank N.A. | 1/15/2021 | 11,073 |
| JPY | 216,413,014 | USD | 2,054,254 | Merrill Lynch International | 1/15/2021 | 41,931 |
| NOK | 28,959,683 | USD | 3,163,977 | JPMorgan Chase Bank N.A. | 1/15/2021 | 213,579 |
| NOK | 10,223,000 | USD | 1,149,582 | Morgan Stanley Capital Services, Inc. | 1/15/2021 | 42,722 |
| NZD | 177,000 | USD | 125,739 | Barclays Bank PLC | 1/15/2021 | 1,621 |
| NZD | 1,932,000 | USD | 1,323,289 | Merrill Lynch International | 1/15/2021 | 66,879 |
| NZD | 4,887,047 | USD | 3,364,339 | Morgan Stanley Capital Services, Inc. | 1/15/2021 | 152,128 |
| NZD | 4,210,877 | USD | 2,919,804 | State Street Bank Corp. | 1/15/2021 | 110,126 |
| SEK | 400,000 | USD | 47,027 | Brown Brothers Harriman | 1/15/2021 | 1,597 |
| SEK | 32,910,000 | USD | 3,735,444 | Merrill Lynch International | 1/15/2021 | 265,126 |
| USD | 2,104,564 | EUR | 1,718,432 | State Street Bank Corp. | 1/15/2021 | 4,671 |
| | | | | | | $ 2,235,396 |
| Liability Derivatives |
| EUR | 380,000 | USD | 466,032 | Morgan Stanley Capital Services, Inc. | 1/15/2021 | $ (1,678) |
| EUR | 500,000 | USD | 613,016 | State Street Bank Corp. | 1/15/2021 | (2,025) |
| USD | 1,344,019 | AUD | 1,875,000 | Citibank N.A. | 1/15/2021 | (101,707) |
| USD | 1,308,745 | AUD | 1,826,746 | Goldman Sachs International | 1/15/2021 | (99,774) |
| USD | 1,244,616 | AUD | 1,768,000 | Merrill Lynch International | 1/15/2021 | (118,608) |
| USD | 590,676 | CAD | 786,000 | BNP Paribas S.A. | 1/15/2021 | (26,849) |
| USD | 1,276,373 | CAD | 1,677,000 | Goldman Sachs International | 1/15/2021 | (41,170) |
| USD | 2,430,489 | CAD | 3,162,703 | State Street Bank Corp. | 1/15/2021 | (54,304) |
| USD | 421,570 | EUR | 359,000 | Merrill Lynch International | 1/15/2021 | (17,122) |
| USD | 8,077,166 | EUR | 6,748,437 | State Street Bank Corp. | 1/15/2021 | (169,306) |
| USD | 469,921 | GBP | 361,000 | JPMorgan Chase Bank N.A. | 1/15/2021 | (23,796) |
| USD | 1,969,669 | GBP | 1,479,000 | Morgan Stanley Capital Services, Inc. | 1/15/2021 | (53,068) |
| USD | 1,710,145 | GBP | 1,288,000 | NatWest Markets PLC | 1/15/2021 | (51,373) |
| USD | 1,207,180 | GBP | 910,425 | State Street Bank Corp. | 1/15/2021 | (37,954) |
| USD | 1,288,704 | JPY | 134,595,000 | Morgan Stanley Capital Services, Inc. | 1/15/2021 | (14,988) |
| USD | 2,556,355 | JPY | 266,049,000 | State Street Bank Corp. | 1/15/2021 | (20,607) |
| USD | 1,269,348 | NOK | 11,850,000 | Morgan Stanley Capital Services, Inc. | 1/15/2021 | (112,713) |
| USD | 1,277,394 | NZD | 1,813,000 | Citibank N.A. | 1/15/2021 | (27,147) |
| USD | 5,671,231 | NZD | 8,533,946 | JPMorgan Chase Bank N.A. | 1/15/2021 | (469,357) |
MFS Inflation-Adjusted Bond Portfolio
Portfolio of Investments – continued
| Forward Foreign Currency Exchange Contracts - continued |
Currency
Purchased | Currency
Sold | Counterparty | Settlement
Date | Unrealized
Appreciation
(Depreciation) |
| Liability Derivatives - continued |
| USD | 2,170,613 | SEK | 19,109,383 | Merrill Lynch International | 1/15/2021 | $ (152,341) |
| | | | | | | $(1,595,887) |
| Futures Contracts |
| Description | Long/
Short | Currency | Contracts | Notional
Amount | Expiration
Date | Value/Unrealized
Appreciation
(Depreciation) |
| Liability Derivatives |
| Interest Rate Futures | | |
| Euro-Bund 10 yr | Short | EUR | 33 | $7,161,460 | March – 2021 | $(18,626) |
| U.S. Treasury Note 10 yr | Short | USD | 50 | 6,903,906 | March – 2021 | (13,072) |
| U.S. Treasury Ultra Note 10 yr | Short | USD | 21 | 3,283,547 | March – 2021 | (11,373) |
| | | | | | | $(43,071) |
At December 31, 2020, the fund had liquid securities with an aggregate value of $253,065 to cover any collateral or margin obligations for certain derivative contracts.
See Notes to Financial Statements
MFS Inflation-Adjusted Bond Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/20Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $213,289,679) | $256,300,845 |
| Investments in affiliated issuers, at value (identified cost, $1,558,229) | 1,558,229 |
| Receivables for | |
| Forward foreign currency exchange contracts | 2,235,396 |
| Fund shares sold | 13 |
| Interest | 710,180 |
| Other assets | 1,538 |
| Total assets | $260,806,201 |
| Liabilities | |
| Payables for | |
| Forward foreign currency exchange contracts | $1,595,887 |
| Net daily variation margin on open futures contracts | 9,898 |
| Fund shares reacquired | 82,909 |
| Payable to affiliates | |
| Investment adviser | 6,890 |
| Administrative services fee | 226 |
| Shareholder servicing costs | 24 |
| Distribution and/or service fees | 1,720 |
| Payable for independent Trustees' compensation | 174 |
| Accrued expenses and other liabilities | 60,670 |
| Total liabilities | $1,758,398 |
| Net assets | $259,047,803 |
| Net assets consist of | |
| Paid-in capital | $210,274,603 |
| Total distributable earnings (loss) | 48,773,200 |
| Net assets | $259,047,803 |
| Shares of beneficial interest outstanding | 21,608,285 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $132,577,161 | 10,995,751 | $12.06 |
| Service Class | 126,470,642 | 10,612,534 | 11.92 |
See Notes to Financial Statements
MFS Inflation-Adjusted Bond Portfolio
| Financial Statements | Statement of Operations |
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| Year ended 12/31/20 | |
| Net investment income (loss) | |
| Income | |
| Interest | $2,450,473 |
| Dividends from affiliated issuers | 43,348 |
| Other | 52 |
| Total investment income | $2,493,873 |
| Expenses | |
| Management fee | $1,232,114 |
| Distribution and/or service fees | 300,536 |
| Shareholder servicing costs | 4,651 |
| Administrative services fee | 43,384 |
| Independent Trustees' compensation | 8,332 |
| Custodian fee | 31,603 |
| Shareholder communications | 26,349 |
| Audit and tax fees | 45,008 |
| Legal fees | 2,089 |
| Miscellaneous | 31,748 |
| Total expenses | $1,725,814 |
| Reduction of expenses by investment adviser | (27,069) |
| Net expenses | $1,698,745 |
| Net investment income (loss) | $795,128 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $4,947,931 |
| Affiliated issuers | 182 |
| Futures contracts | (397,781) |
| Forward foreign currency exchange contracts | 512,897 |
| Foreign currency | 16,602 |
| Net realized gain (loss) | $5,079,831 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $23,002,810 |
| Affiliated issuers | (288) |
| Futures contracts | (43,071) |
| Forward foreign currency exchange contracts | 633,684 |
| Translation of assets and liabilities in foreign currencies | 3,178 |
| Net unrealized gain (loss) | $23,596,313 |
| Net realized and unrealized gain (loss) | $28,676,144 |
| Change in net assets from operations | $29,471,272 |
See Notes to Financial Statements
MFS Inflation-Adjusted Bond Portfolio
| Financial Statements | Statements of Changes in Net Assets |
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | Year ended |
| | 12/31/20 | 12/31/19 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $795,128 | $2,592,693 |
| Net realized gain (loss) | 5,079,831 | 2,354,598 |
| Net unrealized gain (loss) | 23,596,313 | 15,976,261 |
| Change in net assets from operations | $29,471,272 | $20,923,552 |
| Total distributions to shareholders | $(4,060,387) | $(4,025,008) |
| Change in net assets from fund share transactions | $(23,509,756) | $(26,028,674) |
| Total change in net assets | $1,901,129 | $(9,130,130) |
| Net assets | | |
| At beginning of period | 257,146,674 | 266,276,804 |
| At end of period | $259,047,803 | $257,146,674 |
See Notes to Financial Statements
MFS Inflation-Adjusted Bond Portfolio
| Financial Statements | Financial Highlights |
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 |
| Net asset value, beginning of period | $10.81 | $10.15 | $10.81 | $9.98 | $9.73 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.05 | $0.12 | $0.19 | $0.13 | $0.07(c) |
| Net realized and unrealized gain (loss) | 1.40 | 0.72 | (0.67) | 0.70 | 0.18 |
| Total from investment operations | $1.45 | $0.84 | $(0.48) | $0.83 | $0.25 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.05) | $(0.18) | $(0.18) | $— | $— |
| From net realized gain | (0.15) | — | — | — | — |
| Total distributions declared to shareholders | $(0.20) | $(0.18) | $(0.18) | $— | $— |
| Net asset value, end of period (x) | $12.06 | $10.81 | $10.15 | $10.81 | $9.98 |
| Total return (%) (k)(r)(s)(x) | 13.55 | 8.26 | (4.47) | 8.32 | 2.57(c) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions (f) | 0.58 | 0.57 | 0.57 | 0.56 | 0.55(c) |
| Expenses after expense reductions (f) | 0.57 | 0.56 | 0.56 | 0.55 | 0.54(c) |
| Net investment income (loss) | 0.45 | 1.11 | 1.78 | 1.28 | 0.65(c) |
| Portfolio turnover | 46 | 62 | 63 | 40 | 47 |
| Net assets at end of period (000 omitted) | $132,577 | $131,221 | $134,599 | $162,429 | $168,857 |
| Service Class | Year ended |
| | 12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 |
| Net asset value, beginning of period | $10.69 | $10.03 | $10.68 | $9.89 | $9.66 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.02 | $0.09 | $0.16 | $0.11 | $0.04(c) |
| Net realized and unrealized gain (loss) | 1.38 | 0.72 | (0.66) | 0.68 | 0.19 |
| Total from investment operations | $1.40 | $0.81 | $(0.50) | $0.79 | $0.23 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.02) | $(0.15) | $(0.15) | $— | $— |
| From net realized gain | (0.15) | — | — | — | — |
| Total distributions declared to shareholders | $(0.17) | $(0.15) | $(0.15) | $— | $— |
| Net asset value, end of period (x) | $11.92 | $10.69 | $10.03 | $10.68 | $9.89 |
| Total return (%) (k)(r)(s)(x) | 13.21 | 8.05 | (4.70) | 7.99 | 2.38(c) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions (f) | 0.83 | 0.82 | 0.82 | 0.81 | 0.80(c) |
| Expenses after expense reductions (f) | 0.82 | 0.81 | 0.81 | 0.80 | 0.79(c) |
| Net investment income (loss) | 0.19 | 0.86 | 1.54 | 1.03 | 0.40(c) |
| Portfolio turnover | 46 | 62 | 63 | 40 | 47 |
| Net assets at end of period (000 omitted) | $126,471 | $125,926 | $131,678 | $165,418 | $169,077 |
See Notes to Financial Statements
MFS Inflation-Adjusted Bond Portfolio
Financial Highlights - continued
| (c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
| (d) | Per share data is based on average shares outstanding. |
| (f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
MFS Inflation-Adjusted Bond Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS Inflation-Adjusted Bond Portfolio (the fund) is a non-diversified series of MFS Variable Insurance Trust III (the trust). The trust is organized as a Delaware statutory 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, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. 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 increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests 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 market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions.
In March 2020, the FASB issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional, temporary relief with respect to the financial reporting of contracts subject to certain types of modifications due to the planned discontinuation of the London Interbank Offered Rate (LIBOR) and other IBOR-based reference rates as of the end of 2021. The temporary relief provided by ASU 2020-04 is effective for certain reference rate-related contract modifications that occur during the period from March 12, 2020 through December 31, 2022. Management is evaluating the impact of ASU 2020-04 on the fund's investments, derivatives, debt and other contracts that will undergo reference rate-related modifications as a result of the reference rate reform.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Debt instruments and floating rate loans, including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Futures contracts are generally valued at last posted settlement price on their primary exchange as provided by a third-party pricing service. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation on their primary exchange as provided by a third-party pricing service. Forward foreign currency exchange contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates provided by a third-party pricing service for proximate time periods. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value
MFS Inflation-Adjusted Bond Portfolio
Notes to Financial Statements - continued
has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser's own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments, such as futures contracts and forward foreign currency exchange contracts. The following is a summary of the levels used as of December 31, 2020 in valuing the fund's assets or liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| U.S. Treasury Bonds & U.S. Government Agencies & Equivalents | $— | $110,913,957 | $— | $110,913,957 |
| Non - U.S. Sovereign Debt | — | 132,686,615 | — | 132,686,615 |
| Municipal Bonds | — | 3,843,749 | — | 3,843,749 |
| U.S. Corporate Bonds | — | 2,113,166 | — | 2,113,166 |
| Residential Mortgage-Backed Securities | — | 1,363,289 | — | 1,363,289 |
| Commercial Mortgage-Backed Securities | — | 1,622,450 | — | 1,622,450 |
| Asset-Backed Securities (including CDOs) | — | 3,300,430 | — | 3,300,430 |
| Foreign Bonds | — | 457,189 | — | 457,189 |
| Mutual Funds | 1,558,229 | — | — | 1,558,229 |
| Total | $1,558,229 | $256,300,845 | $— | $257,859,074 |
| Other Financial Instruments | | | | |
| Futures Contracts – Liabilities | $(43,071) | $— | $— | $(43,071) |
| Forward Foreign Currency Exchange Contracts – Assets | — | 2,235,396 | — | 2,235,396 |
| Forward Foreign Currency Exchange Contracts – Liabilities | — | (1,595,887) | — | (1,595,887) |
For further information regarding security characteristics, see the Portfolio of Investments.
Inflation-Adjusted Debt Securities — The fund invests in inflation-adjusted debt securities issued by the U.S. Treasury. The fund also invests in inflation-adjusted debt securities issued by U.S. Government agencies and instrumentalities other than the U.S. Treasury and by other entities such as U.S. and foreign corporations and foreign governments. The principal value of these debt securities is adjusted through income according to changes in the Consumer Price Index or another general price or wage index. These debt securities typically pay a fixed rate of interest, but this fixed rate is applied to the inflation-adjusted principal amount. The principal paid at maturity of the debt security is typically equal to the inflation-adjusted principal amount, or the security’s original par value, whichever is greater. Other types of inflation-adjusted securities may use other methods to adjust for other measures of inflation.
Foreign Currency Translation — 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 or on the reporting date for foreign denominated receivables and payables. 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 receivables, payables, 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.
MFS Inflation-Adjusted Bond Portfolio
Notes to Financial Statements - continued
Derivatives — The fund uses derivatives primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate or currency exposure, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
The derivative instruments used by the fund during the period were futures contracts and forward foreign currency exchange contracts. Depending on the type of derivative, the fund may exit a derivative position by entering into an offsetting transaction with a counterparty or exchange, negotiating an agreement with the derivative counterparty, or novating the position to a third party. The fund's period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract tables, generally are indicative of the volume of its derivative activity during the period.
The following table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at December 31, 2020 as reported in the Statement of Assets and Liabilities:
| | | Fair Value (a) |
| Risk | Derivative Contracts | Asset Derivatives | Liability Derivatives |
| Interest Rate | Interest Rate Futures | $— | $(43,071) |
| Foreign Exchange | Forward Foreign Currency Exchange Contracts | 2,235,396 | (1,595,887) |
| Total | | $2,235,396 | $(1,638,958) |
(a) Values presented in this table for futures contracts correspond to the values reported in the fund's Portfolio of Investments. Only the current day net variation margin for futures contracts is separately reported within the fund's Statement of Assets and Liabilities.
The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the year ended December 31, 2020 as reported in the Statement of Operations:
| Risk | Futures
Contracts | Forward Foreign
Currency
Exchange
Contracts |
| Interest Rate | $(397,781) | $— |
| Foreign Exchange | — | 512,897 |
| Total | $(397,781) | $512,897 |
The following table presents, by major type of derivative contract, the change in unrealized appreciation or depreciation on derivatives held by the fund for the year ended December 31, 2020 as reported in the Statement of Operations:
| Risk | Futures
Contracts | Forward Foreign
Currency
Exchange
Contracts |
| Interest Rate | $(43,071) | $— |
| Foreign Exchange | — | 633,684 |
| Total | $(43,071) | $633,684 |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the ISDA Master Agreement, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each agreement to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund's credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
Collateral and margin requirements differ by type of derivative. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options), margin requirements are set by the clearing broker and the clearing house and collateral, in the form of cash or securities, is posted by the fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options) and
MFS Inflation-Adjusted Bond Portfolio
Notes to Financial Statements - continued
collateral, in the form of cash and securities, is held in segregated accounts with the fund's custodian in connection with these agreements. For derivatives traded under an ISDA Master Agreement, which contains a collateral support annex, the collateral requirements are netted across all transactions traded under such counterparty-specific agreement and an amount is posted from one party to the other to collateralize such obligations. Cash that has been segregated or delivered to cover the fund's collateral or margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared derivatives. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are included in “Miscellaneous” expense in the Statement of Operations.
Futures Contracts — The fund entered into futures contracts which may be used to hedge against or obtain broad market exposure, interest rate exposure, or to manage duration. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.
Upon entering into a futures contract, the fund is required to deposit with the broker, either in cash or securities, an initial margin in an amount equal to a specified percentage of the notional amount of the contract. Subsequent payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gain or loss by the fund until the contract is closed or expires at which point the gain or loss on futures contracts is realized.
The fund bears the risk of interest rates or securities prices moving unexpectedly, in which case, the fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. While futures contracts may present less counterparty risk to the fund since the contracts are exchange traded and the exchange’s clearinghouse guarantees payments to the broker, there is still counterparty credit risk due to the insolvency of the broker. The fund's maximum risk of loss due to counterparty credit risk is equal to the margin posted by the fund to the broker plus any gains or minus any losses on the outstanding futures contracts.
Forward Foreign Currency Exchange Contracts — The fund entered into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. These contracts may be used to hedge the fund’s currency risk or for non-hedging purposes. For hedging purposes, the fund may enter into contracts to deliver or receive foreign currency that the fund will receive from or use in its normal investment activities. The fund may also use contracts to hedge against declines in the value of foreign currency denominated securities due to unfavorable exchange rate movements. For non-hedging purposes, the fund 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 exchange rate changes.
Forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any unrealized gains or losses are recorded as a receivable or payable for forward foreign currency exchange contracts until the contract settlement date. On contract settlement date, any gain or loss on the contract is recorded as realized gains or losses on forward foreign currency exchange contracts.
Risks may arise upon entering into these contracts from unanticipated movements in the value of the contract and from the potential inability of counterparties to meet the terms of their contracts. Generally, the fund’s maximum risk due to counterparty credit risk is the unrealized gain on the contract due to the use of Continuous Linked Settlement, a multicurrency cash settlement system for the centralized settlement of foreign transactions. This risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and, where applicable, by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. Inflation-indexed bonds are fixed-income securities whose principal value is periodically adjusted upward or downward based on the rate of inflation. Interest is accrued based on the principal value, which is adjusted for inflation. Any increase or decrease in the principal amount of an inflation-indexed bond is generally recorded as an increase or decrease in interest income, respectively, even though the adjusted principal is not received until maturity. 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.
MFS Inflation-Adjusted Bond Portfolio
Notes to Financial Statements - continued
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to wash sale loss deferrals, amortization and accretion of debt securities, and derivative transactions.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/20 | Year ended
12/31/19 |
| Ordinary income (including any short-term capital gains) | $1,154,218 | $4,025,008 |
| Long-term capital gains | 2,906,169 | — |
| Total distributions | $4,060,387 | $4,025,008 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| As of 12/31/20 | |
| Cost of investments | $216,321,114 |
| Gross appreciation | 42,151,555 |
| Gross depreciation | (17,157) |
| Net unrealized appreciation (depreciation) | $42,134,398 |
| Undistributed ordinary income | 3,480,767 |
| Undistributed long-term capital gain | 3,149,918 |
| Other temporary differences | 8,117 |
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year
ended
12/31/20 | | Year
ended
12/31/19 |
| Initial Class | $2,232,579 | | $2,224,301 |
| Service Class | 1,827,808 | | 1,800,707 |
| Total | $4,060,387 | | $4,025,008 |
MFS Inflation-Adjusted Bond Portfolio
Notes to Financial Statements - continued
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at an annual rate of 0.50% of the fund’s average daily net assets.
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. For the year ended December 31, 2020, this management fee reduction amounted to $27,069, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2020 was equivalent to an annual effective rate of 0.49% of the fund's average daily net assets.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent — MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2020, the fee was $4,406, which equated to 0.0018% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2020, these costs amounted to $245.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the year ended December 31, 2020 was equivalent to an annual effective rate of 0.0176% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
(4) Portfolio Securities
For the year ended December 31, 2020, purchases and sales of investments, other than short-term obligations, were as follows:
| | Purchases | Sales |
| U.S. Government securities | $35,572,762 | $49,238,017 |
| Non-U.S. Government securities | 75,800,504 | 77,407,045 |
(5) Shares of Beneficial Interest
The fund's Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
MFS Inflation-Adjusted Bond Portfolio
Notes to Financial Statements - continued
| | Year ended
12/31/20 | | Year ended
12/31/19 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 374,195 | $4,175,215 | | 93,016 | $988,416 |
| Service Class | 858,418 | 9,808,809 | | 818,315 | 8,634,490 |
| | 1,232,613 | $13,984,024 | | 911,331 | $9,622,906 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 194,137 | $2,232,579 | | 201,112 | $2,224,301 |
| Service Class | 160,616 | 1,827,808 | | 164,598 | 1,800,707 |
| | 354,753 | $4,060,387 | | 365,710 | $4,025,008 |
| Shares reacquired | | | | | |
| Initial Class | (1,708,677) | $(18,314,665) | | (1,416,512) | $(15,199,661) |
| Service Class | (2,189,184) | (23,239,502) | | (2,325,801) | (24,476,927) |
| | (3,897,861) | $(41,554,167) | | (3,742,313) | $(39,676,588) |
| Net change | | | | | |
| Initial Class | (1,140,345) | $(11,906,871) | | (1,122,384) | $(11,986,944) |
| Service Class | (1,170,150) | (11,602,885) | | (1,342,888) | (14,041,730) |
| | (2,310,495) | $(23,509,756) | | (2,465,272) | $(26,028,674) |
The fund is one of several mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Moderate Allocation Portfolio, the MFS Conservative Allocation Portfolio, and the MFS Growth Allocation Portfolio were the owners of record of approximately 27%, 17%, and 7%, respectively, of the value of outstanding voting shares of the fund.
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.25 billion unsecured committed line of credit of which $1 billion is reserved for use by the fund and certain other U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2020, the fund’s commitment fee and interest expense were $1,342 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $6,004,405 | $85,385,112 | $89,831,182 | $182 | $(288) | $1,558,229 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $43,348 | $— |
MFS Inflation-Adjusted Bond Portfolio
Notes to Financial Statements - continued
(8) Impacts of COVID-19
The pandemic related to the global spread of novel coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to global business activity and the global economy, as well as the economies of individual countries, the financial performance of individual companies and sectors, and the securities and commodities markets in general. This pandemic, the full effects of which are still unknown, has resulted in substantial market volatility and may have adversely impacted the prices and liquidity of the fund's investments and the fund's performance.
MFS Inflation-Adjusted Bond Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust III and the Shareholders of MFS Inflation-Adjusted Bond Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Inflation-Adjusted Bond Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2020, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2020, and 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 accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2020, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 16, 2021
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS Inflation-Adjusted Bond Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2021, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEES | | |
Robert J. Manning (k)
(age 57) | | Trustee | | February 2004 | | 134 | | Massachusetts Financial Services Company, Non-Executive Chairman (since January 2021); Director; Chairman of the Board; Executive Chairman (January 2017-2020); Co-Chief Executive Officer (2015-2016) | | N/A |
Michael W. Roberge (k)
(age 54) | | Trustee | | January 2021 | | 134 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; President (until December 2018); Chief Investment Officer (until December 2018); Co-Chief Executive Officer (until December 2016) | | N/A |
| INDEPENDENT TRUSTEES | | |
John P. Kavanaugh
(age 66) | | Trustee and Chair of Trustees | | January 2009 | | 134 | | Private investor | | N/A |
Steven E. Buller
(age 69) | | Trustee | | February 2014 | | 134 | | Private investor | | N/A |
John A. Caroselli
(age 66) | | Trustee | | March 2017 | | 134 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 65) | | Trustee | | January 2009 | | 134 | | Private investor | | N/A |
Peter D. Jones
(age 65) | | Trustee | | January 2019 | | 134 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 59) | | Trustee | | January 2019 | | 134 | | Burford Capital Limited (finance and investment management), Chief Financial Officer (since 2019); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016); Morgan Stanley & Co. (financial services), Vice Chairman of Investment Banking, Co-Head of Diversified Financials Coverage – Financial Institutions Investment Banking Group (until 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 64) | | Trustee | | March 2017 | | 134 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
MFS Inflation-Adjusted Bond Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
Maryanne L. Roepke
(age 64) | | Trustee | | May 2014 | | 134 | | Private investor | | N/A |
Laurie J. Thomsen
(age 63) | | Trustee | | March 2005 | | 134 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 47) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 134 | | Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel |
Kino Clark (k)
(age 52) | | Assistant Treasurer | | January 2012 | | 134 | | Massachusetts Financial Services Company, Vice President |
John W. Clark, Jr. (k)
(age 53) | | Assistant Treasurer | | April 2017 | | 134 | | Massachusetts Financial Services Company, Vice President (since March 2017); Deutsche Bank (financial services), Department Head - Treasurer's Office (until February 2017) |
Thomas H. Connors (k)
(age 61) | | Assistant Secretary and Assistant Clerk | | September 2012 | | 134 | | Massachusetts Financial Services Company, Vice President and Senior Counsel |
David L. DiLorenzo (k)
(age 52) | | President | | July 2005 | | 134 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 53) | | Secretary and Clerk | | April 2017 | | 134 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel (since March 2017); Harris Associates (investment management), General Counsel (until January 2017) |
Brian E. Langenfeld (k)
(age 47) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 134 | | Massachusetts Financial Services Company, Vice President and Senior Counsel |
Amanda S. Mooradian (k)
(age 41) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 134 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 134 | | Massachusetts Financial Services Company, Vice President and Assistant General Counsel |
Kasey L. Phillips (k)
(age 50) | | Assistant Treasurer | | September 2012 | | 134 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 46) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 134 | | Massachusetts Financial Services Company, Vice President and Assistant General Counsel |
Martin J. Wolin (k)
(age 53) | | Chief Compliance Officer | | July 2015 | | 134 | | Massachusetts Financial Services Company, Senior Vice President and Chief Compliance Officer |
MFS Inflation-Adjusted Bond Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
James O. Yost (k)
(age 60) | | Treasurer | | September 1990 | | 134 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. For the period from December 15, 2004 until February 22, 2005, Mr. Manning served as Advisory Trustee. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Messrs. Buller, Kilman and Otis and Ms. Roepke are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Lincoln Street
Boston, MA 02111-2900 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
Robert Spector
Erik Weisman | |
MFS Inflation-Adjusted Bond Portfolio
Board Review of Investment Advisory Agreement
MFS Inflation-Adjusted Bond Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times by videoconference (in accordance with Securities and Exchange Commission relief) over the course of three months beginning in May and ending in July, 2020 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2019 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2019, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 5th quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 3rd quintile for the one-year period and the 1st quintile for the three-year period ended December 31, 2019 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. The Trustees noted that the total return performance (Class A shares) of the Fund’s retail counterpart Inflation-Adjusted Bond Fund, which has substantially similar investment strategies, was in the 3rd quintile relative
MFS Inflation-Adjusted Bond Portfolio
Board Review of Investment Advisory Agreement - continued
to the other funds in its Broadridge performance universe for the five-year period ended December 31, 2019. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate and total expense ratio were each approximately at the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is not subject to any breakpoints. Taking into account that the Fund’s effective advisory fee rate was approximately at the Broadridge expense group median described above, the Trustees determined not to recommend any advisory fee breakpoints for the Fund at this time. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the group fee waiver was sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2020.
MFS Inflation-Adjusted Bond Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit3 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit3 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates $3,197,000 as capital gain dividends paid during the fiscal year.
The fund intends to pass through the maximum amount allowable as Section 163(j) Interest Dividends as defined in Treasury Regulation §1.163(j)-1(b).
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2020
MFS® Limited Maturity Portfolio
MFS® Variable Insurance Trust III
MFS® Limited Maturity Portfolio
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The report is prepared for the general information of contract owners. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Limited Maturity Portfolio
Dear Contract Owners:
Markets experienced dramatic swings this year as the coronavirus pandemic brought the global economy to a standstill for several months early in the year. The speedy development of vaccines and therapeutics later brightened the economic and market outlook, but a great deal of uncertainty remains as case counts remain high, new variants of the virus are appearing and questions persist over how fast the vaccine can be made widely available. In the United States, political uncertainty eased after former Vice President Joe Biden won the presidential election and the Democrats gained control of a closely divided Senate.
Global central banks have taken aggressive steps to cushion the economic and market fallout related to the virus, and governments are deploying unprecedented levels of fiscal support. Additional U.S. stimulus is anticipated with the Democrats in the White House and in control of both houses of Congress. The measures already put in place have helped build a supportive environment and are encouraging economic recovery; however, if markets disconnect from fundamentals, they can sow the seeds of instability. As such, dramatic increases in speculative retail trading bear watching.
In the aftermath of the crisis, we could see societal changes as households, businesses, and governments adjust to a new reality, and any such alterations could affect the investment landscape. For investors, events such as the COVID-19 outbreak demonstrate the importance of having a deep understanding of company fundamentals, and we have built our global research platform to do just that.
At MFS®, we put our clients’ assets to work responsibly by carefully navigating the increasing complexity of our global markets and economies. Guided by our long-term philosophy and adhering to our commitment to sustainable investing, we tune out the noise and aim to uncover what we believe are the best, most durable investment opportunities in the market. Our unique global investment platform combines collective expertise, long-term discipline and thoughtful risk management to create sustainable value for investors.
Respectfully,
Michael W. Roberge
Chief Executive Officer
MFS Investment Management
February 16, 2021
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
MFS Limited Maturity Portfolio
Portfolio structure at value (v)
Portfolio structure reflecting equivalent exposure of derivative positions (i)
Fixed income sectors (i)
| Investment Grade Corporates | 45.5% |
| U.S. Treasury Securities | 36.3% |
| Collateralized Debt Obligations | 11.9% |
| Commercial Mortgage-Backed Securities | 7.5% |
| Asset-Backed Securities | 7.2% |
| Municipal Bonds | 3.5% |
| Emerging Markets Bonds | 2.6% |
| High Yield Corporates | 1.8% |
| Mortgage-Backed Securities | 1.5% |
| Residential Mortgage-Backed Securities | 1.3% |
Composition including fixed income credit quality (a)(i)
| AAA | 11.6% |
| AA | 11.2% |
| A | 23.3% |
| BBB | 30.0% |
| BB | 1.8% |
| B | 0.1% |
| U.S. Government | 15.3% |
| Federal Agencies | 1.5% |
| Not Rated | 24.3% |
| Cash & Cash Equivalents | 1.9% |
| Other | (21.0)% |
Portfolio facts (i)
| Average Duration (d) | 1.9 |
| Average Effective Maturity (m) | 2.2 yrs. |
| (a) | For all securities other than those specifically described below, ratings are assigned to underlying securities utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. If none of the 3 rating agencies above assign a rating, but the security is rated by DBRS Morningstar, then the DBRS Morningstar rating is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). Securities rated BBB or higher are considered investment grade. All ratings are subject to change.U.S. Government includes securities issued by the U.S. Department of the Treasury. Federal Agencies includes rated and unrated U.S. Agency fixed-income securities, U.S. Agency mortgage-backed securities, and collateralized mortgage obligations of U.S. Agency mortgage-backed securities.Not Rated includes fixed income securities and fixed income derivatives that have not been rated by any rating agency.The fund may or may not have held all of these instruments on this date. The fund is not rated by these agencies. |
| (d) | Duration is a measure of how much a bond’s price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a bond with a 5-year duration is likely to lose about 5.00% of its value due to the interest rate move. |
MFS Limited Maturity Portfolio
Portfolio Composition - continued
| (i) | For purposes of this presentation, the components include the value of securities, and reflect the impact of the equivalent exposure of derivative positions, if any. These amounts may be negative from time to time. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than value. The bond component will include any accrued interest amounts. |
| (m) | In determining each instrument’s effective maturity for purposes of calculating the fund’s dollar-weighted average effective maturity, MFS uses the instrument’s stated maturity or, if applicable, an earlier date on which MFS believes it is probable that a maturity-shortening device (such as a put, pre-refunding or prepayment) will cause the instrument to be repaid. Such an earlier date can be substantially shorter than the instrument’s stated maturity. |
| (v) | For purposes of this presentation, market value of fixed income and/or equity derivatives, if any, is included in Cash & Cash Equivalents. |
Where the fund holds convertible bonds, they are treated as part of the equity portion of the portfolio.
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Other includes equivalent exposure from currency derivatives and/or any offsets to derivative positions and may be negative.
Percentages are based on net assets as of December 31, 2020.
The portfolio is actively managed and current holdings may be different.
MFS Limited Maturity Portfolio
Management Review
Summary of Results
For the twelve months ended December 31, 2020, Initial Class shares of the MFS Limited Maturity Portfolio (fund) provided a total return of 4.34%, while Service Class shares of the fund provided a total return of 4.15%. These compare with a return of 3.33% over the same period for the fund’s benchmark, the Bloomberg Barclays 1-3 Year U.S. Government/Credit Bond Index.
Market Environment
Markets experienced an extraordinarily sharp selloff early in the period and, in many cases, an unusually rapid recovery later. Central banks and fiscal authorities undertook astonishing levels of stimulus to offset the economic effects of government-imposed social-distancing measures implemented to slow the spread of the COVID-19 virus. At this point, the global economy looks to have experienced the shortest — albeit the deepest and steepest — recession in the postwar period. However, the recovery remains subject to more than the usual number of uncertainties due to questions about the evolution of the virus, what its continued impact will be and how quickly vaccines to guard against it can be manufactured and distributed at scale. There are also worries over the public's willingness to be inoculated.
Around the world, central banks responded quickly and massively to the crisis with programs to improve liquidity and support markets. These programs proved largely successful in helping to restore market function, ease volatility and stimulate a continued market rebound. Late in the period, the US Federal Reserve adopted a new, flexible, average-inflation-targeting framework, which is expected to result in the federal funds rate remaining at low levels longer than under its previous model. In developed countries, monetary easing measures were complemented by unusually large fiscal stimulus initiatives. Due to relatively manageable external liabilities and balances of payments in many countries and persistently low inflation, even emerging market countries were able to implement countercyclical policies — a departure from the usual market-dictated response to risk-off crises.
Compounding market uncertainty earlier in the pandemic was a crash in the price of crude oil due to a sharp drop in global demand and a disagreement between Saudi Arabia and Russia over production cuts, which resulted in an oil price war. The subsequent decline in prices undercut oil exporters, many of which are in emerging markets, as well as a large segment of the high-yield credit market. The OPEC+ group later agreed on output cuts, with shale oil producers in the US also decreasing production, which, along with the gradual reopening of some major economies and the resultant boost in demand, helped stabilize the price of crude oil.
In the immediate aftermath of the market disruption that accompanied the initial phases of the pandemic, many companies that had added significant leverage to their balance sheets in recent years by borrowing to fund dividend payments and stock buybacks halted those activities, and some companies were forced to recapitalize. As markets and the economy stabilized later in the period, in many cases dividend payments and buybacks resumed. Conversely, some companies found themselves flush with liquidity, having borrowed preemptively during the worst of the crisis only to end up with excess cash on their balance sheets.
Factors Affecting Performance
Relative to the Bloomberg Barclays 1-3 Year U.S. Government/Credit Bond Index, the fund's asset allocation decisions benefited performance over the reporting period. From a sector perspective, the fund's out-of-benchmark allocation to both the collateralized mortgage obligations (CMOs) and asset-backed securities (ABS) sectors, as well as an overweight allocation to the industrials sector, lifted relative returns. From a quality perspective, the fund's out-of-benchmark allocation to “BB” rated(r) bonds benefited relative results and outweighed the negative impacts from the fund's overweight allocation to “BBB” securities.
Security selection further supported relative performance over the reporting period. Here, from a sector perspective, bond selection within both the industrials and financial institutions sectors added to relative returns. From a quality perspective, issuer selection within “BBB” and “A” rated bonds also contributed to relative performance.
Respectfully,
Portfolio Manager(s)
Philipp Burgener and Alexander Mackey
| (r) | Bonds rated “BBB”, “Baa”, or higher are considered investment grade; bonds rated “BB”, “Ba”, or below are considered non-investment grade. The source for bond quality ratings is Moody's Investors Service, Standard & Poor's, and Fitch, Inc. and are applied using the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. If none of the 3 Rating Agencies above assign a rating, but the security is rated by DBRS Morningstar, then the DBRS Morningstar rating is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). For securities that are not rated by any of the rating agencies, the security is considered Not Rated. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
MFS Limited Maturity Portfolio
Performance Summary Through 12/31/20
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your units, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a contract holder would pay on fund distributions or the redemption of contract units. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/20
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 3/07/08 | 4.34% | 2.83% | 1.89% |
| Service Class | 3/07/08 | 4.15% | 2.58% | 1.63% |
Comparative benchmark(s)
| Bloomberg Barclays 1-3 Year U.S. Government/Credit Bond Index (f) | 3.33% | 2.21% | 1.60% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
Bloomberg Barclays 1-3 Year U.S. Government/Credit Bond Index(a) - a market capitalization-weighted index that measures the performance of the short-term (1 to 3 years) investment-grade corporate and U.S. government bond markets.
It is not possible to invest directly in an index.
| (a) | BLOOMBERG ® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg's licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom, and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. |
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
MFS Limited Maturity Portfolio
Performance Summary – continued
Performance prior to close of business December 7, 2012, reflects time periods when another adviser or subadviser was responsible for selecting investments for the fund under a different investment objective and different investment strategies.
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
MFS Limited Maturity Portfolio
Expense Table
Fund Expenses Borne by the Contract Holders during the Period,
July 1, 2020 through December 31, 2020
As a contract holder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2020 through December 31, 2020.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund's ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
Share
Class | | Annualized
Expense
Ratio | Beginning
Account Value
7/01/20 | Ending
Account Value
12/31/20 | Expenses
Paid During
Period (p)
7/01/20-12/31/20 |
| Initial Class | Actual | 0.45% | $1,000.00 | $1,023.60 | $2.29 |
| Hypothetical (h) | 0.45% | $1,000.00 | $1,022.87 | $2.29 |
| Service Class | Actual | 0.70% | $1,000.00 | $1,022.69 | $3.56 |
| Hypothetical (h) | 0.70% | $1,000.00 | $1,021.62 | $3.56 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). |
MFS Limited Maturity Portfolio
Portfolio of Investments − 12/31/20
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Bonds – 97.6% |
| Aerospace – 0.3% |
| Huntington Ingalls Industries, Inc., 3.844%, 5/01/2025 | | $ | 1,049,000 | $ 1,166,491 |
| Raytheon Technologies Corp., 3.65%, 8/16/2023 | | | 114,000 | 122,903 |
| | | | | $1,289,394 |
| Asset-Backed & Securitized – 27.8% |
| ALM Loan Funding, CLO, 2015-16A, “BR2”, FLR, 2.136% (LIBOR - 3mo. + 1.9%), 7/15/2027 (n) | | $ | 1,900,315 | $ 1,892,227 |
| AmeriCredit Automobile Receivables Trust, 2017-2, “C”, 2.97%, 3/20/2023 | | | 1,718,382 | 1,735,757 |
| AmeriCredit Automobile Receivables Trust, 2020-1, “C”, 1.59%, 10/20/2025 | | | 659,000 | 671,145 |
| Arbor Realty Trust, Inc., CLO, 2019-FL1, “A”, FLR, 1.308% (LIBOR - 1mo. + 1.15%), 5/15/2037 (n) | | | 2,210,000 | 2,201,761 |
| AREIT CRE Trust, 2019-CRE3, “AS”, FLR, 1.453% (LIBOR - 1mo. + 1.3%), 9/14/2036 (n) | | | 647,000 | 634,109 |
| AREIT CRE Trust, 2019-CRE3, “B”, FLR, 1.703% (LIBOR - 1mo. + 1.55%), 9/14/2036 (n) | | | 319,500 | 308,615 |
| AREIT CRE Trust, 2019-CRE3, “C”, FLR, 2.053% (LIBOR - 1mo. + 1.9%), 9/14/2036 (n) | | | 264,000 | 256,329 |
| Avery Point CLO Ltd., 2014-1A, “CR”, FLR, 2.564% (LIBOR - 3mo. + 2.35%), 4/25/2026 (n) | | | 1,720,000 | 1,716,847 |
| Ballyrock Ltd., CLO, 2018-1A, “A2”, FLR, 1.818% (LIBOR - 3mo. + 1.6%), 4/20/2031 (n) | | | 1,748,737 | 1,724,284 |
| Ballyrock Ltd., CLO, 2018-1A, “B”, FLR, 2.118% (LIBOR - 3mo. + 1.9%), 4/20/2031 (n) | | | 741,069 | 725,564 |
| Bancorp Commercial Mortgage Trust, 2018-CRE3, “B”, FLR, 1.708% (LIBOR - 1mo. + 1.55%), 1/15/2033 (n) | | | 1,605,087 | 1,580,830 |
| Bancorp Commercial Mortgage Trust, 2018-CRE4, “AS”, FLR, 1.258% (LIBOR - 1mo. + 1.1%), 9/15/2035 (n) | | | 1,736,000 | 1,716,897 |
| Bancorp Commercial Mortgage Trust, 2019-CRE5, “A”, FLR, 1.159% (LIBOR - 1mo. + 1%), 3/15/2036 (n) | | | 713,475 | 704,915 |
| Bancorp Commercial Mortgage Trust, 2019-CRE5, “AS”, FLR, 1.508% (LIBOR - 1mo. + 1.35%), 3/15/2036 (n) | | | 1,247,481 | 1,231,059 |
| Bancorp Commercial Mortgage Trust, 2019-CRE5, “B”, FLR, 1.658% (LIBOR - 1mo. + 1.5%), 3/15/2036 (n) | | | 1,727,281 | 1,693,153 |
| Bancorp Commercial Mortgage Trust, 2019-CRE6, “AS”, FLR, 1.458% (LIBOR - 1mo. + 1.3%), 9/15/2036 (n) | | | 1,410,155 | 1,360,691 |
| Bancorp Commercial Mortgage Trust, 2019-CRE6, “B”, FLR, 1.708% (LIBOR - 1mo. + 1.55%), 9/15/2036 (n) | | | 1,776,462 | 1,749,540 |
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Asset-Backed & Securitized – continued |
| Barclays Commercial Mortgage Securities LLC, 2018-C2, “XA”, 0.769%, 12/15/2051 (i)(n) | | $ | 22,075,323 | $ 1,113,570 |
| BSPRT Ltd., 2018-FL4, “A”, FLR, 2.258% (LIBOR - 1mo. + 2.1%), 9/15/2035 (n) | | | 2,076,000 | 1,998,638 |
| Business Jet Securities LLC, 2020-1A, “A”, 2.981%, 11/15/2035 (n) | | | 417,440 | 423,330 |
| BXMT Ltd., 2020-FL2, “B”, FLR, 1.552% (LIBOR - 1mo. + 1.4%), 2/16/2037 (n) | | | 1,445,000 | 1,425,205 |
| Capital Automotive, 2020-1A, “A4”, REIT, 3.19%, 2/15/2050 (n) | | | 557,029 | 574,022 |
| Caravana Auto Receivables Trust, 2019-1A, “B”, 3.29%, 8/15/2023 (n) | | | 2,927,000 | 2,961,338 |
| CD Commercial Mortgage Trust, 2017-CD4, “XA”, 1.293%, 5/10/2050 (i) | | | 17,295,121 | 1,010,884 |
| CF Hippolyta Issuer LLC, 2020-1, “A1”, 1.69%, 7/15/2060 (n) | | | 356,478 | 362,987 |
| CF Hippolyta Issuer LLC, 2020-1, “B1”, 2.28%, 7/15/2060 (n) | | | 112,767 | 114,371 |
| Chesapeake Funding II LLC, 2017-2A, “B”, 2.81%, 5/15/2029 (n) | | | 1,200,000 | 1,203,329 |
| Chesapeake Funding II LLC, 2017-2A, “C”, 3.01%, 5/15/2029 (n) | | | 536,000 | 538,577 |
| Chesapeake Funding II LLC, 2017-3A, “B”, 2.57%, 8/15/2029 (n) | | | 869,000 | 872,073 |
| Chesapeake Funding II LLC, 2017-4A, “B”, 2.59%, 11/15/2029 (n) | | | 741,000 | 747,658 |
| Chesapeake Funding II LLC, 2017-4A, “C”, 2.76%, 11/15/2029 (n) | | | 994,000 | 1,004,635 |
| Commercial Mortgage Pass-Through Certificates, 2019-BN24,“XA”, 0.647%, 11/15/2062 (i) | | | 8,907,276 | 447,013 |
| Cutwater Ltd., 2015-1A, “AR”, FLR, 1.457% (LIBOR - 3mo. + 1.22%), 1/15/2029 (n) | | | 2,525,957 | 2,515,927 |
| Dell Equipment Finance Trust, 2018-2, “B”, 3.55%, 10/22/2023 (n) | | | 1,843,000 | 1,872,770 |
| Dell Equipment Finance Trust, 2020-1, “A2”, 2.26%, 6/22/2022 (n) | | | 754,000 | 762,800 |
| DT Auto Owner Trust, 2017-1A, “D”, 3.55%, 11/15/2022 (n) | | | 303 | 303 |
| DT Auto Owner Trust, 2017-3A, “D”, 3.58%, 5/15/2023 (n) | | | 464,313 | 467,374 |
| DT Auto Owner Trust, 2018-2A, “C”, 3.67%, 3/15/2024 (n) | | | 192,930 | 193,622 |
| Exantas Capital Corp. CLO Ltd., 2019-RS07, “B”, FLR, 1.852% (LIBOR - 1mo. + 1.7%), 4/15/2036 (n) | | | 1,927,000 | 1,883,833 |
| Exeter Automobile Receivables Trust, 2019-3A, “C”, 2.79%, 5/15/2024 (n) | | | 2,150,000 | 2,195,532 |
| Exeter Automobile Receivables Trust, 2020-1, 2.26%, 4/15/2024 (n) | | | 365,000 | 370,025 |
| Exeter Automobile Receivables Trust, 2020-1A, 2.49%, 1/15/2025 (n) | | | 500,000 | 511,023 |
| Figueroa CLO Ltd., 2014-1A, “BR”, FLR, 1.737% (LIBOR - 3mo. + 1.5%), 1/15/2027 (n) | | | 2,520,000 | 2,526,300 |
MFS Limited Maturity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Asset-Backed & Securitized – continued |
| Fort CRE LLC, 2018-1A, “A1”, FLR, 1.495% (LIBOR - 1mo. + 1.35%), 11/16/2035 (n) | | $ | 2,596,500 | $ 2,576,045 |
| General Motors, 2019-1, “B”, 2.86%, 4/15/2024 (n) | | | 1,228,000 | 1,261,186 |
| General Motors, 2019-1, “C”, 3.06%, 4/15/2024 (n) | | | 945,000 | 969,204 |
| GLS Auto Receivables Trust, 2020-1A, “A”, 2.17%, 2/15/2024 (n) | | | 521,709 | 527,299 |
| GM Financial Automobile Leasing Trust, 2020-1, “B”, 1.84%, 12/20/2023 | | | 622,000 | 633,246 |
| GM Financial Automobile Leasing Trust, 2020-1, “C”, 2.04%, 12/20/2023 | | | 456,000 | 463,779 |
| Grand Avenue CRE Ltd., 2019-FL1, “A”, FLR, 1.278% (LIBOR - 1mo. + 1.12%), 6/15/2037 (n) | | | 1,512,500 | 1,505,137 |
| Granite Point Mortgage Trust, Inc., 2018-FL1, “A” FLR, 1.051% (LIBOR - 1mo. + 0.9%), 11/21/2035 (n) | | | 373,200 | 370,902 |
| GS Mortgage Securities Trust, 2017-GS6, “XA”, 1.034%, 5/10/2050 (i) | | | 15,707,655 | 875,276 |
| GS Mortgage Securities Trust, 2017-GS7, “XA”, 1.121%, 8/10/2050 (i) | | | 15,669,724 | 873,979 |
| GS Mortgage Securities Trust, 2020-GC47, “A5”, 1.131%, 5/12/2053 (i) | | | 8,352,878 | 741,405 |
| Hertz Fleet Lease Funding LP, 2018-1, “B”, 3.64%, 5/10/2032 (n) | | | 1,106,000 | 1,114,718 |
| Hertz Fleet Lease Funding LP, 2018-1, “C”, 3.77%, 5/10/2032 (n) | | | 635,000 | 638,722 |
| Invitation Homes Trust, 2018-SFR1, “B”, FLR, 1.103% (LIBOR - 1mo. + 0.95%), 3/17/2037 (n) | | | 1,366,000 | 1,354,694 |
| Invitation Homes Trust, 2018-SFR2, “A”, FLR, 1.003% (LIBOR - 1mo. + 0.85%), 12/17/2036 (n) | | | 2,527,767 | 2,521,602 |
| Invitation Homes Trust, 2018-SFR2, “A”, FLR, 1.059% (LIBOR - 1mo. + 0.9%), 6/17/2037 (n) | | | 1,817,234 | 1,821,238 |
| JPMorgan Chase Commercial Mortgage Securities Corp., 1.055%, 9/15/2050 (i) | | | 14,897,506 | 739,768 |
| KKR Real Estate Financial Trust, Inc., 2018-FL1, “C”, FLR, 2.153% (LIBOR - 1mo. + 2%), 6/15/2036 (n) | | | 1,355,500 | 1,331,945 |
| LoanCore Ltd., 2018-CRE1, “AS”, FLR, 1.658% (LIBOR - 1mo. + 1.5%), 5/15/2028 (n) | | | 2,225,000 | 2,211,610 |
| LoanCore Ltd., 2018-CRE1, “C”, FLR, 2.709% (LIBOR - 1mo. + 2.55%), 5/15/2028 (n) | | | 741,500 | 719,445 |
| LoanCore Ltd., 2019-CRE3, “A”, FLR, 1.208% (LIBOR - 1mo. + 1.05%), 4/15/2034 (n) | | | 1,178,674 | 1,165,495 |
| LoanCore Ltd., 2019-CRE3, “AS”, FLR, 1.529% (LIBOR - 1mo. + 1.37%), 4/15/2034 (n) | | | 2,069,144 | 2,027,984 |
| Loomis, Sayles & Co., CLO, 2015-2A, “A1R”, FLR, 1.137% (LIBOR - 3mo. + 0.9%), 4/15/2028 (n) | | | 1,385,341 | 1,381,517 |
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Asset-Backed & Securitized – continued |
| Loomis, Sayles & Co., CLO, 2015-2A, “A2R”, FLR, 1.636% (LIBOR - 3mo. + 1.4%), 4/15/2028 (n) | | $ | 1,854,111 | $ 1,838,134 |
| Madison Park Funding Ltd., 2014-13A, “BR2”, FLR, 1.717% (LIBOR - 3mo. + 1.5%), 4/19/2030 (n) | | | 2,779,008 | 2,783,110 |
| Magnetite CLO Ltd., 2015-16A, “BR”, FLR, 1.417% (LIBOR - 3mo. + 1.2%), 1/18/2028 (n) | | | 3,559,000 | 3,525,286 |
| Man GLG U.S. CLO Ltd., 2018-2A, “BR”, FLR, 2.686% (LIBOR - 3mo. + 2.45%), 10/15/2028 | | | 2,309,265 | 2,274,088 |
| MF1 CLO Ltd., 2019-FL2, “A”, FLR, 1.278% (LIBOR - 1mo. + 1.13%), 12/25/2034 (n) | | | 1,307,000 | 1,294,802 |
| MF1 CLO Ltd., 2019-FL2, “AS”, FLR, 1.58% (LIBOR - 1mo. + 1.43%), 12/25/2034 (n) | | | 1,307,000 | 1,293,993 |
| MF1 Ltd., 2020-FL3, “B”, FLR, 3.908% (LIBOR - 1mo. + 3.75%), 7/15/2035 (z) | | | 192,000 | 194,512 |
| MF1 Ltd., 2020-FL3, “C”, FLR, 4.658% (LIBOR - 1mo. + 4.5%), 7/15/2035 (z) | | | 274,500 | 279,802 |
| MF1 Multi-Family Housing Mortgage Loan Trust, 2020-FL4, “B”, FLR, 2.908% (LIBOR - 1mo. + 2.75%), 11/15/2035 (n) | | | 1,946,000 | 1,948,902 |
| Morgan Stanley Bank of America Merrill Lynch Trust, 2017-C33, “XA”, 1.397%, 5/15/2050 (i) | | | 16,888,928 | 947,307 |
| Morgan Stanley Capital I Trust, 2017-H1, “XA”, 1.418%, 6/15/2050 (i) | | | 7,690,181 | 464,595 |
| Morgan Stanley Capital I Trust, 2018-H4, “XA”, 0.859%, 12/15/2051 (i) | | | 17,957,029 | 982,680 |
| Mountain Hawk CLO Ltd., 2014-3A, “BR”, FLR, 2.018% (LIBOR - 3mo. + 1.8%), 4/18/2025 (n) | | | 3,468,000 | 3,476,379 |
| Nationstar HECM Loan Trust, 2019-1A, “A”, 2.651%, 6/25/2029 (n) | | | 316,042 | 316,530 |
| Navistar Financial Dealer Note Master Owner Trust, 2019-1, “C”, FLR, 1.098% (LIBOR - 1mo. + 0.95%), 5/25/2024 (n) | | | 432,000 | 431,840 |
| Navistar Financial Dealer Note Master Owner Trust, 2020-1, “A”, FLR, 1.098% (LIBOR - 1mo. + 0.95%), 7/25/2025 (n) | | | 367,000 | 369,367 |
| Navistar Financial Dealer Note Master Owner Trust, 2020-1, “B”, FLR, 1.498% (LIBOR - 1mo. + 1.35%), 7/25/2025 (n) | | | 338,000 | 340,709 |
| Navistar Financial Dealer Note Master Owner Trust, 2020-1, “C”, FLR, 2.298% (LIBOR - 1mo. + 2.15%), 7/25/2025 (n) | | | 279,000 | 281,278 |
| Neuberger Berman CLO Ltd., 2016-21A, “CR”, FLR, 1.818% (LIBOR - 3mo. + 1.6%), 4/20/2027 (n) | | | 2,056,577 | 2,028,169 |
| NextGear Floorplan Master Owner Trust, 2019-2A, “A2”, 2.07%, 10/15/2024 (n) | | | 1,050,000 | 1,079,466 |
| OneMain Financial Issuance Trust, 2020-1A, “A”, 3.84%, 5/14/2032 (n) | | | 1,723,824 | 1,818,074 |
| Santander Drive Auto Receivables Trust, 2019-2, “B”, 2.79%, 1/16/2024 | | | 1,474,000 | 1,488,387 |
MFS Limited Maturity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Asset-Backed & Securitized – continued |
| Securitized Term Auto Receivable Trust, 2019-CRTA, “B”, 2.453%, 3/25/2026 (n) | | $ | 254,450 | $ 259,164 |
| Securitized Term Auto Receivable Trust, 2019-CRTA, “C”, 2.849%, 3/25/2026 (n) | | | 326,248 | 333,595 |
| Shackleton CLO Ltd., 2013-4RA, “B”, FLR, 2.124% (LIBOR - 3mo. + 1.9%), 4/13/2031 (n) | | | 927,055 | 882,728 |
| Shackleton CLO Ltd., 2015-8A, “CR”, FLR, 1.868% (LIBOR - 3mo. + 1.65%), 10/20/2027 (n) | | | 709,957 | 682,029 |
| Shelter Growth CRE, 2019-FL2, “A”, FLR, 1.258% (LIBOR - 1mo. + 1.1%), 5/15/2036 (n) | | | 2,405,006 | 2,372,224 |
| Student Loan Consolidation Center, “A”, FLR, 1.368% (LIBOR - 1mo. + 1.22%), 10/25/2027 (n) | | | 166,217 | 167,043 |
| Thacher Park CLO Ltd., 2014-1A, “CR”, FLR, 2.418% (LIBOR - 3mo. + 2.2%), 10/20/2026 (n) | | | 1,743,000 | 1,743,183 |
| TICP CLO Ltd., 2018-3R, “B”, FLR, 1.568% (LIBOR - 3mo. + 1.35%), 4/20/2028 (n) | | | 870,756 | 862,740 |
| TICP CLO Ltd., 2018-3R, “C”, FLR, 2.018% (LIBOR - 3mo. + 1.8%), 4/20/2028 (n) | | | 1,528,084 | 1,503,621 |
| TPG Real Estate Finance, 2018-FL2, “AS”, FLR, 1.602% (LIBOR - 1mo. + 1.45%), 11/15/2037���(n) | | | 2,192,500 | 2,178,917 |
| UBS Commercial Mortgage Trust, 2017-C1, “XA”, 1.007%, 11/15/2050 (i) | | | 11,950,276 | 575,418 |
| UBS Commercial Mortgage Trust, 2018-C14, “XA”, 0.994%, 12/15/2051 (i) | | | 9,029,887 | 544,728 |
| Verizon Owner Trust, 2017-3A, “B”, 2.38%, 4/20/2022 (n) | | | 788,973 | 789,788 |
| Veros Auto Receivables Trust, 2020-1, “A”, 1.67%, 9/15/2023 (n) | | | 646,647 | 648,602 |
| West CLO Ltd., 2014-2A, “A1BR”, 2.724%, 1/16/2027 (n) | | | 345,678 | 345,540 |
| Wind River CLO Ltd., 2015-2A, “CR”, FLR, 1.936% (LIBOR - 3mo. + 1.7%), 10/15/2027 (n) | | | 864,053 | 846,463 |
| | | | | $ 122,020,251 |
| Automotive – 4.3% |
| Ford Motor Credit Co. LLC, 5.085%, 1/07/2021 | | $ | 1,088,000 | $ 1,088,000 |
| Ford Motor Credit Co. LLC, 5.75%, 2/01/2021 | | | 1,192,000 | 1,194,980 |
| Ford Motor Credit Co. LLC, 3.087%, 1/09/2023 | | | 857,000 | 871,950 |
| General Motors Financial Co., 1.7%, 8/18/2023 | | | 1,491,000 | 1,529,294 |
| Harley-Davidson Financial Services, 4.05%, 2/04/2022 (n) | | | 1,203,000 | 1,244,994 |
| Harley-Davidson Financial Services, FLR, 1.167% (LIBOR - 3mo. + 0.94%), 3/02/2021 (n) | | | 1,672,000 | 1,672,310 |
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Automotive – continued |
| Hyundai Capital America, 2.85%, 11/01/2022 (n) | | $ | 355,000 | $ 367,874 |
| Hyundai Capital America, 2.375%, 2/10/2023 (n) | | | 534,000 | 550,322 |
| Hyundai Capital America, 5.75%, 4/06/2023 (n) | | | 1,733,000 | 1,919,260 |
| Hyundai Capital America, 5.875%, 4/07/2025 (n) | | | 1,872,000 | 2,214,310 |
| Toyota Motor Credit Corp., 3%, 4/01/2025 | | | 1,520,000 | 1,671,165 |
| Volkswagen Group of America Co., 4%, 11/12/2021 (n) | | | 1,356,000 | 1,397,374 |
| Volkswagen Group of America Co., 3.125%, 5/12/2023 (n) | | | 234,000 | 247,133 |
| Volkswagen Group of America Co., 2.85%, 9/26/2024 (n) | | | 1,120,000 | 1,195,952 |
| Volkswagen Group of America Finance LLC, 2.9%, 5/13/2022 (n) | | | 560,000 | 577,679 |
| Volkswagen Group of America Finance LLC, 3.35%, 5/13/2025 (n) | | | 215,000 | 236,315 |
| Volkswagen Group of America LLC, 1.25%, 11/24/2025 (n) | | | 916,000 | 923,552 |
| | | | | $18,902,464 |
| Broadcasting – 0.2% |
| Fox Corp., 3.666%, 1/25/2022 | | $ | 734,000 | $ 759,627 |
| Brokerage & Asset Managers – 1.2% |
| E*TRADE Financial Corp., 2.95%, 8/24/2022 | | $ | 2,157,000 | $ 2,240,222 |
| NASDAQ, Inc., 0.445%, 12/21/2022 | | | 500,000 | 500,575 |
| National Securities Clearing Corp., 1.2%, 4/23/2023 (n) | | | 600,000 | 611,936 |
| National Securities Clearing Corp., 0.4%, 12/07/2023 (n) | | | 500,000 | 501,007 |
| National Securities Clearing Corp., 1.5%, 4/23/2025 (n) | | | 250,000 | 258,738 |
| National Securities Clearing Corp., 0.75%, 12/07/2025 (n) | | | 1,000,000 | 1,003,101 |
| | | | | $5,115,579 |
| Business Services – 0.4% |
| Equinix, Inc., 1.25%, 7/15/2025 | | $ | 375,000 | $ 382,470 |
| Tencent Holdings Ltd., 1.81%, 1/26/2026 (n) | | | 1,481,000 | 1,513,609 |
| | | | | $1,896,079 |
| Cable TV – 0.6% |
| SES S.A., 3.6%, 4/04/2023 (n) | | $ | 2,469,000 | $ 2,602,072 |
| Computer Software – 0.4% |
| Dell International LLC/EMC Corp., 5.85%, 7/15/2025 (n) | | $ | 340,000 | $ 408,348 |
| Dell Investments LLC/EMC Corp., 4%, 7/15/2024 (n) | | | 1,415,000 | 1,559,973 |
| | | | | $1,968,321 |
| Computer Software - Systems – 0.3% |
| Apple, Inc., 1.7%, 9/11/2022 | | $ | 1,292,000 | $ 1,324,598 |
MFS Limited Maturity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Conglomerates – 1.3% |
| Carrier Global Corp., 2.242%, 2/15/2025 | | $ | 1,434,000 | $ 1,518,218 |
| Roper Technologies, Inc., 2.8%, 12/15/2021 | | | 1,606,000 | 1,640,077 |
| Westinghouse Air Brake Technologies Corp., 4.4%, 3/15/2024 | | | 2,237,000 | 2,447,771 |
| | | | | $5,606,066 |
| Consumer Products – 0.1% |
| Reckitt Benckiser Treasury Services PLC, 2.375%, 6/24/2022 (n) | | $ | 550,000 | $ 565,579 |
| Consumer Services – 0.3% |
| Alibaba Group Holding Ltd., 2.8%, 6/06/2023 | | $ | 1,223,000 | $ 1,286,509 |
| Booking Holdings, Inc., 4.1%, 4/13/2025 | | | 171,000 | 193,893 |
| | | | | $1,480,402 |
| Containers – 0.3% |
| Berry Global, Inc., 1.57%, 1/15/2026 (n) | | $ | 1,375,000 | $ 1,386,908 |
| Electronics – 0.8% |
| Broadcom, Inc., 2.25%, 11/15/2023 | | $ | 600,000 | $ 626,584 |
| Broadcom, Inc., 4.7%, 4/15/2025 | | | 493,000 | 564,857 |
| Broadcom, Inc., 3.15%, 11/15/2025 | | | 600,000 | 654,669 |
| Microchip Technology, Inc., 3.922%, 6/01/2021 | | | 1,514,000 | 1,535,492 |
| | | | | $3,381,602 |
| Emerging Market Quasi-Sovereign – 0.7% |
| Bharat Petroleum Corp. Ltd., 4.625%, 10/25/2022 | | $ | 1,865,000 | $ 1,950,641 |
| Indian Oil Corp. Ltd., 5.75%, 8/01/2023 | | | 933,000 | 1,028,632 |
| | | | | $2,979,273 |
| Emerging Market Sovereign – 0.4% |
| Government of Abu Dhabi, 0.75%, 9/02/2023 (n) | | $ | 1,572,000 | $ 1,575,930 |
| Energy - Integrated – 0.8% |
| Eni S.p.A., 4%, 9/12/2023 (n) | | $ | 1,857,000 | $ 2,020,915 |
| Exxon Mobil Corp., 1.571%, 4/15/2023 | | | 683,000 | 702,354 |
| Husky Energy, Inc., 3.95%, 4/15/2022 | | | 468,000 | 482,212 |
| Suncor Energy, Inc., 2.8%, 5/15/2023 | | | 188,000 | 197,798 |
| | | | | $3,403,279 |
| Financial Institutions – 1.7% |
| AerCap Ireland Capital DAC, 4.875%, 1/16/2024 | | $ | 1,585,000 | $ 1,729,841 |
| AerCap Ireland Capital DAC, 6.5%, 7/15/2025 | | | 1,212,000 | 1,448,609 |
| AerCap Ireland Capital/AerCap Ireland Global Co., 3.15%, 2/15/2024 | | | 1,399,000 | 1,466,082 |
| Avolon Holdings Funding Ltd., 3.625%, 5/01/2022 (n) | | | 241,000 | 246,211 |
| Avolon Holdings Funding Ltd., 3.95%, 7/01/2024 (n) | | | 1,214,000 | 1,281,999 |
| Avolon Holdings Funding Ltd., 4.25%, 4/15/2026 (n) | | | 506,000 | 545,026 |
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Financial Institutions – continued |
| Century Housing Corp., 3.995%, 11/01/2021 | | $ | 748,000 | $ 754,024 |
| | | | | $7,471,792 |
| Food & Beverages – 0.6% |
| Diageo Capital PLC, 1.375%, 9/29/2025 | | $ | 660,000 | $ 678,945 |
| Mondelez International, Inc., 0.625%, 7/01/2022 | | | 1,800,000 | 1,807,762 |
| | | | | $2,486,707 |
| Gaming & Lodging – 0.8% |
| GLP Capital LP/GLP Financing II, Inc., 5.375%, 11/01/2023 | | $ | 1,459,000 | $ 1,593,928 |
| Marriott International, Inc., 2.3%, 1/15/2022 | | | 1,564,000 | 1,584,553 |
| Marriott International, Inc., 3.75%, 10/01/2025 | | | 370,000 | 400,564 |
| | | | | $3,579,045 |
| Industrial – 0.1% |
| Howard University, Washington D.C., 2.738%, 10/01/2022 | | $ | 96,000 | $ 98,901 |
| Howard University, Washington D.C., 2.801%, 10/01/2023 | | | 106,000 | 110,044 |
| Howard University, Washington D.C., AGM, 2.638%, 10/01/2021 | | | 91,000 | 91,790 |
| Howard University, Washington D.C., AGM, 2.416%, 10/01/2024 | | | 117,000 | 121,288 |
| Howard University, Washington D.C., AGM, 2.516%, 10/01/2025 | | | 144,000 | 149,896 |
| | | | | $571,919 |
| Insurance – 0.4% |
| AIG Global Funding, 0.8%, 7/07/2023 (n) | | $ | 913,000 | $ 921,937 |
| Equitable Financial Life Insurance Co., 1.4%, 7/07/2025 (n) | | | 882,000 | 905,703 |
| | | | | $1,827,640 |
| Insurance - Property & Casualty – 0.4% |
| Aon PLC, 2.2%, 11/15/2022 | | $ | 821,000 | $ 848,531 |
| Marsh & McLennan Cos., Inc., 2.75%, 1/30/2022 | | | 807,000 | 826,169 |
| | | | | $1,674,700 |
| Internet – 0.3% |
| Baidu, Inc., 3.875%, 9/29/2023 | | $ | 1,263,000 | $ 1,360,494 |
| Machinery & Tools – 0.7% |
| CNH Industrial Capital LLC, 4.2%, 1/15/2024 | | $ | 2,262,000 | $ 2,480,908 |
| CNH Industrial Capital LLC, 1.875%, 1/15/2026 | | | 448,000 | 469,059 |
| Deere & Co., 2.75%, 4/15/2025 | | | 287,000 | 312,743 |
| | | | | $3,262,710 |
MFS Limited Maturity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Major Banks – 13.1% |
| ABN AMRO Bank N.V., 2.65%, 1/19/2021 (n) | | $ | 1,855,000 | $ 1,856,746 |
| Bank of America Corp., 2.738% to 1/23/2021, FLR (LIBOR - 3mo. + 2.738%) to 1/23/2022 | | | 1,345,000 | 1,346,627 |
| Bank of America Corp., 2.881%, 4/24/2023 | | | 2,896,000 | 2,988,351 |
| Bank of America Corp., 4.2%, 8/26/2024 | | | 692,000 | 776,280 |
| Bank of Montreal, 2.05%, 11/01/2022 | | | 1,168,000 | 1,205,177 |
| Barclays PLC, 4.61%, 2/15/2023 | | | 2,947,000 | 3,076,405 |
| Barclays PLC, 1.007%, 12/10/2024 | | | 207,000 | 208,384 |
| Barclays PLC, 2.852% to 5/07/2025, FLR (LIBOR - 3mo. + 2.452%) to 5/07/2026 | | | 550,000 | 590,551 |
| Credit Agricole, “A”, FLR, 1.654% (LIBOR - 3mo. + 1.43%), 1/10/2022 (n) | | | 1,270,000 | 1,283,996 |
| Credit Suisse Group AG, 3.574%, 1/09/2023 (n) | | | 872,000 | 898,405 |
| Credit Suisse Group AG, 4.207% to 6/12/2023, FLR (LIBOR - 3mo. + 1.24%) to 6/12/2024 (n) | | | 443,000 | 479,926 |
| Goldman Sachs Group, Inc., 3%, 4/26/2022 | | | 2,302,000 | 2,320,664 |
| Goldman Sachs Group, Inc., 3.5%, 4/01/2025 | | | 750,000 | 834,016 |
| Goldman Sachs Group, Inc., 1.093% to 12/09/2025, FLR (SOFR + 0.789%) to 12/09/2026 | | | 821,000 | 829,244 |
| HSBC Holdings PLC, 3.262% to 3/13/2022, FLR (LIBOR - 3mo. + 1.055%) to 3/13/2023 | | | 1,521,000 | 1,571,985 |
| HSBC Holdings PLC, 3.033% to 11/22/2022, FLR (LIBOR - 3mo. + 0.923%) to 11/22/2023 | | | 491,000 | 515,999 |
| HSBC Holdings PLC, 2.099% to 6/04/2025, FLR (SOFR + 1.929%) to 6/04/2026 | | | 910,000 | 945,428 |
| HSBC Holdings PLC, 1.589% to 5/24/2026, FLR (SOFR + 1.29%) to 5/24/2027 | | | 623,000 | 633,382 |
| JPMorgan Chase & Co., 3.207% to 4/01/2022, FLR (LIBOR - 3mo. + 0.695%) to 4/01/2023 | | | 2,827,000 | 2,931,514 |
| JPMorgan Chase & Co., 2.776% to 4/25/2022, FLR (LIBOR - 3mo. + 0.935%) to 4/25/2023 | | | 2,701,000 | 2,788,262 |
| JPMorgan Chase & Co., 3.797% to 7/23/2023, FLR (LIBOR - 3mo. + 0.89%) to 7/23/2024 | | | 1,380,000 | 1,497,742 |
| JPMorgan Chase & Co., 2.005% to 3/13/2025, FLR (SOFR + 1.585%) to 3/13/2026 | | | 1,642,000 | 1,724,409 |
| Mitsubishi UFJ Financial Group, Inc., 2.95%, 3/01/2021 | | | 448,000 | 449,877 |
| Mitsubishi UFJ Financial Group, Inc., 3.535%, 7/26/2021 | | | 1,623,000 | 1,652,422 |
| Mitsubishi UFJ Financial Group, Inc., 2.623%, 7/18/2022 | | | 1,921,000 | 1,985,749 |
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Major Banks – continued |
| Mizuho Financial Group, 0.849% to 9/08/2023, FLR (LIBOR - 3mo. + 0.61%) to 9/08/2024 | | $ | 600,000 | $ 603,408 |
| Morgan Stanley, 0.56% to 11/10/2022, FLR (SOFR + 0.466%) to 11/10/2023 | | | 1,637,000 | 1,640,732 |
| Morgan Stanley, 0.864% to 10/21/2024, FLR (SOFR + 0.745%) to 10/21/2025 | | | 1,635,000 | 1,648,141 |
| NatWest Group PLC, 2.359% to 5/22/2023, FLR (CMT - 1yr. + 2.15%) to 5/22/2024 | | | 1,038,000 | 1,080,014 |
| NatWest Group PLC, 4.269% to 3/22/2024, FLR (LIBOR - 3mo. + 1.762%) to 3/22/2025 | | | 1,367,000 | 1,512,075 |
| NatWest Markets PLC, 3.625%, 9/29/2022 (n) | | | 1,695,000 | 1,786,910 |
| Royal Bank of Canada, 0.5%, 10/26/2023 | | | 1,750,000 | 1,759,535 |
| Standard Chartered PLC, 1.319% to 10/14/2022, FLR (CMT - 1yr. + 1.17%) to 10/14/2023 (n) | | | 1,457,000 | 1,471,716 |
| State Street Corp., 2.825% to 3/30/2022, FLR (SOFR + 2.69%) to 3/30/2023 | | | 383,000 | 395,271 |
| State Street Corp., 2.901% to 3/30/2025, FLR (SOFR + 2.6%) to 3/30/2026 | | | 157,000 | 170,990 |
| Sumitomo Mitsui Financial Group, Inc., 1.474%, 7/08/2025 | | | 1,613,000 | 1,651,590 |
| UBS Group AG, 3.491%, 5/23/2023 (n) | | | 278,000 | 289,285 |
| UBS Group AG, 1.008% to 7/30/2023, FLR (CMT - 1yr. + 0.83%) to 7/30/2024 (n) | | | 924,000 | 932,871 |
| UBS Group Funding Ltd., 3%, 4/15/2021 (n) | | | 1,590,000 | 1,602,273 |
| UniCredito Italiano S.p.A., 6.572%, 1/14/2022 (n) | | | 1,373,000 | 1,446,861 |
| UniCredito Italiano S.p.A., 3.75%, 4/12/2022 (n) | | | 1,687,000 | 1,748,218 |
| Wells Fargo & Co., 2.164% to 2/11/2025, FLR (LIBOR - 3mo. + 0.75%) to 2/11/2026 | | | 2,242,000 | 2,357,108 |
| | | | | $57,488,539 |
| Medical & Health Technology & Services – 0.9% |
| Becton, Dickinson and Co., 2.894%, 6/06/2022 | | $ | 478,000 | $ 494,065 |
| Cigna Corp., FLR, 0.878% (LIBOR - 3mo. + 0.65%), 9/17/2021 | | | 1,734,000 | 1,734,274 |
| HCA, Inc., 5%, 3/15/2024 | | | 1,692,000 | 1,903,180 |
| | | | | $4,131,519 |
| Medical Equipment – 0.1% |
| Zimmer Biomet Holdings, Inc., FLR, 0.988% (LIBOR - 3mo. + 0.75%), 3/19/2021 | | $ | 227,000 | $ 227,000 |
MFS Limited Maturity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Metals & Mining – 1.7% |
| Anglo American Capital PLC, 3.625%, 9/11/2024 (n) | | $ | 533,000 | $ 579,735 |
| Anglo American Capital PLC, 5.375%, 4/01/2025 (n) | | | 1,650,000 | 1,930,923 |
| Glencore Finance (Canada) Ltd., 4.95%, 11/15/2021 (n) | | | 899,000 | 934,893 |
| Glencore Funding LLC, 3%, 10/27/2022 (n) | | | 848,000 | 879,662 |
| Glencore Funding LLC, 4.125%, 3/12/2024 (n) | | | 1,354,000 | 1,489,721 |
| Glencore Funding LLC, 4.625%, 4/29/2024 (n) | | | 422,000 | 471,211 |
| Glencore Funding LLC, 1.625%, 9/01/2025 (n) | | | 1,100,000 | 1,131,422 |
| | | | | $7,417,567 |
| Midstream – 1.9% |
| Energy Transfer Operating Co., 2.9%, 5/15/2025 | | $ | 569,000 | $ 601,864 |
| Gray Oak Pipeline LLC, 2%, 9/15/2023 (n) | | | 968,000 | 982,996 |
| MPLX LP, 3.5%, 12/01/2022 | | | 2,340,000 | 2,457,515 |
| MPLX LP, 3.375%, 3/15/2023 | | | 642,000 | 679,901 |
| Plains All American Pipeline LP, 3.85%, 10/15/2023 | | | 750,000 | 801,863 |
| Plains All American Pipeline LP, 4.65%, 10/15/2025 | | | 567,000 | 633,768 |
| Western Midstream Operating LP, 4.1%, 2/01/2025 | | | 796,000 | 820,334 |
| Western Midstream Operating LP, FLR, 2.074% (LIBOR - 3mo. + 0.85%), 1/13/2023 | | | 1,222,000 | 1,197,881 |
| | | | | $8,176,122 |
| Mortgage-Backed – 1.5% | |
| Fannie Mae, 5.5%, 5/01/2025 | | $ | 3,412 | $ 3,460 |
| Fannie Mae, 5%, 7/01/2039-3/01/2042 | | | 769,107 | 893,596 |
| Fannie Mae, 2%, 5/25/2044 | | | 1,217,776 | 1,245,858 |
| Freddie Mac, 0.879%, 4/25/2024 (i) | | | 540,221 | 12,405 |
| Freddie Mac, 1.583%, 4/25/2030 (i) | | | 6,151,865 | 768,796 |
| Freddie Mac, 3%, 4/15/2033-6/15/2045 | | | 2,763,267 | 2,996,492 |
| Freddie Mac, 2%, 7/15/2042 | | | 521,488 | 539,499 |
| | | | | $6,460,106 |
| Municipals – 3.4% |
| California Earthquake Authority Rev., “B”, 1.227%, 7/01/2021 | | $ | 195,000 | $ 195,131 |
| California Earthquake Authority Rev., “B”, 1.327%, 7/01/2022 | | | 620,000 | 621,872 |
| California Earthquake Authority Rev., “B”, 1.477%, 7/01/2023 | | | 440,000 | 443,054 |
| California Municipal Finance Authority Rev. (Century Housing Corp.), 1.486%, 11/01/2022 | | | 235,000 | 237,799 |
| California Municipal Finance Authority Rev. (Century Housing Corp.), 1.605%, 11/01/2023 | | | 280,000 | 285,421 |
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Municipals – continued |
| Illinois Sales Tax Securitization Corp., Second Lien, “B”, BAM, 2.128%, 1/01/2023 | | $ | 300,000 | $ 302,568 |
| Illinois Sales Tax Securitization Corp., Second Lien, “B”, BAM, 2.225%, 1/01/2024 | | | 730,000 | 739,468 |
| Long Island, NY, Power Authority, Electric System General Rev., “C”, 0.659%, 3/01/2022 | | | 135,000 | 135,159 |
| Long Island, NY, Power Authority, Electric System General Rev., “C”, 0.764%, 3/01/2023 | | | 595,000 | 597,677 |
| Massachusetts Educational Financing Authority, Education Loan Rev., “A”, 1.904%, 7/01/2023 | | | 65,000 | 65,206 |
| Massachusetts Educational Financing Authority, Education Loan Rev., “A”, 2.156%, 7/01/2024 | | | 190,000 | 191,047 |
| Massachusetts Educational Financing Authority, Education Loan Rev., “A”, 2.306%, 7/01/2025 | | | 150,000 | 151,200 |
| Massachusetts Educational Financing Authority, Education Loan Rev., “A”, 2.562%, 7/01/2026 | | | 185,000 | 186,722 |
| Michigan Finance Authority Tobacco Settlement Asset-Backed Rev. (2006 Sold Tobacco Receipts), “A-1”, 2.326%, 6/01/2030 | | | 800,000 | 808,640 |
| New Jersey Economic Development Authority Rev., School Facilities Construction, “HHH”, 3.75%, 9/01/2022 (n) | | | 2,885,000 | 2,973,714 |
| New Jersey Economic Development Authority State Pension Funding Rev., Capital Appreciation, “B”, AGM, 0%, 2/15/2023 | | | 4,091,000 | 4,029,267 |
| New Jersey Transportation Trust Fund Authority, Transportation System, “B”, 2.384%, 6/15/2022 | | | 455,000 | 466,311 |
| New Jersey Transportation Trust Fund Authority, Transportation System, “B”, 2.551%, 6/15/2023 | | | 465,000 | 482,926 |
| New Jersey Transportation Trust Fund Authority, Transportation System, “B”, 2.631%, 6/15/2024 | | | 440,000 | 457,569 |
| Port Authority of NY & NJ, “AAA”, 1.086%, 7/01/2023 | | | 1,060,000 | 1,075,794 |
| Texas Transportation Commission, Central Texas Turnpike System First Tier Refunding Rev., Taxable, “B”, 1.98%, 8/15/2042 | | | 680,000 | 686,406 |
| | | | | $15,132,951 |
| Oil Services – 0.0% |
| Halliburton Co., 3.8%, 11/15/2025 | | $ | 111,000 | $ 124,463 |
MFS Limited Maturity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Oils – 1.2% |
| Marathon Petroleum Corp., 4.75%, 12/15/2023 | | $ | 1,919,000 | $ 2,124,196 |
| Phillips 66, FLR, 0.833% (LIBOR - 3mo. + 0.6%), 2/26/2021 | | | 1,196,000 | 1,196,138 |
| Valero Energy Corp., 1.2%, 3/15/2024 | | | 1,330,000 | 1,342,086 |
| Valero Energy Corp., 2.85%, 4/15/2025 | | | 771,000 | 820,990 |
| | | | | $5,483,410 |
| Other Banks & Diversified Financials – 3.6% |
| American Express Co., 3.7%, 11/05/2021 | | $ | 497,000 | $ 509,690 |
| Banque Federative du Credit Mutuel, 0.65%, 2/27/2024 (n) | | | 1,833,000 | 1,837,886 |
| BBVA USA, 3.5%, 6/11/2021 | | | 1,920,000 | 1,941,686 |
| BBVA USA, 2.875%, 6/29/2022 | | | 2,443,000 | 2,531,561 |
| BBVA USA Bancshares, Inc., 2.5%, 8/27/2024 | | | 1,183,000 | 1,256,004 |
| Groupe BPCE S.A., 4%, 9/12/2023 (n) | | | 1,385,000 | 1,506,642 |
| Groupe BPCE S.A., FLR, 1.459% (LIBOR - 3mo. + 1.24%), 9/12/2023 (n) | | | 1,385,000 | 1,410,601 |
| National Bank of Canada, 2.15%, 10/07/2022 (n) | | | 1,348,000 | 1,389,202 |
| National Bank of Canada, 0.9% to 8/15/2022, FLR (CMT - 1yr. + 0.77%) to 8/15/2023 | | | 523,000 | 526,120 |
| National Bank of Canada, 0.55%, 11/15/2024 | | | 250,000 | 250,683 |
| SunTrust Banks, Inc., 2.8%, 5/17/2022 | | | 2,056,000 | 2,123,525 |
| UBS AG, 1.75%, 4/21/2022 (n) | | | 390,000 | 396,929 |
| | | | | $15,680,529 |
| Personal Computers & Peripherals – 0.0% |
| Equifax, Inc., 2.6%, 12/15/2025 | | $ | 164,000 | $ 176,981 |
| Pharmaceuticals – 2.4% |
| AbbVie, Inc., 2.15%, 11/19/2021 | | $ | 834,000 | $ 847,438 |
| AbbVie, Inc., 3.45%, 3/15/2022 | | | 886,000 | 913,748 |
| Bayer U.S. Finance II LLC, 3.5%, 6/25/2021 (n) | | | 2,962,000 | 2,997,990 |
| Bristol-Myers Squibb Co., 2.75%, 2/15/2023 (n) | | | 1,724,000 | 1,808,992 |
| Bristol-Myers Squibb Co., 0.537%, 11/13/2023 | | | 923,000 | 924,598 |
| Bristol-Myers Squibb Co., FLR, 0.601% (LIBOR - 3mo. + 0.38%), 5/16/2022 (n) | | | 444,000 | 445,530 |
| Royalty Pharma PLC, 0.75%, 9/02/2023 (n) | | | 1,481,000 | 1,487,975 |
| Viatris, Inc., 1.125%, 6/22/2022 (n) | | | 1,200,000 | 1,211,305 |
| | | | | $10,637,576 |
| Real Estate - Office – 0.2% |
| Corporate Office Property LP, 2.25%, 3/15/2026 | | $ | 697,000 | $ 726,442 |
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Retailers – 0.2% |
| Alimentation Couche-Tard, Inc., 2.7%, 7/26/2022 (n) | | $ | 399,000 | $ 412,388 |
| Macy's Retail Holdings, Inc., 3.875%, 1/15/2022 | | | 352,000 | 350,240 |
| | | | | $762,628 |
| Specialty Stores – 0.6% |
| Ross Stores, Inc., 0.875%, 4/15/2026 | | $ | 1,622,000 | $ 1,620,934 |
| TJX Cos., Inc., 3.5%, 4/15/2025 | | | 960,000 | 1,071,629 |
| | | | | $2,692,563 |
| Telecommunications - Wireless – 0.9% |
| American Tower Corp., REIT, 2.25%, 1/15/2022 | | $ | 500,000 | $ 509,589 |
| Crown Castle International Corp., 3.15%, 7/15/2023 | | | 1,037,000 | 1,103,068 |
| Crown Castle International Corp., 1.35%, 7/15/2025 | | | 257,000 | 262,286 |
| T-Mobile USA, Inc., 3.5%, 4/15/2025 (n) | | | 1,901,000 | 2,100,567 |
| | | | | $3,975,510 |
| Tobacco – 0.9% |
| B.A.T. Capital Corp., 3.222%, 8/15/2024 | | $ | 1,047,000 | $ 1,133,487 |
| Imperial Tobacco Finance PLC, 3.75%, 7/21/2022 (n) | | | 2,045,000 | 2,132,026 |
| Philip Morris International, Inc., 1.125%, 5/01/2023 | | | 796,000 | 811,669 |
| | | | | $4,077,182 |
| Transportation - Services – 1.1% |
| Adani Ports & Special Economic Zone Ltd., 3.95%, 1/19/2022 | | $ | 2,656,000 | $ 2,715,361 |
| ERAC USA Finance LLC, 2.7%, 11/01/2023 (n) | | | 872,000 | 919,755 |
| ERAC USA Finance LLC, 3.85%, 11/15/2024 (n) | | | 551,000 | 612,558 |
| ERAC USA Finance LLC, 3.8%, 11/01/2025 (n) | | | 551,000 | 620,040 |
| | | | | $4,867,714 |
| U.S. Treasury Obligations – 15.3% |
| U.S. Treasury Notes, 0.125%, 6/30/2022 | | $ | 18,900,000 | $ 18,902,215 |
| U.S. Treasury Notes, 0.125%, 9/30/2022 | | | 21,322,500 | 21,322,500 |
| U.S. Treasury Notes, 2.375%, 1/31/2023 (f) | | | 17,178,000 | 17,976,508 |
| U.S. Treasury Notes, 0.125%, 12/15/2023 | | | 8,813,000 | 8,801,984 |
| | | | | $67,003,207 |
| Utilities - Electric Power – 3.4% |
| Emera U.S. Finance LP, 2.7%, 6/15/2021 | | $ | 491,000 | $ 494,819 |
| Enel Finance International N.V., 2.875%, 5/25/2022 (n) | | | 2,470,000 | 2,548,404 |
| FirstEnergy Corp., 4.25%, 3/15/2023 | | | 1,027,000 | 1,084,436 |
| FirstEnergy Corp., 2.05%, 3/01/2025 | | | 929,000 | 925,105 |
| FirstEnergy Corp., 1.6%, 1/15/2026 | | | 513,000 | 501,274 |
MFS Limited Maturity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Utilities - Electric Power – continued |
| Florida Power & Light Co., FLR, 0.602% (LIBOR - 3mo. + 0.38%), 7/28/2023 | | $ | 2,067,000 | $ 2,067,420 |
| NextEra Energy, Inc., 2.9%, 4/01/2022 | | | 1,458,000 | 1,504,459 |
| Pacific Gas & Electric Co., 1.75%, 6/16/2022 | | | 536,000 | 537,508 |
| Pacific Gas & Electric Co., FLR, 1.6% (LIBOR - 3mo. + 1.375%), 11/15/2021 | | | 1,837,000 | 1,838,006 |
| Southern California Edison Co.'s First & Refunding Mortgage Bonds, 1.2%, 2/01/2026 | | | 1,463,000 | 1,480,086 |
| Xcel Energy, Inc., 0.5%, 10/15/2023 | | | 1,753,000 | 1,757,849 |
| | | | | $14,739,366 |
| Total Bonds (Identified Cost, $419,784,350) | | $ 428,473,806 |
| Issuer | | | Shares/Par | Value ($) |
| Investment Companies (h) – 2.0% |
| Money Market Funds – 2.0% | |
| MFS Institutional Money Market Portfolio, 0.1% (v) (Identified Cost, $8,636,845) | | | 8,636,845 | $ 8,636,845 |
| Other Assets, Less Liabilities – 0.4% | | 1,813,831 |
| Net Assets – 100.0% | $ 438,924,482 |
| (f) | All or a portion of the security has been segregated as collateral for open futures contracts and cleared swap agreements. |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $8,636,845 and $428,473,806, respectively. |
| (i) | Interest only security for which the fund receives interest on notional principal (Par amount). Par amount shown is the notional principal and does not reflect the cost of the security. |
| (n) | Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate value of these securities was $185,542,823, representing 42.3% of net assets. |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. |
| (z) | Restricted securities are not registered under the Securities Act of 1933 and are subject to legal restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are subsequently registered. Disposal of these securities may involve time-consuming negotiations and prompt sale at an acceptable price may be difficult. The fund holds the following restricted securities: |
| Restricted Securities | Acquisition
Date | Cost | Value |
| MF1 Ltd., 2020-FL3, “B”, FLR, 3.908% (LIBOR - 1mo. + 3.75%), 7/15/2035 | 6/12/20 | $192,000 | $194,512 |
| MF1 Ltd., 2020-FL3, “C”, FLR, 4.658% (LIBOR - 1mo. + 4.5%), 7/15/2035 | 6/12/20 | 274,500 | 279,803 |
| Total Restricted Securities | | | $474,315 |
| % of Net assets | | | 0.1% |
| The following abbreviations are used in this report and are defined: |
| AGM | Assured Guaranty Municipal |
| BAM | Build America Mutual |
| CLO | Collateralized Loan Obligation |
| CMT | Constant Maturity Treasury |
| FLR | Floating Rate. Interest rate resets periodically based on the parenthetically disclosed reference rate plus a spread (if any). The period-end rate reported may not be the current rate. All reference rates are USD unless otherwise noted. |
| LIBOR | London Interbank Offered Rate |
| REIT | Real Estate Investment Trust |
| SOFR | Secured Overnight Financing Rate |
MFS Limited Maturity Portfolio
Portfolio of Investments – continued
| Derivative Contracts at 12/31/20 |
| Futures Contracts |
| Description | Long/
Short | Currency | Contracts | Notional
Amount | Expiration
Date | Value/Unrealized
Appreciation
(Depreciation) |
| Asset Derivatives |
| Interest Rate Futures | | |
| U.S. Treasury Note 2 yr | Long | USD | 135 | $29,831,836 | March – 2021 | $24,833 |
| Cleared Swap Agreements |
Maturity
Date | Notional
Amount | Counterparty | Cash Flows
to Receive/
Frequency | Cash Flows
to Pay/
Frequency | Unrealized
Appreciation
(Depreciation) | | Net Unamortized
Upfront Payments
(Receipts) | | Value |
| Asset Derivatives | | | | | |
| Interest Rate Swaps | | | | | |
| 7/15/21 | USD | 38,000,000 | centrally cleared | 1.88%/Semi-annually | 0.24% FLR (3-Month LIBOR)/Quarterly | $655,911 | | $— | | $655,911 |
| 9/19/21 | USD | 23,300,000 | centrally cleared | 1.57%/Semi-annually | 0.15% FLR (1-Month LIBOR)/Monthly | 344,871 | | — | | 344,871 |
| | | | | | | $1,000,782 | | $— | | $1,000,782 |
At December 31, 2020, the fund had liquid securities with an aggregate value of $253,306 to cover any collateral or margin obligations for certain derivative contracts.
See Notes to Financial Statements
MFS Limited Maturity Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/20Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $419,784,350) | $428,473,806 |
| Investments in affiliated issuers, at value (identified cost, $8,636,845) | 8,636,845 |
| Receivables for | |
| Net daily variation margin on open cleared swap agreements | 2,078 |
| Net daily variation margin on open futures contracts | 3,160 |
| Fund shares sold | 13,877 |
| Interest | 2,240,159 |
| Other assets | 2,368 |
| Total assets | $439,372,293 |
| Liabilities | |
| Payables for | |
| Fund shares reacquired | $356,069 |
| Payable to affiliates | |
| Investment adviser | 9,332 |
| Administrative services fee | 341 |
| Shareholder servicing costs | 29 |
| Distribution and/or service fees | 1,542 |
| Payable for independent Trustees' compensation | 179 |
| Accrued expenses and other liabilities | 80,319 |
| Total liabilities | $447,811 |
| Net assets | $438,924,482 |
| Net assets consist of | |
| Paid-in capital | $419,236,112 |
| Total distributable earnings (loss) | 19,688,370 |
| Net assets | $438,924,482 |
| Shares of beneficial interest outstanding | 41,992,964 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $326,074,863 | 31,193,801 | $10.45 |
| Service Class | 112,849,619 | 10,799,163 | 10.45 |
See Notes to Financial Statements
MFS Limited Maturity Portfolio
| Financial Statements | Statement of Operations |
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| Year ended 12/31/20 | |
| Net investment income (loss) | |
| Income | |
| Interest | $11,081,399 |
| Dividends from affiliated issuers | 41,223 |
| Other | 960 |
| Total investment income | $11,123,582 |
| Expenses | |
| Management fee | $1,692,577 |
| Distribution and/or service fees | 268,871 |
| Shareholder servicing costs | 5,701 |
| Administrative services fee | 66,679 |
| Independent Trustees' compensation | 8,565 |
| Custodian fee | 26,737 |
| Shareholder communications | 28,069 |
| Audit and tax fees | 67,568 |
| Legal fees | 3,353 |
| Miscellaneous | 44,590 |
| Total expenses | $2,212,710 |
| Reduction of expenses by investment adviser | (46,453) |
| Net expenses | $2,166,257 |
| Net investment income (loss) | $8,957,325 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $2,439,072 |
| Affiliated issuers | 2,721 |
| Futures contracts | 659,201 |
| Swap agreements | 593,221 |
| Net realized gain (loss) | $3,694,215 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $3,399,069 |
| Affiliated issuers | 9 |
| Futures contracts | 51,837 |
| Swap agreements | 648,898 |
| Net unrealized gain (loss) | $4,099,813 |
| Net realized and unrealized gain (loss) | $7,794,028 |
| Change in net assets from operations | $16,751,353 |
See Notes to Financial Statements
MFS Limited Maturity Portfolio
| Financial Statements | Statements of Changes in Net Assets |
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | Year ended |
| | 12/31/20 | 12/31/19 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $8,957,325 | $12,947,816 |
| Net realized gain (loss) | 3,694,215 | 450,580 |
| Net unrealized gain (loss) | 4,099,813 | 10,243,310 |
| Change in net assets from operations | $16,751,353 | $23,641,706 |
| Total distributions to shareholders | $(12,889,047) | $(12,198,184) |
| Change in net assets from fund share transactions | $(25,806,563) | $(28,281,631) |
| Total change in net assets | $(21,944,257) | $(16,838,109) |
| Net assets | | |
| At beginning of period | 460,868,739 | 477,706,848 |
| At end of period | $438,924,482 | $460,868,739 |
See Notes to Financial Statements
MFS Limited Maturity Portfolio
| Financial Statements | Financial Highlights |
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 |
| Net asset value, beginning of period | $10.34 | $10.10 | $10.18 | $10.17 | $10.14 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.23 | $0.29 | $0.23 | $0.18 | $0.15(c) |
| Net realized and unrealized gain (loss) | 0.21 | 0.23 | (0.10) | (0.00)(w) | 0.02 |
| Total from investment operations | $0.44 | $0.52 | $0.13 | $0.18 | $0.17 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.33) | $(0.28) | $(0.21) | $(0.17) | $(0.14) |
| Net asset value, end of period (x) | $10.45 | $10.34 | $10.10 | $10.18 | $10.17 |
| Total return (%) (k)(r)(s)(x) | 4.34 | 5.19 | 1.28 | 1.73 | 1.68(c) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions (f) | 0.46 | 0.45 | 0.45 | 0.45 | 0.42(c) |
| Expenses after expense reductions (f) | 0.45 | 0.44 | 0.44 | 0.45 | 0.42(c) |
| Net investment income (loss) | 2.18 | 2.81 | 2.31 | 1.77 | 1.43(c) |
| Portfolio turnover | 51 | 39 | 62 | 54 | 30 |
| Net assets at end of period (000 omitted) | $326,075 | $343,507 | $359,909 | $434,320 | $473,730 |
| Service Class | Year ended |
| | 12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 |
| Net asset value, beginning of period | $10.33 | $10.09 | $10.17 | $10.16 | $10.12 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.20 | $0.26 | $0.21 | $0.16 | $0.12(c) |
| Net realized and unrealized gain (loss) | 0.23 | 0.23 | (0.11) | (0.01) | 0.03 |
| Total from investment operations | $0.43 | $0.49 | $0.10 | $0.15 | $0.15 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.31) | $(0.25) | $(0.18) | $(0.14) | $(0.11) |
| Net asset value, end of period (x) | $10.45 | $10.33 | $10.09 | $10.17 | $10.16 |
| Total return (%) (k)(r)(s)(x) | 4.15 | 4.90 | 0.99 | 1.45 | 1.48(c) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions (f) | 0.71 | 0.70 | 0.70 | 0.70 | 0.68(c) |
| Expenses after expense reductions (f) | 0.70 | 0.69 | 0.69 | 0.70 | 0.67(c) |
| Net investment income (loss) | 1.93 | 2.56 | 2.06 | 1.52 | 1.18(c) |
| Portfolio turnover | 51 | 39 | 62 | 54 | 30 |
| Net assets at end of period (000 omitted) | $112,850 | $117,362 | $117,798 | $142,696 | $153,979 |
See Notes to Financial Statements
MFS Limited Maturity Portfolio
Financial Highlights - continued
| (c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
| (d) | Per share data is based on average shares outstanding. |
| (f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (w) | Per share amount was less than $0.01. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
MFS Limited Maturity Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS Limited Maturity Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust III (the trust). The trust is organized as a Delaware statutory 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, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. 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 increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests 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 market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions.
In March 2020, the FASB issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional, temporary relief with respect to the financial reporting of contracts subject to certain types of modifications due to the planned discontinuation of the London Interbank Offered Rate (LIBOR) and other IBOR-based reference rates as of the end of 2021. The temporary relief provided by ASU 2020-04 is effective for certain reference rate-related contract modifications that occur during the period from March 12, 2020 through December 31, 2022. Management is evaluating the impact of ASU 2020-04 on the fund's investments, derivatives, debt and other contracts that will undergo reference rate-related modifications as a result of the reference rate reform.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Debt instruments and floating rate loans, including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price on their primary exchange as provided by a third-party pricing service. Exchange-traded options for which there were no sales reported that day are generally valued at the last daily bid quotation on their primary exchange as provided by a third-party pricing service. For put options, the position may be valued at the last daily ask quotation if there are no trades reported during the day. Options not traded on an exchange are generally valued at a broker/dealer bid quotation. Foreign currency options are generally valued at valuations provided by a third-party pricing service. Futures contracts are generally valued at last posted settlement price on their primary exchange as provided by a third-party pricing service. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation on their primary exchange as provided by a third-party pricing service. Swap agreements are generally valued using valuations provided by a third-party pricing service, which for cleared swaps includes an evaluation of any trading activity at the clearinghouses. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
MFS Limited Maturity Portfolio
Notes to Financial Statements - continued
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser's own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments, such as futures contracts and swap agreements. The following is a summary of the levels used as of December 31, 2020 in valuing the fund's assets or liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| U.S. Treasury Bonds & U.S. Government Agencies & Equivalents | $— | $67,003,207 | $— | $67,003,207 |
| Non - U.S. Sovereign Debt | — | 4,555,203 | — | 4,555,203 |
| Municipal Bonds | — | 15,132,951 | — | 15,132,951 |
| U.S. Corporate Bonds | — | 130,888,889 | — | 130,888,889 |
| Residential Mortgage-Backed Securities | — | 12,157,640 | — | 12,157,640 |
| Commercial Mortgage-Backed Securities | — | 32,861,513 | — | 32,861,513 |
| Asset-Backed Securities (including CDOs) | — | 83,461,204 | — | 83,461,204 |
| Foreign Bonds | — | 82,413,199 | — | 82,413,199 |
| Mutual Funds | 8,636,845 | — | — | 8,636,845 |
| Total | $8,636,845 | $428,473,806 | $— | $437,110,651 |
| Other Financial Instruments | | | | |
| Futures Contracts – Assets | $24,833 | $— | $— | $24,833 |
| Swap Agreements – Assets | — | 1,000,782 | — | 1,000,782 |
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation — 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 or on the reporting date for foreign denominated receivables and payables. 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 receivables, payables, 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.
MFS Limited Maturity Portfolio
Notes to Financial Statements - continued
Derivatives — The fund uses derivatives primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate or currency exposure, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
The derivative instruments used by the fund during the period were purchased options, futures contracts, and swap agreements. Depending on the type of derivative, the fund may exit a derivative position by entering into an offsetting transaction with a counterparty or exchange, negotiating an agreement with the derivative counterparty, or novating the position to a third party. The fund may be unable to promptly close out a futures position in instances where the daily fluctuation in the price for that type of future exceeds the daily limit set by the exchange. The fund's period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract tables, generally are indicative of the volume of its derivative activity during the period.
The following table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at December 31, 2020 as reported in the Statement of Assets and Liabilities:
| | | Fair Value (a) | |
| Risk | Derivative Contracts | Asset Derivatives | |
| Interest Rate | Interest Rate Futures | $24,833 | |
| Interest Rate | Interest Rate Swaps | 1,000,782 | |
| Total | | $1,025,615 | |
(a) Values presented in this table for futures contracts and cleared swap agreements correspond to the values reported in the fund's Portfolio of Investments. Only the current day net variation margin for futures contracts and cleared swap agreements is separately reported within the fund's Statement of Assets and Liabilities.
The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the year ended December 31, 2020 as reported in the Statement of Operations:
| Risk | Futures
Contracts | Swap
Agreements | Unaffiliated Issuers
(Purchased
Options) |
| Interest Rate | $659,201 | $417,937 | $— |
| Credit | — | 175,284 | (252,281) |
| Total | $659,201 | $593,221 | $(252,281) |
The following table presents, by major type of derivative contract, the change in unrealized appreciation or depreciation on derivatives held by the fund for the year ended December 31, 2020 as reported in the Statement of Operations:
| Risk | Futures
Contracts | Swap
Agreements |
| Interest Rate | $51,837 | $648,898 |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the ISDA Master Agreement, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each agreement to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund's credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
Collateral and margin requirements differ by type of derivative. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options), margin requirements are set by the clearing broker and the clearing house and collateral, in the form of cash or securities, is posted by the fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options) and collateral, in the form of cash and securities, is held in segregated accounts with the fund's custodian in connection with these agreements. For derivatives traded under an ISDA Master Agreement, which contains a collateral support annex, the collateral requirements are netted across all transactions traded under such counterparty-specific agreement and an amount is posted from
MFS Limited Maturity Portfolio
Notes to Financial Statements - continued
one party to the other to collateralize such obligations. Cash that has been segregated or delivered to cover the fund's collateral or margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared derivatives. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are included in “Miscellaneous” expense in the Statement of Operations.
Purchased Options — The fund purchased put options for a premium. Purchased put options entitle the holder to sell a specified number of shares or units of a particular security, currency or index at a specified price at a specified date or within a specified period of time. Purchasing put options may hedge against an anticipated decline in the value of portfolio securities or currency or decrease the fund's exposure to an underlying instrument.
The premium paid is initially recorded as an investment in the Statement of Assets and Liabilities. That investment is subsequently marked-to-market daily with the difference between the premium paid and the market value of the purchased option being recorded as unrealized appreciation or depreciation. Premiums paid for purchased put options which have expired are treated as realized losses on investments in the Statement of Operations. Upon the exercise or closing of a purchased put option, the premium paid is offset against the proceeds on the sale of the underlying security or financial instrument in order to determine the realized gain or loss on investments.
Whether or not the option is exercised, the fund's maximum risk of loss from purchasing an option is the amount of premium paid. All option contracts involve credit risk if the counterparty to the option contract fails to perform. For uncleared options, this risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and, where applicable, by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
Futures Contracts — The fund entered into futures contracts which may be used to hedge against or obtain broad market exposure, interest rate exposure, currency exposure, or to manage duration. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.
Upon entering into a futures contract, the fund is required to deposit with the broker, either in cash or securities, an initial margin in an amount equal to a specified percentage of the notional amount of the contract. Subsequent payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gain or loss by the fund until the contract is closed or expires at which point the gain or loss on futures contracts is realized.
The fund bears the risk of interest rates, exchange rates or securities prices moving unexpectedly, in which case, the fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. While futures contracts may present less counterparty risk to the fund since the contracts are exchange traded and the exchange’s clearinghouse guarantees payments to the broker, there is still counterparty credit risk due to the insolvency of the broker. The fund’s maximum risk of loss due to counterparty credit risk is equal to the margin posted by the fund to the broker plus any gains or minus any losses on the outstanding futures contracts.
Swap Agreements — During the period the fund entered into swap agreements. Swap agreements generally involve a periodic exchange of cash payments on a net basis, at specified intervals or upon the occurrence of specified events, between the fund and a counterparty. Certain swap agreements may be entered into as a bilateral contract (“uncleared swaps”) while others are required to be centrally cleared (“cleared swaps”). In a cleared swap transaction, the ultimate counterparty to the transaction is a clearinghouse (the “clearinghouse”). The contract is transferred and accepted by the clearinghouse immediately following execution of the swap contract with an executing broker. Thereafter, throughout the term of the cleared swap, the fund interfaces indirectly with the clearinghouse through a clearing broker and has counterparty risk to the clearing broker as well.
Both cleared and uncleared swap agreements are marked to market daily. The value of uncleared swap agreements is reported in the Statement of Assets and Liabilities as “Uncleared swaps, at value” which includes any related interest accruals to be paid or received by the fund. For cleared swaps, payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the cleared swap, such that only the current day net receivable or payable for variation margin is reported in the Statement of Assets and Liabilities.
For both cleared and uncleared swaps, the periodic exchange of net cash payments, at specified intervals or upon the occurrence of specified events as stipulated by the agreement, is recorded as realized gain or loss on swap agreements in the Statement of Operations. Premiums paid or received at the inception of the agreements are amortized using the effective interest method over the term of the agreement as realized gain or loss on swap agreements in the Statement of Operations. A liquidation payment received
MFS Limited Maturity Portfolio
Notes to Financial Statements - continued
or made upon early termination is recorded as a realized gain or loss on swap agreements in the Statement of Operations. The change in unrealized appreciation or depreciation on swap agreements in the Statement of Operations reflects the aggregate change over the reporting period in the value of swaps net of any unamortized premiums paid or received.
Risks related to swap agreements include the possible lack of a liquid market, unfavorable market and interest rate movements of the underlying instrument and the failure of the counterparty to perform under the terms of the agreements. The fund's maximum risk of loss from counterparty credit risk is the discounted net value of the cash flows to be received from/paid to the counterparty over the contract's remaining life, to the extent that the amount is positive. To address counterparty risk, uncleared swap agreements are limited to only highly-rated counterparties. Risk is further reduced by having an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and, where applicable, by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement. The fund's counterparty risk due to cleared swaps is mitigated by the fact that the clearinghouse is the true counterparty to the transaction and the regulatory requirement safeguards in the event of a clearing broker bankruptcy.
The fund entered into interest rate swap agreements in order to manage its exposure to interest or foreign exchange rate fluctuations. Interest rate swap agreements involve the periodic exchange of cash flows, between the fund and a counterparty, based on the difference between two interest rates applied to a notional principal amount. The two interest rates exchanged may either be a fixed rate and a floating rate or two floating rates based on different indices.
The fund entered into credit default swap agreements in order to manage its exposure to the market or certain sectors of the market, to reduce its credit risk exposure to defaults of corporate and sovereign issuers or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. In a credit default swap agreement, the protection buyer can make an upfront payment and will make a stream of payments to the protection seller based on a fixed percentage applied to the agreement notional amount in exchange for the right to receive a specified return upon the occurrence of a defined credit event on the reference obligation (which may be either a single security or a basket of securities issued by corporate or sovereign issuers) and, with respect to the cases where physical settlement applies, the delivery by the buyer to the seller of a defined deliverable obligation. Although agreement-specific, credit events generally consist of a combination of the following: bankruptcy, failure to pay, restructuring, obligation acceleration, obligation default, or repudiation/moratorium, each as defined in the 2003 ISDA Credit Derivatives Definitions as amended by the relevant agreement. Restructuring is generally not applicable when the reference obligation is issued by a North American corporation and obligation acceleration, obligation default, or repudiation/moratorium are generally only applicable when the reference obligation is issued by a sovereign entity or an entity in an emerging country. Upon determination of the final price for the deliverable obligation (or upon delivery of the deliverable obligation in the case of physical settlement), the difference between the value of the deliverable obligation and the swap agreement’s notional amount is recorded as realized gain or loss on swap agreements in the Statement of Operations.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. 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 fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
The fund invests a significant portion of its assets in asset-backed and/or mortgage-backed securities. For these securities, the value of the debt instrument also depends on the credit quality and adequacy of the underlying assets or collateral as well as whether there is a security interest in the underlying assets or collateral. Enforcing rights, if any, against the underlying assets or collateral may be difficult. U.S. Government securities not supported as to the payment of principal or interest by the U.S. Treasury, such as those issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, are subject to greater credit risk than are U.S. Government securities supported by the U.S. Treasury, such as those issued by Ginnie Mae.
The fund may purchase or sell debt securities on a when-issued or delayed delivery basis. In these extended settlement transactions, the receipt or delivery of the securities by the fund and related payments occur at a future date, usually beyond the normal settlement period. The price of such security and the date that the security will be settled are fixed at the time the transaction is
MFS Limited Maturity Portfolio
Notes to Financial Statements - continued
negotiated. The value of the security varies with market fluctuations and no interest accrues to the fund until settlement takes place. When the fund sells securities on a when-issued or delayed delivery basis, the fund typically owns or has the right to acquire securities equivalent in kind and amount to the securities sold. Losses may arise due to changes in the value of the underlying securities prior to settlement date or if the counterparty does not perform under the contract’s terms, or if the issuer does not issue the securities due to political, economic or other factors. At the time that it enters into a when-issued or delayed delivery transaction, the fund is required to have sufficient cash and/or liquid securities to cover its commitments.
To mitigate the counterparty credit risk on TBA transactions, mortgage dollar rolls, and other types of forward settling mortgage-backed and asset-backed security transactions, the fund whenever possible enters into a Master Securities Forward Transaction Agreement (“MSFTA”) on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The MSFTA gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the MSFTA, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the MSFTA could result in a reduction of the fund's credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
For mortgage-backed and asset-backed securities traded under a MSFTA, the collateral and margining requirements are contract specific. Collateral amounts across all transactions traded under such agreement are netted and an amount is posted from one party to the other to collateralize such obligations. Cash that has been pledged to cover the fund's collateral or margin obligations under a MSFTA, if any, will be reported separately on the Statement of Assets and Liabilities as restricted cash. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to derivative transactions.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/20 | Year ended
12/31/19 |
| Ordinary income (including any short-term capital gains) | $12,889,047 | $12,198,184 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| As of 12/31/20 | |
| Cost of investments | $428,892,104 |
| Gross appreciation | 10,150,112 |
| Gross depreciation | (905,950) |
| Net unrealized appreciation (depreciation) | $9,244,162 |
| Undistributed ordinary income | 9,618,049 |
| Undistributed long-term capital gain | 826,159 |
MFS Limited Maturity Portfolio
Notes to Financial Statements - continued
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year ended
12/31/20 | | Year ended
12/31/19 |
| Initial Class | $9,805,387 | | $9,355,557 |
| Service Class | 3,083,660 | | 2,842,627 |
| Total | $12,889,047 | | $12,198,184 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at an annual rate of 0.40% of the fund’s average daily net assets.
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. For the year ended December 31, 2020, this management fee reduction amounted to $46,453, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2020 was equivalent to an annual effective rate of 0.39% of the fund's average daily net assets.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent — MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2020, the fee was $5,415, which equated to 0.0013% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2020, these costs amounted to $286.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the year ended December 31, 2020 was equivalent to an annual effective rate of 0.0158% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
(4) Portfolio Securities
For the year ended December 31, 2020, purchases and sales of investments, other than purchased option transactions and short-term obligations, were as follows:
MFS Limited Maturity Portfolio
Notes to Financial Statements - continued
| | Purchases | Sales |
| U.S. Government securities | $66,541,002 | $56,218,335 |
| Non-U.S. Government securities | 145,782,762 | 184,150,329 |
(5) Shares of Beneficial Interest
The fund's Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
| | Year ended
12/31/20 | | Year ended
12/31/19 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 3,696,952 | $38,599,012 | | 1,861,837 | $19,155,293 |
| Service Class | 2,044,603 | 21,385,756 | | 1,130,805 | 11,633,874 |
| | 5,741,555 | $59,984,768 | | 2,992,642 | $30,789,167 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 949,215 | $9,805,387 | | 910,960 | $9,355,557 |
| Service Class | 298,226 | 3,083,660 | | 276,789 | 2,842,627 |
| | 1,247,441 | $12,889,047 | | 1,187,749 | $12,198,184 |
| Shares reacquired | | | | | |
| Initial Class | (6,676,938) | $(68,856,790) | | (5,185,694) | $(53,476,536) |
| Service Class | (2,901,729) | (29,823,588) | | (1,724,145) | (17,792,446) |
| | (9,578,667) | $(98,680,378) | | (6,909,839) | $(71,268,982) |
| Net change | | | | | |
| Initial Class | (2,030,771) | $(20,452,391) | | (2,412,897) | $(24,965,686) |
| Service Class | (558,900) | (5,354,172) | | (316,551) | (3,315,945) |
| | (2,589,671) | $(25,806,563) | | (2,729,448) | $(28,281,631) |
The fund is one of several mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Moderate Allocation Portfolio, the MFS Conservative Allocation Portfolio, and the MFS Growth Allocation Portfolio were the owners of record of approximately 12%, 12%, and 2%, respectively, of the value of outstanding voting shares of the fund.
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.25 billion unsecured committed line of credit of which $1 billion is reserved for use by the fund and certain other U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2020, the fund’s commitment fee and interest expense were $2,409 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
MFS Limited Maturity Portfolio
Notes to Financial Statements - continued
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $5,138,857 | $205,287,251 | $201,791,993 | $2,721 | $9 | $8,636,845 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $41,223 | $— |
(8) Impacts of COVID-19
The pandemic related to the global spread of novel coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to global business activity and the global economy, as well as the economies of individual countries, the financial performance of individual companies and sectors, and the securities and commodities markets in general. This pandemic, the full effects of which are still unknown, has resulted in substantial market volatility and may have adversely impacted the prices and liquidity of the fund's investments and the fund's performance.
MFS Limited Maturity Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust III and the Shareholders of MFS Limited Maturity Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Limited Maturity Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2020, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2020, and 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 accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2020, by correspondence with the custodian and brokers. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 16, 2021
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS Limited Maturity Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2021, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEES | | |
Robert J. Manning (k)
(age 57) | | Trustee | | February 2004 | | 134 | | Massachusetts Financial Services Company, Non-Executive Chairman (since January 2021); Director; Chairman of the Board; Executive Chairman (January 2017-2020); Co-Chief Executive Officer (2015-2016) | | N/A |
Michael W. Roberge (k)
(age 54) | | Trustee | | January 2021 | | 134 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; President (until December 2018); Chief Investment Officer (until December 2018); Co-Chief Executive Officer (until December 2016) | | N/A |
| INDEPENDENT TRUSTEES | | |
John P. Kavanaugh
(age 66) | | Trustee and Chair of Trustees | | January 2009 | | 134 | | Private investor | | N/A |
Steven E. Buller
(age 69) | | Trustee | | February 2014 | | 134 | | Private investor | | N/A |
John A. Caroselli
(age 66) | | Trustee | | March 2017 | | 134 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 65) | | Trustee | | January 2009 | | 134 | | Private investor | | N/A |
Peter D. Jones
(age 65) | | Trustee | | January 2019 | | 134 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 59) | | Trustee | | January 2019 | | 134 | | Burford Capital Limited (finance and investment management), Chief Financial Officer (since 2019); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016); Morgan Stanley & Co. (financial services), Vice Chairman of Investment Banking, Co-Head of Diversified Financials Coverage – Financial Institutions Investment Banking Group (until 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 64) | | Trustee | | March 2017 | | 134 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
MFS Limited Maturity Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
Maryanne L. Roepke
(age 64) | | Trustee | | May 2014 | | 134 | | Private investor | | N/A |
Laurie J. Thomsen
(age 63) | | Trustee | | March 2005 | | 134 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 47) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 134 | | Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel |
Kino Clark (k)
(age 52) | | Assistant Treasurer | | January 2012 | | 134 | | Massachusetts Financial Services Company, Vice President |
John W. Clark, Jr. (k)
(age 53) | | Assistant Treasurer | | April 2017 | | 134 | | Massachusetts Financial Services Company, Vice President (since March 2017); Deutsche Bank (financial services), Department Head - Treasurer's Office (until February 2017) |
Thomas H. Connors (k)
(age 61) | | Assistant Secretary and Assistant Clerk | | September 2012 | | 134 | | Massachusetts Financial Services Company, Vice President and Senior Counsel |
David L. DiLorenzo (k)
(age 52) | | President | | July 2005 | | 134 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 53) | | Secretary and Clerk | | April 2017 | | 134 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel (since March 2017); Harris Associates (investment management), General Counsel (until January 2017) |
Brian E. Langenfeld (k)
(age 47) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 134 | | Massachusetts Financial Services Company, Vice President and Senior Counsel |
Amanda S. Mooradian (k)
(age 41) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 134 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 50) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 134 | | Massachusetts Financial Services Company, Vice President and Assistant General Counsel |
Kasey L. Phillips (k)
(age 50) | | Assistant Treasurer | | September 2012 | | 134 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 46) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 134 | | Massachusetts Financial Services Company, Vice President and Assistant General Counsel |
Martin J. Wolin (k)
(age 53) | | Chief Compliance Officer | | July 2015 | | 134 | | Massachusetts Financial Services Company, Senior Vice President and Chief Compliance Officer |
MFS Limited Maturity Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
James O. Yost (k)
(age 60) | | Treasurer | | September 1990 | | 134 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. For the period from December 15, 2004 until February 22, 2005, Mr. Manning served as Advisory Trustee. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Messrs. Buller, Kilman and Otis and Ms. Roepke are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Lincoln Street
Boston, MA 02111-2900 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
Philipp Burgener
Alexander Mackey | |
MFS Limited Maturity Portfolio
Board Review of Investment Advisory Agreement
MFS Limited Maturity Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times by videoconference (in accordance with Securities and Exchange Commission relief) over the course of three months beginning in May and ending in July, 2020 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2019 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2019, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 1st quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 1st quintile for each of the one- and three-year periods ended December 31, 2019 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
MFS Limited Maturity Portfolio
Board Review of Investment Advisory Agreement - continued
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate and total expense ratio were each lower than the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is not subject to any breakpoints. Taking into account that the Fund’s effective advisory fee rate was lower than the Broadridge expense group median described above, the Trustees determined not to recommend any advisory fee breakpoints for the Fund at this time. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the group fee waiver was sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
MFS Limited Maturity Portfolio
Board Review of Investment Advisory Agreement - continued
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2020.
MFS Limited Maturity Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit3 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit3 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund intends to pass through the maximum amount allowable as Section 163(j) Interest Dividends as defined in Treasury Regulation §1.163(j)-1(b).
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2020
MFS® Mid Cap Value Portfolio
MFS® Variable Insurance Trust III
VMC-ANN
MFS® Mid Cap Value Portfolio
CONTENTS
The report is prepared for the general information of contract owners. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE • NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Mid Cap Value Portfolio
LETTER FROM THE CEO
Dear Contract Owners:
Markets experienced dramatic swings this year as the coronavirus pandemic brought the global economy to a standstill for several months early in the year. The speedy development of vaccines and therapeutics later brightened the economic and market outlook, but a great deal of uncertainty remains as case counts remain high, new variants of the virus are appearing and questions persist over how fast the vaccine can be made widely available. In the United States, political uncertainty eased after former Vice President Joe Biden won the presidential election and the Democrats gained control of a closely divided Senate.
Global central banks have taken aggressive steps to cushion the economic and market fallout related to the virus, and governments are deploying unprecedented levels of fiscal support. Additional U.S. stimulus is anticipated with the Democrats in the White House and in control of both houses of Congress. The measures already put in place have helped build a supportive environment and are encouraging economic recovery; however, if markets disconnect from fundamentals, they can sow the seeds of instability. As such, dramatic increases in speculative retail trading bear watching.
In the aftermath of the crisis, we could see societal changes as households, businesses, and governments adjust to a new reality, and any such alterations could affect the investment landscape. For investors, events such as the COVID-19 outbreak demonstrate the importance of having a deep understanding of company fundamentals, and we have built our global research platform to do just that.
At MFS®, we put our clients’ assets to work responsibly by carefully navigating the increasing complexity of our global markets and economies. Guided by our long-term philosophy and adhering to our commitment to sustainable investing, we tune out the noise and aim to uncover what we believe are the best, most durable investment opportunities in the market. Our unique global investment platform combines collective expertise, long-term discipline and thoughtful risk management to create sustainable value for investors.
Respectfully,
Michael W. Roberge
Chief Executive Officer
MFS Investment Management
February 16, 2021
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
1
MFS Mid Cap Value Portfolio
PORTFOLIO COMPOSITION
Portfolio structure
| | | | |
| Top ten holdings | | | | |
| Eastman Chemical Co. | | | 1.2% | |
| Stanley Black & Decker, Inc. | | | 1.2% | |
| Arthur J. Gallagher & Co. | | | 1.2% | |
| Zebra Technologies Corp., “A” | | | 1.2% | |
| Eaton Corp. PLC | | | 1.1% | |
| Zimmer Biomet Holdings, Inc. | | | 1.1% | |
| PG&E Corp. | | | 1.1% | |
| L3Harris Technologies, Inc. | | | 1.1% | |
| KBR, Inc. | | | 1.1% | |
| Life Storage, Inc., REIT | | | 1.1% | |
| | | | |
| GICS equity sectors (g) | | | | |
| Financials | | | 20.8% | |
| Industrials | | | 13.6% | |
| Information Technology | | | 10.3% | |
| Utilities | | | 9.3% | |
| Consumer Discretionary | | | 8.8% | |
| Health Care | | | 8.7% | |
| Materials | | | 8.1% | |
| Real Estate | | | 6.9% | |
| Consumer Staples | | | 6.5% | |
| Energy | | | 4.0% | |
| Communication Services | | | 1.4% | |
| (g) | The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and S&P Global Market Intelligence Inc. (“S&P Global Market Intelligence”). GICS is a service mark of MSCI and S&P Global Market Intelligence and has been licensed for use by MFS. MFS has applied its own internal sector/industry classification methodology for equity securities and non-equity securities that are |
unclassified by GICS.
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of December 31, 2020.
The portfolio is actively managed and current holdings may be different.
2
MFS Mid Cap Value Portfolio
MANAGEMENT REVIEW
Summary of Results
For the twelve months ended December 31, 2020, Initial Class shares of the MFS Mid Cap Value Portfolio (fund) provided a total return of 3.87%, while Service Class shares of the fund provided a total return of 3.67%. These compare with a return of 4.96% over the same period for the fund’s benchmark, the Russell Midcap® Value Index.
Market Environment
Markets experienced an extraordinarily sharp selloff early in the period and, in many cases, an unusually rapid recovery later. Central banks and fiscal authorities undertook astonishing levels of stimulus to offset the economic effects of government-imposed social-distancing measures implemented to slow the spread of the COVID-19 virus. At this point, the global economy looks to have experienced the shortest – albeit the deepest and steepest – recession in the postwar period. However, the recovery remains subject to more than the usual number of uncertainties due to questions about the evolution of the virus, what its continued impact will be and how quickly vaccines to guard against it can be manufactured and distributed at scale. There are also worries over the public’s willingness to be inoculated.
Around the world, central banks responded quickly and massively to the crisis with programs to improve liquidity and support markets. These programs proved largely successful in helping to restore market function, ease volatility and stimulate a continued market rebound. Late in the period, the US Federal Reserve adopted a new, flexible, average-inflation-targeting framework, which is expected to result in the federal funds rate remaining at low levels longer than under its previous model. In developed countries, monetary easing measures were complemented by unusually large fiscal stimulus initiatives. Due to relatively manageable external liabilities and balances of payments in many countries and persistently low inflation, even emerging market countries were able to implement countercyclical policies – a departure from the usual market-dictated response to risk-off crises.
Compounding market uncertainty earlier in the pandemic was a crash in the price of crude oil due to a sharp drop in global demand and a disagreement between Saudi Arabia and Russia over production cuts, which resulted in an oil price war. The subsequent decline in prices undercut oil exporters, many of which are in emerging markets, as well as a large segment of the high-yield credit market. The OPEC+ group later agreed on output cuts, with shale oil producers in the US also decreasing production, which, along with the gradual reopening of some major economies and the resultant boost in demand, helped stabilize the price of crude oil.
In the immediate aftermath of the market disruption that accompanied the initial phases of the pandemic, many companies that had added significant leverage to their balance sheets in recent years by borrowing to fund dividend payments and stock buybacks halted those activities, and some companies were forced to recapitalize. As markets and the economy stabilized later in the period, in many cases dividend payments and buybacks resumed. Conversely, some companies found themselves flush with liquidity, having borrowed preemptively during the worst of the crisis only to end up with excess cash on their balance sheets.
Detractors from Performance
Although security selection in the health care sector detracted from performance relative to the Russell Midcap® Value Index, there were no individual stocks within this sector, either in the fund or the benchmark, that were among the fund’s largest relative detractors for the reporting period.
Security selection in the materials sector also weakened the fund’s relative results. Here, not owning shares of mining companies, Newmont Mining and Freeport-McMoRan, held back relative performance. The stock price of Freeport-McMoRan rose steadily over the reporting period on the back of stronger-than-expected earnings results that benefited from higher production volumes and expense controls.
Elsewhere, the fund’s holdings of oil transportation and storage company Plains GP Holdings (b), and the timing of its ownership in shares of oil and gas exploration company Marathon Oil (h) and cruise line operator Royal Caribbean Cruises (h), hampered relative returns. Overweight positions in airline company Delta Air Lines, independent natural gas and oil company WPX Energy and real estate investment trust EPR Properties (h) further weighed on the fund’s relative results. Not owning shares of strong-performing real estate investment trust Digital Realty Trust and real estate and home-related information services provider Zillow Group also held back relative performance.
Contributors to Performance
The combination of an underweight position and stock selection in the real estate sector benefited relative performance. There were no individual stocks within this sector, either in the fund or in the benchmark, that were among the fund’s largest relative contributors for the reporting period.
Stocks in other sectors that aided relative results included the fund’s overweight positions in automatic identification and data capture products manufacturer Zebra Technologies, electric and gas infrastructure services provider Quanta Services, industrial distributor HD Supply Holdings (h), networking chip maker Marvell Technology Group, securities exchange services provider NASDAQ,
3
MFS Mid Cap Value Portfolio
Management Review – continued
railroad company Kansas City Southern and home appliances manufacturer Whirlpool (h). The timing of the fund’s ownership in shares of electricity and natural gas distributor WEC Energy Group (h), and its holdings of leading diversified industrial manufacturer Eaton (b) (Ireland) and specialty rural lifestyle retailer Tractor Supply (b), further strengthened relative returns.
Respectfully,
Portfolio Manager(s)
Kevin Schmitz and Brooks Taylor
| (b) | Security is not a benchmark constituent. |
| (h) | Security was not held in the portfolio at period end. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
4
MFS Mid Cap Value Portfolio
PERFORMANCE SUMMARY THROUGH 12/31/20
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your units, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a contract holder would pay on fund distributions or the redemption of contract units. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/20
Average annual total returns
| | | | | | | | | | | | |
| | | Share Class | | Class Inception Date | | 1-yr | | 5-yr | | 10-yr | | |
| | | Initial Class | | 3/07/08 | | 3.87% | | 9.72% | | 10.84% | | |
| | | Service Class | | 3/07/08 | | 3.67% | | 9.47% | | 10.58% | | |
| | | | |
| Comparative benchmark(s) | | | | | | | | |
| | | Russell Midcap® Value Index (f) | | 4.96% | | 9.73% | | 10.49% | | |
| (f) | | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
Russell Midcap® Value Index (h) – constructed to provide a comprehensive barometer for value securities in the mid-cap segment of the U.S. equity universe. Companies in this index generally have lower price-to-book ratios and lower forecasted growth values.
It is not possible to invest directly in an index.
| (h) | | Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and/or Russell ratings or underlying data and no party may rely on any Russell Indexes and/or Russell ratings and/or underlying data contained in this document. No further distribution of Russell Data is permitted without Russell’s express written consent. Russell does not promote, sponsor, or endorse the content of this document. |
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund’s performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
Performance prior to close of business December 7, 2012, reflects time periods when another adviser or subadviser was responsible for selecting investments for the fund under a different investment objective and different investment strategies.
5
MFS Mid Cap Value Portfolio
Performance Summary – continued
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
6
MFS Mid Cap Value Portfolio
EXPENSE TABLE
Fund Expenses Borne by the Contract Holders during the Period,
July 1, 2020 through December 31, 2020
As a contract holder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2020 through December 31, 2020.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund’s ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
| | | | | | | | | | | | | | | | | | |
| Share Class | | | | Annualized
Expense Ratio | | | Beginning
Account Value
7/01/20 | | | Ending
Account Value
12/31/20 | | | Expenses Paid
During Period (p)
7/01/20-12/31/20 | |
| Initial Class | | Actual | | | 0.80% | | | | $1,000.00 | | | | $1,255.62 | | | | $4.54 | |
| | Hypothetical (h) | | | 0.80% | | | | $1,000.00 | | | | $1,021.11 | | | | $4.06 | |
| Service Class | | Actual | | | 1.04% | | | | $1,000.00 | | | | $1,254.21 | | | | $5.89 | |
| | Hypothetical (h) | | | 1.04% | | | | $1,000.00 | | | | $1,019.91 | | | | $5.28 | |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). |
7
MFS Mid Cap Value Portfolio
PORTFOLIO OF INVESTMENTS – 12/31/20
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| COMMON STOCKS – 98.4% | | | | | | | | |
| Aerospace – 3.0% | | | | | |
| KBR, Inc. | | | 142,364 | | | $ | 4,403,319 | |
| L3Harris Technologies, Inc. | | | 23,393 | | | | 4,421,745 | |
| Leidos Holdings, Inc. | | | 35,378 | | | | 3,718,935 | |
| | | | | | | | |
| | | | | | $ | 12,543,999 | |
| | | | | | | | |
| Airlines – 0.7% | | | | | |
| Alaska Air Group, Inc. | | | 32,450 | | | $ | 1,687,400 | |
| Delta Air Lines, Inc. | | | 30,569 | | | | 1,229,179 | |
| | | | | | | | |
| | | | | | $ | 2,916,579 | |
| | | | | | | | |
| Apparel Manufacturers – 1.0% | | | | | |
| PVH Corp. | | | 22,016 | | | $ | 2,067,082 | |
| Skechers USA, Inc., “A” (a) | | | 59,863 | | | | 2,151,476 | |
| | | | | | | | |
| | | | | | $ | 4,218,558 | |
| | | | | | | | |
| Automotive – 1.8% | | | | | |
| Lear Corp. | | | 21,980 | | | $ | 3,495,480 | |
| LKQ Corp. (a) | | | 112,972 | | | | 3,981,133 | |
| | | | | | | | |
| | | | | | $ | 7,476,613 | |
| | | | | | | | |
| Brokerage & Asset Managers – 2.9% | | | | | |
| Apollo Global Management, Inc. | | | 71,033 | | | $ | 3,479,196 | |
| Cboe Global Markets, Inc. | | | 21,458 | | | | 1,998,169 | |
| NASDAQ, Inc. | | | 24,516 | | | | 3,254,254 | |
| Raymond James Financial, Inc. | | | 35,503 | | | | 3,396,572 | |
| | | | | | | | |
| | | | | | $ | 12,128,191 | |
| | | | | | | | |
| Business Services – 1.7% | | | | | |
| Amdocs Ltd. | | | 54,153 | | | $ | 3,841,072 | |
| Global Payments, Inc. | | | 13,997 | | | | 3,015,234 | |
| | | | | | | | |
| | | | | | $ | 6,856,306 | |
| | | | | | | | |
| Cable TV – 0.8% | | | | | |
| Liberty Broadband Corp. (a) | | | 20,381 | | | $ | 3,227,739 | |
| | | | | | | | |
| Chemicals – 2.8% | | | | | |
| Celanese Corp. | | | 24,799 | | | $ | 3,222,382 | |
| Eastman Chemical Co. | | | 51,155 | | | | 5,129,823 | |
| FMC Corp. | | | 17,333 | | | | 1,992,082 | |
| PPG Industries, Inc. | | | 7,439 | | | | 1,072,853 | |
| | | | | | | | |
| | | | | | $ | 11,417,140 | |
| | | | | | | | |
| Computer Software – 0.4% | | | | | |
| McAfee Corp. | | | 92,498 | | | $ | 1,543,792 | |
| | | | | | | | |
| Computer Software – Systems – 1.7% | | | | | |
| Verint Systems, Inc. (a) | | | 35,163 | | | $ | 2,362,250 | |
| Zebra Technologies Corp., “A” (a) | | | 12,424 | | | | 4,774,916 | |
| | | | | | | | |
| | | | | | $ | 7,137,166 | |
| | | | | | | | |
| Construction – 5.4% | | | | | |
| Armstrong World Industries, Inc. | | | 18,902 | | | $ | 1,406,120 | |
| Fortune Brands Home & Security, Inc. | | | 29,742 | | | | 2,549,484 | |
| Masco Corp. | | | 64,106 | | | | 3,521,343 | |
| Mid-America Apartment Communities, Inc., REIT | | | 27,468 | | | | 3,479,921 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| COMMON STOCKS – continued | | | | | |
| Construction – continued | | | | | |
| Stanley Black & Decker, Inc. | | | 28,486 | | | $ | 5,086,460 | |
| Toll Brothers, Inc. | | | 85,316 | | | | 3,708,687 | |
| Vulcan Materials Co. | | | 17,043 | | | | 2,527,647 | |
| | | | | | | | |
| | | | | | $ | 22,279,662 | |
| | | | | | | | |
| Consumer Products – 1.6% | | | | | |
| Energizer Holdings, Inc. | | | 60,605 | | | $ | 2,556,319 | |
| Newell Brands, Inc. | | | 106,605 | | | | 2,263,224 | |
| Reynolds Consumer Products, Inc. | | | 61,508 | | | | 1,847,700 | |
| | | | | | | | |
| | | | | | $ | 6,667,243 | |
| | | | | | | | |
| Consumer Services – 0.5% | | | | | |
| Grand Canyon Education, Inc. (a) | | | 22,820 | | | $ | 2,124,770 | |
| | | | | | | | |
| Containers – 2.9% | | | | | |
| Berry Global Group, Inc. (a) | | | 44,457 | | | $ | 2,498,039 | |
| Graphic Packaging Holding Co. | | | 186,542 | | | | 3,160,021 | |
| Owens Corning | | | 45,904 | | | | 3,477,687 | |
| WestRock Co. | | | 70,503 | | | | 3,068,996 | |
| | | | | | | | |
| | | | | | $ | 12,204,743 | |
| | | | | | | | |
| Electrical Equipment – 2.1% | | | | | |
| Johnson Controls International PLC | | | 61,097 | | | $ | 2,846,509 | |
| Sensata Technologies Holding PLC (a) | | | 57,917 | | | | 3,054,543 | |
| TE Connectivity Ltd. | | | 22,514 | | | | 2,725,770 | |
| | | | | | | | |
| | | | | | $ | 8,626,822 | |
| | | | | | | | |
| Electronics – 3.2% | | | | | |
| Analog Devices, Inc. | | | 22,475 | | | $ | 3,320,232 | |
| Corning, Inc. | | | 65,702 | | | | 2,365,272 | |
| Marvell Technology Group Ltd. | | | 81,679 | | | | 3,883,019 | |
| NXP Semiconductors N.V. | | | 22,503 | | | | 3,578,202 | |
| | | | | | | | |
| | | | | | $ | 13,146,725 | |
| | | | | | | | |
| Energy – Independent – 2.8% | | | | | |
| Cabot Oil & Gas Corp. | | | 101,909 | | | $ | 1,659,079 | |
| Diamondback Energy, Inc. | | | 34,243 | | | | 1,657,361 | |
| Hess Corp. | | | 41,283 | | | | 2,179,330 | |
| Pioneer Natural Resources Co. | | | 23,954 | | | | 2,728,121 | |
| Valero Energy Corp. | | | 31,356 | | | | 1,773,809 | |
| WPX Energy, Inc. (a) | | | 189,930 | | | | 1,547,929 | |
| | | | | | | | |
| | | | | | $ | 11,545,629 | |
| | | | | | | | |
| Engineering – Construction – 0.6% | | | | | |
| Quanta Services, Inc. | | | 36,822 | | | $ | 2,651,920 | |
| | | | | | | | |
| Entertainment – 0.2% | | | | | |
| Six Flags Entertainment Corp. | | | 25,485 | | | $ | 869,038 | |
| | | | | | | | |
| Food & Beverages – 3.5% | | | | | |
| Archer Daniels Midland Co. | | | 61,358 | | | $ | 3,093,057 | |
| Coca-Cola European Partners PLC | | | 55,191 | | | | 2,750,167 | |
| Ingredion, Inc. | | | 25,238 | | | | 1,985,473 | |
| J.M. Smucker Co. | | | 21,848 | | | | 2,525,629 | |
| Kellogg Co. | | | 35,734 | | | | 2,223,727 | |
8
MFS Mid Cap Value Portfolio
Portfolio of Investments – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| COMMON STOCKS – continued | | | | | |
| Food & Beverages – continued | | | | | |
| Sanderson Farms, Inc. | | | 14,604 | | | $ | 1,930,649 | |
| | | | | | | | |
| | | | | | $ | 14,508,702 | |
| | | | | | | | |
| Food & Drug Stores – 1.4% | | | | | |
| Albertsons Cos., Inc., “A” (l) | | | 168,009 | | | $ | 2,953,598 | |
| Kroger Co. | | | 90,890 | | | | 2,886,667 | |
| | | | | | | | |
| | | | | | $ | 5,840,265 | |
| | | | | | | | |
| Gaming & Lodging – 0.5% | | | | | |
| Wyndham Hotels & Resorts, Inc. | | | 32,503 | | | $ | 1,931,978 | |
| | | | | | | | |
| General Merchandise – 0.5% | | | | | |
| Dollar Tree, Inc. (a) | | | 17,801 | | | $ | 1,923,220 | |
| | | | | | | | |
| Insurance – 8.1% | | | | | |
| Arthur J. Gallagher & Co. | | | 39,544 | | | $ | 4,891,988 | |
| Assurant, Inc. | | | 27,133 | | | | 3,696,057 | |
| Athene Holding Ltd. (a) | | | 58,097 | | | | 2,506,305 | |
| Cincinnati Financial Corp. | | | 37,867 | | | | 3,308,440 | |
| Equitable Holdings, Inc. | | | 143,629 | | | | 3,675,466 | |
| Everest Re Group Ltd. | | | 13,333 | | | | 3,121,122 | |
| Hanover Insurance Group, Inc. | | | 17,539 | | | | 2,050,660 | |
| Hartford Financial Services Group, Inc. | | | 83,124 | | | | 4,071,414 | |
| Reinsurance Group of America, Inc. | | | 23,642 | | | | 2,740,108 | |
| Willis Towers Watson PLC | | | 16,911 | | | | 3,562,809 | |
| | | | | | | | |
| | | | | | $ | 33,624,369 | |
| | | | | | | | |
| Leisure & Toys – 1.9% | | | | | |
| Brunswick Corp. | | | 42,088 | | | $ | 3,208,789 | |
| Electronic Arts, Inc. | | | 17,224 | | | | 2,473,366 | |
| Mattel, Inc. (a) | | | 120,128 | | | | 2,096,234 | |
| | | | | | | | |
| | | | | | $ | 7,778,389 | |
| | | | | | | | |
| Machinery & Tools – 3.7% | | | | | |
| AGCO Corp. | | | 19,809 | | | $ | 2,042,110 | |
| Eaton Corp. PLC | | | 39,288 | | | | 4,720,060 | |
| Ingersoll Rand, Inc. (a) | | | 61,675 | | | | 2,809,913 | |
| ITT, Inc. | | | 36,052 | | | | 2,776,725 | |
| Regal Beloit Corp. | | | 24,014 | | | | 2,949,160 | |
| | | | | | | | |
| | | | | | $ | 15,297,968 | |
| | | | | | | | |
| Major Banks – 1.8% | | | | | |
| Comerica, Inc. | | | 40,064 | | | $ | 2,237,975 | |
| KeyCorp | | | 181,053 | | | | 2,971,080 | |
| State Street Corp. | | | 33,385 | | | | 2,429,760 | |
| | | | | | | | |
| | | | | | $ | 7,638,815 | |
| | | | | | | | |
| Medical & Health Technology & Services – 4.7% | | | | | |
| AmerisourceBergen Corp. | | | 21,335 | | | $ | 2,085,710 | |
| Change Healthcare, Inc. (a) | | | 126,438 | | | | 2,358,069 | |
| Laboratory Corp. of America Holdings (a) | | | 16,629 | | | | 3,384,833 | |
| PRA Health Sciences, Inc. (a) | | | 26,902 | | | | 3,374,587 | |
| Premier, Inc., “A” | | | 62,205 | | | | 2,183,395 | |
| Quest Diagnostics, Inc. | | | 23,989 | | | | 2,858,769 | |
| Universal Health Services, Inc. | | | 24,398 | | | | 3,354,725 | |
| | | | | | | | |
| | | | | | $ | 19,600,088 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| COMMON STOCKS – continued | | | | | |
| Medical Equipment – 3.0% | | | | | |
| Boston Scientific Corp. (a) | | | 67,019 | | | $ | 2,409,333 | |
| Dentsply Sirona, Inc. | | | 47,687 | | | | 2,496,891 | |
| PerkinElmer, Inc. | | | 20,353 | | | | 2,920,656 | |
| Zimmer Biomet Holdings, Inc. | | | 29,399 | | | | 4,530,092 | |
| | | | | | | | |
| | | | | | $ | 12,356,972 | |
| | | | | | | | |
| Natural Gas – Distribution – 1.5% | | | | | |
| Atmos Energy Corp. | | | 17,197 | | | $ | 1,641,110 | |
| NiSource, Inc. | | | 75,265 | | | | 1,726,579 | |
| Sempra Energy | | | 21,578 | | | | 2,749,253 | |
| | | | | | | | |
| | | | | | $ | 6,116,942 | |
| | | | | | | | |
| Natural Gas – Pipeline – 0.9% | | | | | |
| Equitrans Midstream Corp. | | | 67,763 | | | $ | 544,815 | |
| Plains GP Holdings LP | | | 213,582 | | | | 1,804,768 | |
| Targa Resources Corp. | | | 49,061 | | | | 1,294,229 | |
| | | | | | | | |
| | | | | | $ | 3,643,812 | |
| | | | | | | | |
| Network & Telecom – 0.8% | | | | | |
| Motorola Solutions, Inc. | | | 19,636 | | | $ | 3,339,298 | |
| | | | | | | | |
| Oil Services – 0.4% | | | | | |
| Halliburton Co. | | | 78,152 | | | $ | 1,477,073 | |
| | | | | | | | |
| Other Banks & Diversified Financials – 7.6% | | | | | |
| Discover Financial Services | | | 39,789 | | | $ | 3,602,098 | |
| East West Bancorp, Inc. | | | 27,958 | | | | 1,417,750 | |
| Element Fleet Management Corp. | | | 202,625 | | | | 2,129,879 | |
| Northern Trust Corp. | | | 33,198 | | | | 3,092,062 | |
| Prosperity Bancshares, Inc. | | | 27,052 | | | | 1,876,327 | |
| Signature Bank | | | 21,739 | | | | 2,941,069 | |
| SLM Corp. | | | 208,174 | | | | 2,579,276 | |
| SVB Financial Group (a) | | | 8,626 | | | | 3,345,421 | |
| Truist Financial Corp. | | | 76,616 | | | | 3,672,205 | |
| Umpqua Holdings Corp. | | | 130,732 | | | | 1,979,282 | |
| Wintrust Financial Corp. | | | 33,558 | | | | 2,050,058 | |
| Zions Bancorp NA | | | 67,954 | | | | 2,951,922 | |
| | | | | | | | |
| | | | | | $ | 31,637,349 | |
| | | | | | | | |
| Pharmaceuticals – 1.0% | | | | | |
| Elanco Animal Health, Inc. (a) | | | 60,742 | | | $ | 1,862,957 | |
| Viatris, Inc. (a) | | | 114,612 | | | | 2,147,829 | |
| | | | | | | | |
| | | | | | $ | 4,010,786 | |
| | | | | | | | |
| Pollution Control – 0.6% | | | | | |
| Republic Services, Inc. | | | 25,004 | | | $ | 2,407,885 | |
| | | | | | | | |
| Railroad & Shipping – 0.7% | | | | | |
| Kansas City Southern Co. | | | 13,997 | | | $ | 2,857,208 | |
| | | | | | | | |
| Real Estate – 6.3% | | | | | |
| Annaly Mortgage Management, Inc., REIT | | | 121,875 | | | $ | 1,029,844 | |
| Boston Properties, Inc., REIT | | | 14,160 | | | | 1,338,545 | |
| Brixmor Property Group, Inc., REIT | | | 134,789 | | | | 2,230,758 | |
| Host Hotels & Resorts, Inc., REIT | | | 160,880 | | | | 2,353,674 | |
| Life Storage, Inc., REIT | | | 36,453 | | | | 4,352,124 | |
| Medical Properties Trust, Inc., REIT | | | 138,610 | | | | 3,020,312 | |
| Spirit Realty Capital, Inc., REIT | | | 40,779 | | | | 1,638,092 | |
| Sun Communities, Inc., REIT | | | 24,558 | | | | 3,731,588 | |
9
MFS Mid Cap Value Portfolio
Portfolio of Investments – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| COMMON STOCKS – continued | | | | | |
| Real Estate – continued | | | | | |
| VICI Properties, Inc., REIT | | | 135,746 | | | $ | 3,461,523 | |
| W.P. Carey, Inc., REIT | | | 41,859 | | | | 2,954,408 | |
| | | | | | | | |
| | | | | | $ | 26,110,868 | |
| | | | | | | | |
| Restaurants – 1.1% | | | | | |
| Aramark | | | 64,183 | | | $ | 2,469,762 | |
| Performance Food Group Co. (a) | | | 20,335 | | | | 968,149 | |
| Wendy’s Co. | | | 53,128 | | | | 1,164,566 | |
| | | | | | | | |
| | | | | | $ | 4,602,477 | |
| | | | | | | | |
| Specialty Chemicals – 3.1% | | | | | |
| Ashland Global Holdings, Inc. | | | 11,210 | | | $ | 887,832 | |
| Axalta Coating Systems Ltd. (a) | | | 106,417 | | | | 3,038,205 | |
| Corteva, Inc. | | | 87,655 | | | | 3,394,002 | |
| DuPont de Nemours, Inc. | | | 50,730 | | | | 3,607,410 | |
| Univar Solutions, Inc. (a) | | | 111,717 | | | | 2,123,740 | |
| | | | | | | | |
| | | | | | $ | 13,051,189 | |
| | | | | | | | |
| Specialty Stores – 1.0% | | | | | |
| BJ’s Wholesale Club Holdings, Inc. (a) | | | 29,705 | | | $ | 1,107,403 | |
| Tractor Supply Co. | | | 9,126 | | | | 1,282,933 | |
| Urban Outfitters, Inc. (a) | | | 66,697 | | | | 1,707,443 | |
| | | | | | | | |
| | | | | | $ | 4,097,779 | |
| | | | | | | | |
| Trucking – 0.4% | | | | | |
| Knight-Swift Transportation Holdings, Inc. | | | 39,629 | | | $ | 1,657,285 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| COMMON STOCKS – continued | | | | | |
| Utilities – Electric Power – 7.8% | | | | | |
| AES Corp. | | | 168,746 | | | $ | 3,965,531 | |
| Ameren Corp. | | | 36,824 | | | | 2,874,481 | |
| CenterPoint Energy, Inc. | | | 75,072 | | | | 1,624,558 | |
| CenterPoint Energy, Inc. (a)(z) | | | 51,884 | | | | 1,122,770 | |
| CMS Energy Corp. | | | 62,832 | | | | 3,833,380 | |
| Edison International | | | 40,501 | | | | 2,544,273 | |
| Eversource Energy | | | 46,825 | | | | 4,050,831 | |
| PG&E Corp. (a) | | | 362,049 | | | | 4,511,131 | |
| Pinnacle West Capital Corp. | | | 47,517 | | | | 3,798,984 | |
| Public Service Enterprise Group, Inc. | | | 70,819 | | | | 4,128,748 | |
| | | | | | | | |
| | | | | | $ | 32,454,687 | |
| | | | | | | | |
Total Common Stocks
(Identified Cost, $294,279,766) | | | | | | $ | 407,548,039 | |
| | | | | | | | |
| |
| INVESTMENT COMPANIES (h) – 1.6% | | | | | |
| Money Market Funds – 1.6% | | | | | | | | |
| MFS Institutional Money Market Portfolio, 0.1% (v) (Identified Cost, $6,444,072) | | | 6,444,072 | | | $ | 6,444,072 | |
| | | | | | | | |
|
| COLLATERAL FOR SECURITIES LOANED – 0.3% | |
| State Street Navigator Securities Lending Government Money Market Portfolio, 0.1% (j) (Identified Cost, $1,449,069) | | | 1,449,069 | | | $ | 1,449,069 | |
| | | | | | | | |
OTHER ASSETS, LESS
LIABILITIES – (0.3)% | | | | | | | (1,394,370 | ) |
| | | | | | | | |
| NET ASSETS – 100.0% | | | | | | $ | 414,046,810 | |
| | | | | | | | |
| (a) | | Non-income producing security. |
| (h) | | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund’s investments in affiliated issuers and in unaffiliated issuers were $6,444,072 and $408,997,108, respectively. |
| (j) | | The rate quoted is the annualized seven-day yield of the fund at period end. |
| (l) | | A portion of this security is on loan. See Note 2 for additional information. |
| (v) | | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. |
| (z) | | Restricted securities are not registered under the Securities Act of 1933 and are subject to legal restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are subsequently registered. Disposal of these securities may involve time-consuming negotiations and prompt sale at an acceptable price may be difficult. The fund holds the following restricted securities: |
| | | | | | | | | | |
| Restricted Securities | | Acquisition
Date | | Cost | | | Value | |
| | | |
| CenterPoint Energy, Inc. | | 5/07/20 | | | $834,295 | | | | $1,122,770 | |
| | | |
| % of Net assets | | | | | | | | | 0.3% | |
The following abbreviations are used in this report and are defined:
| REIT | | Real Estate Investment Trust |
See Notes to Financial Statements
10
MFS Mid Cap Value Portfolio
FINANCIAL STATEMENTS | STATEMENT OF ASSETS AND LIABILITIES
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| | | | |
At 12/31/20 | | | | |
| |
Assets | | | | |
Investments in unaffiliated issuers, at value, including $1,476,790 of securities on loan (identified cost, $295,728,835) | | | $408,997,108 | |
Investments in affiliated issuers, at value (identified cost, $6,444,072) | | | 6,444,072 | |
Receivables for | | | | |
Investments sold | | | 304,707 | |
Fund shares sold | | | 342,858 | |
Interest and dividends | | | 648,003 | |
Other assets | | | 1,934 | |
Total assets | | | $416,738,682 | |
| |
Liabilities | | | | |
Payables for | | | | |
Investments purchased | | | $280,824 | |
Fund shares reacquired | | | 887,470 | |
Collateral for securities loaned, at value | | | 1,449,069 | |
Payable to affiliates | | | | |
Investment adviser | | | 16,544 | |
Administrative services fee | | | 322 | |
Shareholder servicing costs | | | 98 | |
Distribution and/or service fees | | | 1,930 | |
Payable for independent Trustees’ compensation | | | 129 | |
Accrued expenses and other liabilities | | | 55,486 | |
Total liabilities | | | $2,691,872 | |
Net assets | | | $414,046,810 | |
| |
Net assets consist of | | | | |
Paid-in capital | | | $296,237,452 | |
Total distributable earnings (loss) | | | 117,809,358 | |
Net assets | | | $414,046,810 | |
Shares of beneficial interest outstanding | | | 48,386,947 | |
| | | | | | | | | | | | |
| | | |
| | | Net assets | | | Shares
outstanding | | | Net asset value
per share | |
Initial Class | | | $271,130,761 | | | | 31,567,973 | | | | $8.59 | |
Service Class | | | 142,916,049 | | | | 16,818,974 | | | | 8.50 | |
See Notes to Financial Statements
11
MFS Mid Cap Value Portfolio
FINANCIAL STATEMENTS | STATEMENT OF OPERATIONS
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| | | | |
Year ended 12/31/20 | | | | |
| |
Net investment income (loss) | | | | |
Income | | | | |
Dividends | | | $6,418,114 | |
Other | | | 25,285 | |
Dividends from affiliated issuers | | | 22,288 | |
Income on securities loaned | | | 20,149 | |
Foreign taxes withheld | | | (8,777 | ) |
Total investment income | | | $6,477,059 | |
Expenses | | | | |
Management fee | | | $2,388,889 | |
Distribution and/or service fees | | | 190,804 | |
Shareholder servicing costs | | | 15,837 | |
Administrative services fee | | | 52,735 | |
Independent Trustees’ compensation | | | 8,412 | |
Custodian fee | | | 16,706 | |
Shareholder communications | | | 15,352 | |
Audit and tax fees | | | 57,636 | |
Legal fees | | | 2,614 | |
Miscellaneous | | | 29,530 | |
Total expenses | | | $2,778,515 | |
Reduction of expenses by investment adviser | | | (35,019 | ) |
Net expenses | | | $2,743,496 | |
Net investment income (loss) | | | $3,733,563 | |
| |
Realized and unrealized gain (loss) | | | | |
Realized gain (loss) (identified cost basis) | | | | |
Unaffiliated issuers | | | $2,452,091 | |
Affiliated issuers | | | (202 | ) |
Foreign currency | | | (525 | ) |
Net realized gain (loss) | | | $2,451,364 | |
Change in unrealized appreciation or depreciation | | | | |
Unaffiliated issuers | | | $20,625,496 | |
Translation of assets and liabilities in foreign currencies | | | 275 | |
Net unrealized gain (loss) | | | $20,625,771 | |
Net realized and unrealized gain (loss) | | | $23,077,135 | |
Change in net assets from operations | | | $26,810,698 | |
See Notes to Financial Statements
12
MFS Mid Cap Value Portfolio
FINANCIAL STATEMENTS | STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | | | | | | | |
| | | Year ended | |
| | | 12/31/20 | | | 12/31/19 | |
Change in net assets | | | | | | | | |
| | |
From operations | | | | | | | | |
Net investment income (loss) | | | $3,733,563 | | | | $3,791,934 | |
Net realized gain (loss) | | | 2,451,364 | | | | 13,250,692 | |
Net unrealized gain (loss) | | | 20,625,771 | | | | 64,174,385 | |
Change in net assets from operations | | | $26,810,698 | | | | $81,217,011 | |
Total distributions to shareholders | | | $(17,052,598 | ) | | | $(28,645,592 | ) |
Change in net assets from fund share transactions | | | $68,439,512 | | | | $17,222,164 | |
Total change in net assets | | | $78,197,612 | | | | $69,793,583 | |
| | |
Net assets | | | | | | | | |
At beginning of period | | | 335,849,198 | | | | 266,055,615 | |
At end of period | | | $414,046,810 | | | | $335,849,198 | |
See Notes to Financial Statements
13
MFS Mid Cap Value Portfolio
FINANCIAL STATEMENTS | FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund’s financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | | | | | | | | | | | | | | | | | |
| Initial Class | | Year ended | |
| | | | | |
| | | 12/31/20 | | | 12/31/19 | | | 12/31/18 | | | 12/31/17 | | | 12/31/16 | |
| | | | | |
Net asset value, beginning of period | | | $8.74 | | | | $7.42 | | | | $9.01 | | | | $8.29 | | | | $7.84 | |
| | | | | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | |
Net investment income (loss) (d) | | | $0.09 | | | | $0.11 | | | | $0.10 | | | | $0.07 | | | | $0.10 | (c) |
Net realized and unrealized gain (loss) | | | 0.19 | | | | 2.09 | | | | (1.03 | ) | | | 1.03 | | | | 1.12 | |
Total from investment operations | | | $0.28 | | | | $2.20 | | | | $(0.93 | ) | | | $1.10 | | | | $1.22 | |
| | | | | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $(0.10 | ) | | | $(0.12 | ) | | | $(0.08 | ) | | | $(0.11 | ) | | | $(0.07 | ) |
From net realized gain | | | (0.33 | ) | | | (0.76 | ) | | | (0.58 | ) | | | (0.27 | ) | | | (0.70 | ) |
Total distributions declared to shareholders | | | $(0.43 | ) | | | $(0.88 | ) | | | $(0.66 | ) | | | $(0.38 | ) | | | $(0.77 | ) |
Net asset value, end of period (x) | | | $8.59 | | | | $8.74 | | | | $7.42 | | | | $9.01 | | | | $8.29 | |
Total return (%) (k)(r)(s)(x) | | | 3.87 | | | | 31.12 | | | | (11.45 | ) | | | 13.67 | | | | 15.98 | (c) |
| | | | | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 0.81 | | | | 0.81 | | | | 0.81 | | | | 0.81 | | | | 0.77 | (c) |
Expenses after expense reductions (f) | | | 0.80 | | | | 0.80 | | | | 0.80 | | | | 0.81 | | | | 0.76 | (c) |
Net investment income (loss) | | | 1.22 | | | | 1.31 | | | | 1.13 | | | | 0.82 | | | | 1.31 | (c) |
Portfolio turnover | | | 35 | | | | 30 | | | | 32 | | | | 36 | | | | 32 | |
Net assets at end of period (000 omitted) | | | $271,131 | | | | $261,832 | | | | $210,218 | | | | $268,291 | | | | $271,001 | |
| | | | | | | | | | | | | | | | | | | | |
| Service Class | | Year ended | |
| | | | | |
| | | 12/31/20 | | | 12/31/19 | | | 12/31/18 | | | 12/31/17 | | | 12/31/16 | |
| | | | | |
Net asset value, beginning of period | | | $8.65 | | | | $7.35 | | | | $8.93 | | | | $8.22 | | | | $7.78 | |
| | | | | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | |
Net investment income (loss) (d) | | | $0.08 | | | | $0.09 | | | | $0.08 | | | | $0.05 | | | | $0.08 | (c) |
Net realized and unrealized gain (loss) | | | 0.18 | | | | 2.06 | | | | (1.02 | ) | | | 1.02 | | | | 1.12 | |
Total from investment operations | | | $0.26 | | | | $2.15 | | | | $(0.94 | ) | | | $1.07 | | | | $1.20 | |
| | | | | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $(0.08 | ) | | | $(0.09 | ) | | | $(0.06 | ) | | | $(0.09 | ) | | | $(0.06 | ) |
From net realized gain | | | (0.33 | ) | | | (0.76 | ) | | | (0.58 | ) | | | (0.27 | ) | | | (0.70 | ) |
Total distributions declared to shareholders | | | $(0.41 | ) | | | $(0.85 | ) | | | $(0.64 | ) | | | $(0.36 | ) | | | $(0.76 | ) |
Net asset value, end of period (x) | | | $8.50 | | | | $8.65 | | | | $7.35 | | | | $8.93 | | | | $8.22 | |
Total return (%) (k)(r)(s)(x) | | | 3.67 | | | | 30.71 | | | | (11.61 | ) | | | 13.41 | | | | 15.76 | (c) |
| | | | | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 1.06 | | | | 1.06 | | | | 1.06 | | | | 1.06 | | | | 1.02 | (c) |
Expenses after expense reductions (f) | | | 1.05 | | | | 1.05 | | | | 1.05 | | | | 1.05 | | | | 1.01 | (c) |
Net investment income (loss) | | | 1.01 | | | | 1.06 | | | | 0.86 | | | | 0.59 | | | | 1.06 | (c) |
Portfolio turnover | | | 35 | | | | 30 | | | | 32 | | | | 36 | | | | 32 | |
Net assets at end of period (000 omitted) | | | $142,916 | | | | $74,018 | | | | $55,837 | | | | $85,643 | | | | $59,545 | |
See Notes to Financial Statements
14
MFS Mid Cap Value Portfolio
Financial Highlights – continued
| (c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
| (d) | Per share data is based on average shares outstanding. |
| (f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
15
MFS Mid Cap Value Portfolio
NOTES TO FINANCIAL STATEMENTS
| (1) | | Business and Organization |
MFS Mid Cap Value Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust III (the trust). The trust is organized as a Delaware statutory 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, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
| (2) | | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. 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 increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.
In March 2020, the FASB issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional, temporary relief with respect to the financial reporting of contracts subject to certain types of modifications due to the planned discontinuation of the London Interbank Offered Rate (LIBOR) and other IBOR-based reference rates as of the end of 2021. The temporary relief provided by ASU 2020-04 is effective for certain reference rate-related contract modifications that occur during the period from March 12, 2020 through December 31, 2022. Management is evaluating the impact of ASU 2020-04 on the fund’s investments, derivatives, debt and other contracts that will undergo reference rate-related modifications as a result of the reference rate reform.
Balance Sheet Offsetting – The fund’s accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund’s right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities
16
MFS Mid Cap Value Portfolio
Notes to Financial Statements – continued
in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of December 31, 2020 in valuing the fund’s assets or liabilities:
| | | | | | | | | | | | | | | | |
| Financial Instruments | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Equity Securities: | | | | | | | | | | | | | | | | |
United States | | | $397,967,021 | | | | $1,122,770 | | | | $— | | | | $399,089,791 | |
Netherlands | | | 3,578,202 | | | | — | | | | — | | | | 3,578,202 | |
United Kingdom | | | 2,750,167 | | | | — | | | | — | | | | 2,750,167 | |
Canada | | | 2,129,879 | | | | — | | | | — | | | | 2,129,879 | |
| Mutual Funds | | | 7,893,141 | | | | — | | | | — | | | | 7,893,141 | |
| Total | | | $414,318,410 | | | | $1,122,770 | | | | $— | | | | $415,441,180 | |
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation – 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 or on the reporting date for foreign denominated receivables and payables. 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 receivables, payables, 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.
Security Loans – Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. On loans collateralized by cash, the cash collateral is invested in a money market fund. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. The lending agent provides the fund with indemnification against Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the loaned securities. In return, the lending agent assumes the fund’s rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the extent that such shortfall is not due to a decline in collateral value resulting from collateral reinvestment for which the fund bears the risk of loss. At period end, the fund had investment securities on loan, all of which were classified as equity securities in the fund’s Portfolio of Investments, with a fair value of $1,476,790. The fair value of the fund’s investment securities on loan and a related liability of $1,449,069 for cash collateral received on securities loaned are both presented gross in the Statement of Assets and Liabilities. The value of the fund’s securities on loan net of the related collateral is $27,721 at period end. The liability for cash collateral for securities loaned is carried at fair value, which is categorized as level 2 within the fair value hierarchy. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is separately reported in the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
17
MFS Mid Cap Value Portfolio
Notes to Financial Statements – continued
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend payments received in additional securities are recorded on the ex-dividend date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | | | | | | | |
| | | Year ended
12/31/20 | | | Year ended
12/31/19 | |
| Ordinary income (including any short-term capital gains) | | | $6,003,306 | | | | $5,670,312 | |
| Long-term capital gains | | | 11,049,292 | | | | 22,975,280 | |
| Total distributions | | | $17,052,598 | | | | $28,645,592 | |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| | | | |
| As of 12/31/20 | | | | |
| |
| Cost of investments | | | $304,697,037 | |
| Gross appreciation | | | 115,984,116 | |
| Gross depreciation | | | (5,239,973 | ) |
| Net unrealized appreciation (depreciation) | | | $110,744,143 | |
| |
| Undistributed ordinary income | | | 5,694,650 | |
| Undistributed long-term capital gain | | | 1,370,375 | |
| Other temporary differences | | | 190 | |
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | | | | | | | |
| | |
| | | Year ended
12/31/20 | | | Year ended
12/31/19 | |
| Initial Class | | | $13,255,627 | | | | $22,502,110 | |
| Service Class | | | 3,796,971 | | | | 6,143,482 | |
| Total | | | $17,052,598 | | | | $28,645,592 | |
18
MFS Mid Cap Value Portfolio
Notes to Financial Statements – continued
| (3) | | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund’s average daily net assets:
| | | | |
| Up to $1 billion | | | 0.75% | |
| In excess of $1 billion | | | 0.70% | |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund’s Board of Trustees. For the year ended December 31, 2020, this management fee reduction amounted to $35,019, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2020 was equivalent to an annual effective rate of 0.74% of the fund’s average daily net assets.
Effective August 1, 2020, the investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 0.92% of average daily net assets for the Initial Class shares and 1.17% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2023. For the year ended December, 31, 2020, the fund’s actual operating expenses did not exceed the limit and therefore, the investment adviser did not pay any portion of the fund’s expenses related to this agreement.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2020, the fee was $14,530, which equated to 0.0046% annually of the fund’s average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2020, these costs amounted to $1,307.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the year ended December 31, 2020 was equivalent to an annual effective rate of 0.0165% of the fund’s average daily net assets.
Trustees’ and Officers’ Compensation – The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
The fund is permitted to engage in purchase and sale transactions with funds and accounts for which MFS serves as investment adviser or sub-adviser (“cross-trades”) pursuant to a policy adopted by the Board of Trustees. This policy has been designed to ensure that cross-trades conducted by the fund comply with Rule 17a-7 under the Investment Company Act of 1940. During the year ended December 31, 2020, the fund engaged in sale transactions pursuant to this policy, which amounted to $504,478. The sales transactions resulted in net realized gains (losses) of $85,838.
The adviser has voluntarily undertaken to reimburse the fund from its own resources on a quarterly basis for the cost of investment research embedded in the cost of the fund’s securities trades. This agreement may be rescinded at any time. For the year ended December 31, 2020, this reimbursement amounted to $25,226, which is included in “Other” income in the Statement of Operations.
19
MFS Mid Cap Value Portfolio
Notes to Financial Statements – continued
For the year ended December 31, 2020, purchases and sales of investments, other than short-term obligations, aggregated $162,668,604 and $112,137,412, respectively.
| (5) | | Shares of Beneficial Interest |
The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
| | | | | | | | | | | | | | | | |
| | | Year ended 12/31/20 | | | Year ended 12/31/19 | |
| | | | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares sold | | | | | | | | | | | | | | | | |
Initial Class | | | 7,662,072 | | | | $50,759,215 | | | | 5,000,384 | | | | $40,867,519 | |
Service Class | | | 9,879,543 | | | | 76,631,018 | | | | 1,262,425 | | | | 10,332,654 | |
| | | 17,541,615 | | | | $127,390,233 | | | | 6,262,809 | | | | $51,200,173 | |
| | | | |
| Shares issued to shareholders in reinvestment of distributions | | | | | | | | | | | | | | | | |
Initial Class | | | 1,788,885 | | | | $13,255,627 | | | | 2,918,562 | | | | $22,502,110 | |
Service Class | | | 517,298 | | | | 3,796,971 | | | | 804,121 | | | | 6,143,482 | |
| | | 2,306,183 | | | | $17,052,598 | | | | 3,722,683 | | | | $28,645,592 | |
| | | | |
| Shares reacquired | | | | | | | | | | | | | | | | |
Initial Class | | | (7,844,938 | ) | | | $(59,601,370 | ) | | | (6,280,151 | ) | | | $(53,313,116 | ) |
Service Class | | | (2,135,128 | ) | | | (16,401,949 | ) | | | (1,108,297 | ) | | | (9,310,485 | ) |
| | | (9,980,066 | ) | | | $(76,003,319 | ) | | | (7,388,448 | ) | | | $(62,623,601 | ) |
| | | | |
| Net change | | | | | | | | | | | | | | | | |
Initial Class | | | 1,606,019 | | | | $4,413,472 | | | | 1,638,795 | | | | $10,056,513 | |
Service Class | | | 8,261,713 | | | | 64,026,040 | | | | 958,249 | | | | 7,165,651 | |
| | | 9,867,732 | | | | $68,439,512 | | | | 2,597,044 | | | | $17,222,164 | |
The fund is one of several mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Moderate Allocation Portfolio, the MFS Growth Allocation Portfolio, and the MFS Conservative Allocation Portfolio were the owners of record of approximately 25%, 8%, and 4%, respectively, of the value of outstanding voting shares of the fund.
The fund and certain other funds managed by MFS participate in a $1.25 billion unsecured committed line of credit of which $1 billion is reserved for use by the fund and certain other U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2020, the fund’s commitment fee and interest expense were $1,607 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
| (7) | | Investments in Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| | | | | | | | | | | | | | | | | | | | | | | | |
| Affiliated Issuers | | Beginning
Value | | | Purchases | | | Sales
Proceeds | | | Realized
Gain
(Loss) | | | Change in
Unrealized
Appreciation or
Depreciation | | | Ending
Value | |
| MFS Institutional Money Market Portfolio | | | $1,410,369 | | | | $150,504,641 | | | | $145,470,736 | | | | $(202 | ) | | | $— | | | | $6,444,072 | |
| | | | | | |
| Affiliated Issuers | | | | | | | | | | | | | | Dividend
Income | | | Capital Gain
Distributions | |
| MFS Institutional Money Market Portfolio | | | | | | | | | | | | | | | | | | | $22,288 | | | | $— | |
20
MFS Mid Cap Value Portfolio
Notes to Financial Statements – continued
The pandemic related to the global spread of novel coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to global business activity and the global economy, as well as the economies of individual countries, the financial performance of individual companies and sectors, and the securities and commodities markets in general. This pandemic, the full effects of which are still unknown, has resulted in substantial market volatility and may have adversely impacted the prices and liquidity of the fund’s investments and the fund’s performance.
21
MFS Mid Cap Value Portfolio
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees MFS Variable Insurance Trust III and the Shareholders of
MFS Mid Cap Value Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Mid Cap Value Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2020, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2020, and 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 accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2020, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 16, 2021
We have served as the auditor of one or more of the MFS investment companies since 1924.
22
MFS Mid Cap Value Portfolio
TRUSTEES AND OFFICERS – IDENTIFICATION AND BACKGROUND
The Trustees and Officers of the Trust, as of February 1, 2021, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| | | | | | | | | | |
Name, Age | | Position(s)
Held with Fund | | Trustee/Officer
Since (h) | | Number of
MFS Funds
overseen by the
Trustee | | Principal Occupations
During the Past Five Years | | Other Directorships
During the Past Five Years (j) |
| INTERESTED TRUSTEES |
Robert J. Manning (k)
(age 57) | | Trustee | | February 2004 | | 134 | | Massachusetts Financial Services Company, Non-Executive Chairman (since January 2021); Director; Chairman of the Board; Executive Chairman (January 2017-2020); Co-Chief Executive Officer (2015-2016) | | N/A |
| | | | | |
Michael W. Roberge (k) (age 54) | | Trustee | | January 2021 | | 134 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; President (until December 2018); Chief Investment Officer (until December 2018); Co-Chief Executive Officer (until December 2016) | | N/A |
|
| INDEPENDENT TRUSTEES |
John P. Kavanaugh (age 66) | | Trustee and Chair of Trustees | | January 2009 | | 134 | | Private investor | | N/A |
| | | | | |
Steven E. Buller (age 69) | | Trustee | | February 2014 | | 134 | | Private investor | | N/A |
| | | | | |
John A. Caroselli (age 66) | | Trustee | | March 2017 | | 134 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
| | | | | |
Maureen R. Goldfarb (age 65) | | Trustee | | January 2009 | | 134 | | Private investor | | N/A |
| | | | | |
Peter D. Jones
(age 65) | | Trustee | | January 2019 | | 134 | | Private investor | | N/A |
| | | | | |
James W. Kilman, Jr.
(age 59) | | Trustee | | January 2019 | | 134 | | Burford Capital Limited (finance and investment management), Chief Financial Officer (since 2019); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016); Morgan Stanley & Co. (financial services), Vice Chairman of Investment Banking, Co-Head of Diversified Financials Coverage – Financial Institutions Investment Banking Group (until 2016) | | Alpha-En Corporation, Director (2016-2019) |
| | | | | |
Clarence Otis, Jr. (age 64) | | Trustee | | March 2017 | | 134 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
| | | | | |
Maryanne L. Roepke (age 64) | | Trustee | | May 2014 | | 134 | | Private investor | | N/A |
| | | | | |
Laurie J. Thomsen
(age 63) | | Trustee | | March 2005 | | 134 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
23
MFS Mid Cap Value Portfolio
Trustees and Officers – continued
| | | | | | | | |
Name, Age | | Position(s)
Held with Fund | | Trustee/Officer
Since (h) | | Number of
MFS Funds
for which the
Person is an
Officer | | Principal Occupations
During the Past Five Years |
| OFFICERS | | | | | | |
Christopher R. Bohane (k)
(age 47) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 134 | | Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel |
| | | | |
Kino Clark (k) (age 52) | | Assistant Treasurer | | January 2012 | | 134 | | Massachusetts Financial Services Company, Vice President |
| | | | |
John W. Clark, Jr. (k) (age 53) | | Assistant Treasurer | | April 2017 | | 134 | | Massachusetts Financial Services Company, Vice President (since March 2017); Deutsche Bank (financial services), Department Head – Treasurer’s Office (until February 2017) |
| | | | |
Thomas H. Connors (k) (age 61) | | Assistant Secretary and Assistant Clerk | | September 2012 | | 134 | | Massachusetts Financial Services Company, Vice President and Senior Counsel |
| | | | |
David L. DiLorenzo (k)
(age 52) | | President | | July 2005 | | 134 | | Massachusetts Financial Services Company, Senior Vice President |
| | | | |
Heidi W. Hardin (k) (age 53) | | Secretary and Clerk | | April 2017 | | 134 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel (since March 2017); Harris Associates (investment management), General Counsel (until January 2017) |
| | | | |
Brian E. Langenfeld (k) (age 47) | | Assistant
Secretary and Assistant Clerk | | June 2006 | | 134 | | Massachusetts Financial Services Company, Vice President and Senior Counsel |
| | | | |
Amanda S. Mooradian (k) (age 41) | | Assistant
Secretary and Assistant Clerk | | September 2018 | | 134 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
| | | | |
Susan A. Pereira (k)
(age 50) | | Assistant
Secretary and Assistant Clerk | | July 2005 | | 134 | | Massachusetts Financial Services Company, Vice President and Assistant General Counsel |
| | | | |
Kasey L. Phillips (k) (age 50) | | Assistant Treasurer | | September 2012 | | 134 | | Massachusetts Financial Services Company, Vice President |
| | | | |
Matthew A. Stowe (k) (age 46) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 134 | | Massachusetts Financial Services Company, Vice President and Assistant General Counsel |
| | | | |
Martin J. Wolin (k) (age 53) | | Chief Compliance Officer | | July 2015 | | 134 | | Massachusetts Financial Services Company, Senior Vice President and Chief Compliance Officer |
| | | | |
James O. Yost (k)
(age 60) | | Treasurer | | September 1990 | | 134 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. For the period from December 15, 2004 until February 22, 2005, Mr. Manning served as Advisory Trustee. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board’s retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Messrs. Buller, Kilman and Otis and Ms. Roepke are members of the Trust’s Audit Committee.
24
MFS Mid Cap Value Portfolio
Trustees and Officers – continued
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| | |
Investment Adviser Massachusetts Financial Services Company 111 Huntington Avenue Boston, MA 02199-7618 | | Custodian State Street Bank and Trust Company 1 Lincoln Street Boston, MA 02111-2900 |
| |
Distributor MFS Fund Distributors, Inc. 111 Huntington Avenue Boston, MA 02199-7618 | | Independent Registered Public Accounting Firm Deloitte & Touche LLP 200 Berkeley Street Boston, MA 02116 |
| |
Portfolio Manager(s) Kevin Schmitz Brooks Taylor | | |
25
MFS Mid Cap Value Portfolio
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
MFS Mid Cap Value Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times by videoconference (in accordance with Securities and Exchange Commission relief) over the course of three months beginning in May and ending in July, 2020 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2019 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2019, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 1st quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 1st quintile for each of the one- and three-year periods ended December 31, 2019 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
26
MFS Mid Cap Value Portfolio
Board Review of Investment Advisory Agreement – continued
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate was approximately at the Broadridge expense group median and the Fund’s total expense ratio was lower than the Broadridge expense group median. The Trustees also noted that MFS has agreed to implement an expense limitation for the Fund effective August 1, 2020, which may not be changed without the Trustees’ approval.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to a contractual breakpoint that reduces the Fund’s advisory fee rate on average daily net assets over $1 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoint and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2020.
27
MFS Mid Cap Value Portfolio
PROXY VOTING POLICIES AND INFORMATION
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund’s fiscal year at mfs.com/vit3 by choosing the fund’s name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit3 by choosing the fund’s name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
INFORMATION ABOUT FUND CONTRACTS AND LEGAL CLAIMS
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
FEDERAL TAX INFORMATION (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates $12,155,000 as capital gain dividends paid during the fiscal year.
For corporate shareholders, 80.75% of the ordinary income dividends paid during the fiscal year qualify for the corporate dividends received deduction.
28
rev. 3/16
| | | | |
| | | |
| FACTS | | WHAT DOES MFS DO WITH YOUR
PERSONAL INFORMATION? | |  |
| | |
| Why? | | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| | |
| What? | | The types of personal information we collect and share depend on the product or service you have with us. This information can include: • Social Security number and account balances • Account transactions and transaction history • Checking account information and wire transfer instructions When you are no longer our customer, we continue to share your information as described in this notice. |
| | |
| How? | | All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
| | | | |
Reasons we can share your
personal information | | Does MFS share? | | Can you limit this
sharing? |
For our everyday business purposes – such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus | | Yes | | No |
For our marketing purposes – to offer our products and services to you | | No | | We don’t share |
| For joint marketing with other financial companies | | No | | We don’t share |
For our affiliates’ everyday business purposes – information about your transactions and experiences | | No | | We don’t share |
For our affiliates’ everyday business purposes – information about your creditworthiness | | No | | We don’t share |
| For nonaffiliates to market to you | | No | | We don’t share |
| | |
| | |
| Questions? | | Call 800-225-2606 or go to mfs.com. |
29
| | |
| Who we are |
| Who is providing this notice? | | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| | |
| What we do |
| How does MFS protect my personal information? | | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal information? | | We collect your personal information, for example, when you • open an account or provide account information • direct us to buy securities or direct us to sell your securities • make a wire transfer We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can’t I limit all sharing? | | Federal law gives you the right to limit only • sharing for affiliates’ everyday business purposes – information about your creditworthiness • affiliates from using your information to market to you • sharing for nonaffiliates to market to you State laws and individual companies may give you additional rights to limit sharing. |
| | |
| Definitions |
| Affiliates | | Companies related by common ownership or control. They can be financial and nonfinancial companies. • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | | Companies not related by common ownership or control. They can be financial and nonfinancial companies. • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. • MFS doesn’t jointly market. |
| | |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
30
Annual Report
December 31, 2020
MFS® Moderate Allocation Portfolio
MFS® Variable Insurance Trust III
VMA-ANN
MFS® Moderate Allocation Portfolio
CONTENTS
The report is prepared for the general information of contract owners. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE • NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Moderate Allocation Portfolio
LETTER FROM THE CEO
Dear Contract Owners:
Markets experienced dramatic swings this year as the coronavirus pandemic brought the global economy to a standstill for several months early in the year. The speedy development of vaccines and therapeutics later brightened the economic and market outlook, but a great deal of uncertainty remains as case counts remain high, new variants of the virus are appearing and questions persist over how fast the vaccine can be made widely available. In the United States, political uncertainty eased after former Vice President Joe Biden won the presidential election and the Democrats gained control of a closely divided Senate.
Global central banks have taken aggressive steps to cushion the economic and market fallout related to the virus, and governments are deploying unprecedented levels of fiscal support. Additional U.S. stimulus is anticipated with the Democrats in the White House and in control of both houses of Congress. The measures already put in place have helped build a supportive environment and are encouraging economic recovery; however, if markets disconnect from fundamentals, they can sow the seeds of instability. As such, dramatic increases in speculative retail trading bear watching.
In the aftermath of the crisis, we could see societal changes as households, businesses, and governments adjust to a new reality, and any such alterations could affect the investment landscape. For investors, events such as the COVID-19 outbreak demonstrate the importance of having a deep understanding of company fundamentals, and we have built our global research platform to do just that.
At MFS®, we put our clients’ assets to work responsibly by carefully navigating the increasing complexity of our global markets and economies. Guided by our long-term philosophy and adhering to our commitment to sustainable investing, we tune out the noise and aim to uncover what we believe are the best, most durable investment opportunities in the market. Our unique global investment platform combines collective expertise, long-term discipline and thoughtful risk management to create sustainable value for investors.
Respectfully,
Michael W. Roberge
Chief Executive Officer
MFS Investment Management
February 16, 2021
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
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MFS Moderate Allocation Portfolio
PORTFOLIO COMPOSITION
Portfolio target allocation
| | | | |
| Portfolio holdings | | | | |
| MFS Total Return Bond Series | | | 11.5% | |
| MFS Government Securities Portfolio | | | 9.3% | |
| MFS Value Series | | | 9.2% | |
| MFS Growth Series | | | 9.1% | |
| MFS Research Series | | | 8.2% | |
| MFS Mid Cap Growth Series | | | 7.3% | |
| MFS Mid Cap Value Portfolio | | | 7.3% | |
| MFS Research International Portfolio | | | 7.2% | |
| MFS Inflation-Adjusted Bond Portfolio | | | 4.9% | |
| MFS High Yield Portfolio | | | 4.9% | |
| MFS Global Governments Portfolio | | | 4.8% | |
| MFS Limited Maturity Portfolio | | | 3.8% | |
| MFS International Growth Portfolio | | | 3.1% | |
| MFS International Intrinsic Value Portfolio | | | 3.1% | |
| MFS Global Real Estate Portfolio | | | 3.0% | |
| MFS New Discovery Series | | | 1.6% | |
| MFS New Discovery Value Portfolio | | | 1.6% | |
| Cash & Cash Equivalents | | | 0.1% | |
Portfolio actual allocation
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. MFS endeavors to fully invest all MFS funds-of-funds in underlying funds on a daily basis. Any divergence from 0.0% in Cash & Cash Equivalents is typically due to the timing of fund subscriptions/redemptions and the settlement of subsequent investment in/divestment from the underlying funds. While the MFS funds-of-funds’ subscriptions/redemptions are processed at the same day NAV of the underlying funds, a positive/negative cash balance will be reflected on the MFS funds-of-funds’ Statements of Assets and Liabilities until the trades with the underlying funds settle, which is typically two business days. Please see the fund’s Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of December 31, 2020.
The portfolio is actively managed and current holdings may be different.
2
MFS Moderate Allocation Portfolio
MANAGEMENT REVIEW
Summary of Results
For the twelve months ended December 31, 2020, Initial Class shares of the MFS Moderate Allocation Portfolio (fund) provided a total return of 14.29%, while Service Class shares of the fund provided a total return of 14.08%. These compare with a return of 18.40% for the fund’s benchmark, the Standard & Poor’s 500 Stock Index (S&P 500 Index). The fund’s other benchmark, the MFS Moderate Allocation Portfolio Blended Index (Blended Index), generated a return of 12.43%. The Blended Index reflects the blended returns of various equity and fixed income market indices, with percentage allocations to each index designed to resemble the allocations of the fund. The market indices and related percentage allocations used to compile the Blended Index are set forth in the Performance Summary.
Market Environment
Markets experienced an extraordinarily sharp selloff early in the period and, in many cases, an unusually rapid recovery later. Central banks and fiscal authorities undertook astonishing levels of stimulus to offset the economic effects of government-imposed social-distancing measures implemented to slow the spread of the COVID-19 virus. At this point, the global economy looks to have experienced the shortest – albeit the deepest and steepest – recession in the postwar period. However, the recovery remains subject to more than the usual number of uncertainties due to questions about the evolution of the virus, what its continued impact will be and how quickly vaccines to guard against it can be manufactured and distributed at scale. There are also worries over the public’s willingness to be inoculated.
Around the world, central banks responded quickly and massively to the crisis with programs to improve liquidity and support markets. These programs proved largely successful in helping to restore market function, ease volatility and stimulate a continued market rebound. Late in the period, the US Federal Reserve adopted a new, flexible, average-inflation-targeting framework, which is expected to result in the federal funds rate remaining at low levels longer than under its previous model. In developed countries, monetary easing measures were complemented by unusually large fiscal stimulus initiatives. Due to relatively manageable external liabilities and balances of payments in many countries and persistently low inflation, even emerging market countries were able to implement countercyclical policies – a departure from the usual market-dictated response to risk-off crises.
Compounding market uncertainty earlier in the pandemic was a crash in the price of crude oil due to a sharp drop in global demand and a disagreement between Saudi Arabia and Russia over production cuts, which resulted in an oil price war. The subsequent decline in prices undercut oil exporters, many of which are in emerging markets, as well as a large segment of the high-yield credit market. The OPEC+ group later agreed on output cuts, with shale oil producers in the US also decreasing production, which, along with the gradual reopening of some major economies and the resultant boost in demand, helped stabilize the price of crude oil.
In the immediate aftermath of the market disruption that accompanied the initial phases of the pandemic, many companies that had added significant leverage to their balance sheets in recent years by borrowing to fund dividend payments and stock buybacks halted those activities, and some companies were forced to recapitalize. As markets and the economy stabilized later in the period, in many cases dividend payments and buybacks resumed. Conversely, some companies found themselves flush with liquidity, having borrowed preemptively during the worst of the crisis only to end up with excess cash on their balance sheets.
Factors Affecting Performance
During the reporting period, the fund underperformed its benchmark, the S&P 500 Index, primarily due to its allocation to the fixed income markets, which performed well, but underperformed the comparatively strong-performing S&P 500 Index. Over the same period, the fund outperformed the Blended Index. Rebalancing back to target equity weights after equity markets had declined in the first quarter benefited performance relative to the Blended Index, as stocks rebounded later in the year.
Relative to the Blended Index, the international equity segment was a primary contributor to the fund’s relative performance as both the MFS International Intrinsic Value Portfolio and MFS Research International Portfolio outperformed their respective benchmarks during the reporting period. The fund’s exposure to the MFS International Growth Portfolio also helped relative results.
The fund’s exposure to the fixed income asset class further supported performance relative to the Blended Index, led by its allocation to the MFS Inflation-Adjusted Bond Portfolio and MFS Global Governments Portfolio, which outweighed weakness from the fund’s exposure to shorter duration portfolios, particularly the MFS Limited Maturity Portfolio, given strong bond market performance during the period, and its exposure to, and the underperformance (relative to its respective benchmark) of, the MFS High Yield Portfolio.
The fund’s exposure to the U.S. equity asset class also benefited performance relative to the Blended Index. Here, exposure to growth-oriented funds, particularly the MFS Growth Series, MFS Mid Cap Growth Series and MFS New Discovery Series, helped relative returns and offset weakness from the fund’s exposure to value-oriented strategies, most notably the MFS Value Series and MFS Mid Cap Value Portfolio.
3
MFS Moderate Allocation Portfolio
Management Review – continued
Lastly, the specialty segment was another positive contributor to performance relative to the Blended Index as the MFS Global Real Estate Portfolio outperformed its respective benchmark.
Respectfully,
Portfolio Manager(s)
Joseph Flaherty and Natalie Shapiro
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
4
MFS Moderate Allocation Portfolio
PERFORMANCE SUMMARY THROUGH 12/31/20
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your units, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a contract holder would pay on fund distributions or the redemption of contract units. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/20
Average annual total returns
| | | | | | | | | | | | |
| | | Share Class | | Class Inception Date | | 1-yr | | 5-yr | | 10-yr | | |
| | | Initial Class | | 10/01/08 | | 14.29% | | 10.50% | | 8.27% | | |
| | | Service Class | | 10/01/08 | | 14.08% | | 10.22% | | 8.01% | | |
| | | | |
| Comparative benchmark(s) | | | | | | | | |
| | | Standard & Poor’s 500 Stock Index (f) | | 18.40% | | 15.22% | | 13.88% | | |
| | | MFS Moderate Allocation Portfolio Blended Index (f)(w) | | 12.43% | | 9.68% | | 8.63% | | |
| | | Bloomberg Barclays U.S. Aggregate Bond Index (f) | | 7.51% | | 4.44% | | 3.84% | | |
| | | FTSE EPRA Nareit Developed Real Estate Index (net div) (f) | | (9.04)% | | 3.74% | | 5.44% | | |
| | | MSCI EAFE Index (net div) (f) | | 7.82% | | 7.45% | | 5.51% | | |
| (f) | | Source: FactSet Research Systems Inc. |
| (w) | | As of December 31, 2020, the MFS Moderate Allocation Portfolio Blended Index (a custom index) was comprised of 43% Standard & Poor’s 500 Stock Index, 41% Bloomberg Barclays U.S. Aggregate Bond Index, 13% MSCI EAFE Index (net div), and 3% FTSE EPRA Nareit Developed Real Estate Index (net div). |
Benchmark Definition(s)
Bloomberg Barclays U.S. Aggregate Bond Index (a) – a market capitalization-weighted index that measures the performance of the U.S. investment-grade, fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities with at least one year to final maturity.
FTSE EPRA Nareit Developed Real Estate Index (c) (net div) – measures the performance of eligible real estate equities worldwide that generate a majority of their revenue and income through the ownership, disposure and development of income-producing real estate.
MSCI EAFE (Europe, Australasia, Far East) Index (e) (net div) – a market capitalization index that is designed to measure equity market performance in the developed markets, excluding the U.S. and Canada.
5
MFS Moderate Allocation Portfolio
Performance Summary – continued
Standard & Poor’s 500 Stock Index (g) – a market capitalization index of 500 widely held equity securities, designed to measure broad U.S. equity performance.
It is not possible to invest directly in an index.
| (a) | BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom, and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. |
| (c) | FTSE International Limited (“FTSE”)© FTSE 2019. “FTSE®” is a trademark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. “FT-SE®”, “FOOTSIE®” and “FTSE4GOOD®” are trademarks of the London Stock Exchange Group companies. “Nareit®” is a trademark of the National Association of Real Estate Investment Trusts (“Nareit”) and “EPRA®” is a trademark of the European Public Real Estate Association (“EPRA”) and all are used by FTSE under license. The FTSE EPRA Nareit Developed Real Estate Index is calculated by FTSE. Neither FTSE, Euronext N.V., Nareit, nor EPRA sponsor, endorse, or promote this product and are not in any way connected to it and do not accept any liability. All intellectual property rights in the index values and constituent list vests in FTSE, Euronext N.V., Nareit, and EPRA. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent. |
| (e) | Morgan Stanley Capital International (“MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. |
| (g) | “Standard & Poor’s®” and “S&P®” are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”) and have been licensed for use by S&P Dow Jones Indices LLC and sublicensed for certain purposes by MFS. The S&P 500® is a product of S&P Dow Jones Indices LLC, and has been licensed for use by MFS. MFS’s product(s) is not sponsored, endorsed, sold, or promoted by S&P Dow Jones Indices LLC, Dow Jones, S&P, or their respective affiliates, and neither S&P Dow Jones Indices LLC, Dow Jones, S&P, nor their respective affiliates make any representation regarding the advisability of investing in such product(s). |
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance prior to close of business December 7, 2012, reflects time periods when another adviser or subadviser was responsible for selecting investments for the fund under a different investment objective and different investment strategies, underlying fund selections, and underlying fund target weightings of the fund.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund’s performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
6
MFS Moderate Allocation Portfolio
EXPENSE TABLE
Fund Expenses Borne by the Contract Holders during the Period,
July 1, 2020 through December 31, 2020
As a contract holder of the fund, you incur ongoing costs, including distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the fund invests. Because the underlying funds have varied expenses and fee levels and the fund may own different proportions of the underlying funds at different times, the amount of fees and expenses incurred indirectly by the fund will vary. If these indirect costs were included, your costs would have been higher.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2020 through December 31, 2020.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund’s ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
| | | | | | | | | | | | | | | | | | |
| Share Class | | | | Annualized
Expense Ratio | | | Beginning
Account Value
7/01/20 | | | Ending Account Value
12/31/20 | | | Expenses Paid
During Period (p)
7/01/20-12/31/20 | |
| Initial Class | | Actual | | | 0.01% | | | | $1,000.00 | | | | $1,147.27 | | | | $0.05 | |
| | Hypothetical (h) | | | 0.01% | | | | $1,000.00 | | | | $1,025.09 | | | | $0.05 | |
| Service Class | | Actual | | | 0.26% | | | | $1,000.00 | | | | $1,145.99 | | | | $1.40 | |
| | Hypothetical (h) | | | 0.26% | | | | $1,000.00 | | | | $1,023.83 | | | | $1.32 | |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the fund invests. If these indirect costs were included, your costs would have been higher. |
7
MFS Moderate Allocation Portfolio
PORTFOLIO OF INVESTMENTS – 12/31/20
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| INVESTMENT COMPANIES (h) – 100.0% | | | | | |
| Bond Funds – 39.2% | | | | | |
| MFS Global Governments Portfolio – Initial Class | | | 5,908,164 | | | $ | 69,066,438 | |
| MFS Government Securities Portfolio – Initial Class | | | 10,336,446 | | | | 132,926,692 | |
| MFS High Yield Portfolio – Initial Class | | | 12,423,566 | | | | 70,565,854 | |
| MFS Inflation-Adjusted Bond Portfolio – Initial Class | | | 5,852,012 | | | | 70,575,265 | |
| MFS Limited Maturity Portfolio – Initial Class | | | 5,172,394 | | | | 54,051,512 | |
| MFS Total Return Bond Series – Initial Class | | | 11,657,416 | | | | 164,602,721 | |
| | | | | | | | |
| | | | | | $ | 561,788,482 | |
| | | | | | | | |
| International Stock Funds – 13.4% | | | | | |
| MFS International Growth Portfolio – Initial Class | | | 2,749,923 | | | $ | 44,246,260 | |
| MFS International Intrinsic Value Portfolio – Initial Class | | | 1,257,865 | | | | 44,088,152 | |
| MFS Research International Portfolio – Initial Class | | | 5,707,882 | | | | 103,540,989 | |
| | | | | | | | |
| | | | | | $ | 191,875,401 | |
| | | | | | | | |
| Specialty Funds – 3.0% | | | | | |
| MFS Global Real Estate Portfolio – Initial Class | | | 2,931,038 | | | $ | 43,906,947 | |
| | | | | | | | |
| U.S. Stock Funds – 44.3% | | | | | |
| MFS Growth Series – Initial Class | | | 1,775,909 | | | $ | 131,079,855 | |
| MFS Mid Cap Growth Series – Initial Class | | | 8,277,956 | | | | 104,633,358 | |
MFS Mid Cap Value Portfolio –
Initial Class | | | 12,111,054 | | | | 104,033,955 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| INVESTMENT COMPANIES (h) – continued | |
| U.S. Stock Funds – continued | | | | | |
| MFS New Discovery Series – Initial Class | | | 853,619 | | | $ | 23,013,558 | |
| MFS New Discovery Value Portfolio – Initial Class | | | 2,612,683 | | | | 22,913,234 | |
| MFS Research Series – Initial Class | | | 3,567,208 | | | | 117,254,115 | |
| MFS Value Series – Initial Class | | | 6,480,734 | | | | 132,206,979 | |
| | | | | | | | |
| | | | | | $ | 635,135,054 | |
| | | | | | | | |
| Money Market Funds – 0.1% | | | | | |
| MFS Institutional Money Market Portfolio, 0.1% (v) | | | 1,530,642 | | | $ | 1,530,642 | |
| | | | | | | | |
| Total Investment Companies (Identified Cost, $1,089,522,484) | | | | | | $ | 1,434,236,526 | |
| | | | | | | | |
OTHER ASSETS, LESS
LIABILITIES – (0.0)% | | | | | | | (74,783 | ) |
| | | | | | | | |
| NET ASSETS – 100.0% | | | | | | $ | 1,434,161,743 | |
| | | | | | | | |
| (h) | | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate value of the fund’s investments in affiliated issuers was $1,434,236,526. |
| (v) | | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. |
See Notes to Financial Statements
8
MFS Moderate Allocation Portfolio
FINANCIAL STATEMENTS | STATEMENT OF ASSETS AND LIABILITIES
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| | | | |
At 12/31/20 | | | | |
| |
Assets | | | | |
Investments in affiliated issuers, at value (identified cost, $1,089,522,484) | | | $1,434,236,526 | |
Receivables for | | | | |
Investments sold | | | 713,651 | |
Fund shares sold | | | 2,403 | |
Other assets | | | 6,318 | |
Total assets | | | $1,434,958,898 | |
| |
Liabilities | | | | |
Payables for | | | | |
Fund shares reacquired | | | $714,415 | |
Payable to affiliates | | | | |
Administrative services fee | | | 96 | |
Shareholder servicing costs | | | 105 | |
Distribution and/or service fees | | | 19,420 | |
Payable for independent Trustees’ compensation | | | 419 | |
Accrued expenses and other liabilities | | | 62,700 | |
Total liabilities | | | $797,155 | |
Net assets | | | $1,434,161,743 | |
| |
Net assets consist of | | | | |
Paid-in capital | | | $1,009,353,186 | |
Total distributable earnings (loss) | | | 424,808,557 | |
Net assets | | | $1,434,161,743 | |
Shares of beneficial interest outstanding | | | 103,504,294 | |
| | | | | | | | | | | | |
| | | |
| | | Net assets | | | Shares
outstanding | | | Net asset value
per share | |
Initial Class | | | $7,891,058 | | | | 569,260 | | | | $13.86 | |
Service Class | | | 1,426,270,685 | | | | 102,935,034 | | | | 13.86 | |
See Notes to Financial Statements
9
MFS Moderate Allocation Portfolio
FINANCIAL STATEMENTS | STATEMENT OF OPERATIONS
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| | | | |
Year ended 12/31/20 | | | | |
| |
Net investment income (loss) | | | | |
Income | | | | |
Dividends from affiliated issuers | | | $28,127,358 | |
Other | | | 195 | |
Total investment income | | | $28,127,553 | |
Expenses | | | | |
Distribution and/or service fees | | | $3,367,133 | |
Shareholder servicing costs | | | 19,014 | |
Administrative services fee | | | 17,500 | |
Independent Trustees’ compensation | | | 22,404 | |
Custodian fee | | | 21,429 | |
Shareholder communications | | | 22,520 | |
Audit and tax fees | | | 41,018 | |
Legal fees | | | 10,349 | |
Miscellaneous | | | 38,819 | |
Total expenses | | | $3,560,186 | |
Net investment income (loss) | | | $24,567,367 | |
| |
Realized and unrealized gain (loss) | | | | |
Realized gain (loss) (identified cost basis) | | | | |
Investments in affiliated issuers | | | $25,834,283 | |
Capital gain distributions from underlying affiliated funds | | | 35,761,509 | |
Net realized gain (loss) | | | $61,595,792 | |
Change in unrealized appreciation or depreciation | | | | |
Affiliated issuers | | | $92,863,183 | |
Net realized and unrealized gain (loss) | | | $154,458,975 | |
Change in net assets from operations | | | $179,026,342 | |
See Notes to Financial Statements
10
MFS Moderate Allocation Portfolio
FINANCIAL STATEMENTS | STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | | | | | | | |
| | | Year ended | |
| | | 12/31/20 | | | 12/31/19 | |
Change in net assets | | | | | | | | |
| | |
From operations | | | | | | | | |
Net investment income (loss) | | | $24,567,367 | | | | $28,284,114 | |
Net realized gain (loss) | | | 61,595,792 | | | | 83,496,068 | |
Net unrealized gain (loss) | | | 92,863,183 | | | | 170,337,950 | |
Change in net assets from operations | | | $179,026,342 | | | | $282,118,132 | |
Total distributions to shareholders | | | $(112,743,754 | ) | | | $(129,684,645 | ) |
Change in net assets from fund share transactions | | | $(53,557,712 | ) | | | $(101,203,589 | ) |
Total change in net assets | | | $12,724,876 | | | | $51,229,898 | |
| | |
Net assets | | | | | | | | |
At beginning of period | | | 1,421,436,867 | | | | 1,370,206,969 | |
At end of period | | | $1,434,161,743 | | | | $1,421,436,867 | |
See Notes to Financial Statements
11
MFS Moderate Allocation Portfolio
FINANCIAL STATEMENTS | FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund’s financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | | | | | | | | | | | | | | | | | |
| Initial Class | | Year ended | |
| | | | | |
| | | 12/31/20 | | | 12/31/19 | | | 12/31/18 | | | 12/31/17 | | | 12/31/16 | |
| | | | | |
Net asset value, beginning of period | | | $13.23 | | | | $11.95 | | | | $13.33 | | | | $12.25 | | | | $12.48 | |
| | | | | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | |
Net investment income (loss) (d)(l) | | | $0.29 | | | | $0.30 | | | | $0.30 | | | | $0.26 | | | | $0.24 | (c) |
Net realized and unrealized gain (loss) | | | 1.51 | | | | 2.28 | | | | (0.74 | ) | | | 1.60 | | | | 0.55 | |
Total from investment operations | | | $1.80 | | | | $2.58 | | | | $(0.44 | ) | | | $1.86 | | | | $0.79 | |
| | | | | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $(0.32 | ) | | | $(0.35 | ) | | | $(0.29 | ) | | | $(0.28 | ) | | | $(0.37 | ) |
From net realized gain | | | (0.85 | ) | | | (0.95 | ) | | | (0.65 | ) | | | (0.50 | ) | | | (0.65 | ) |
Total distributions declared to shareholders | | | $(1.17 | ) | | | $(1.30 | ) | | | $(0.94 | ) | | | $(0.78 | ) | | | $(1.02 | ) |
Net asset value, end of period (x) | | | $13.86 | | | | $13.23 | | | | $11.95 | | | | $13.33 | | | | $12.25 | |
Total return (%) (k)(s)(x) | | | 14.29 | | | | 22.23 | | | | (3.85 | ) | | | 15.52 | | | | 6.16 | (c) |
| | | | | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f)(h) | | | 0.01 | | | | 0.01 | | | | 0.01 | | | | 0.01 | | | | 0.02 | (c) |
Expenses after expense reductions (f)(h) | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | |
Net investment income (loss) (l) | | | 2.24 | | | | 2.28 | | | | 2.29 | | | | 1.98 | | | | 1.95 | (c) |
Portfolio turnover | | | 7 | | | | 1 | | | | 1 | | | | 0 | (b) | | | 0 | (b) |
Net assets at end of period (000 omitted) | | | $7,891 | | | | $6,448 | | | | $5,333 | | | | $6,053 | | | | $5,460 | |
| |
| Service Class | | Year ended | |
| | | | | |
| | | 12/31/20 | | | 12/31/19 | | | 12/31/18 | | | 12/31/17 | | | 12/31/16 | |
| | | | | |
Net asset value, beginning of period | | | $13.22 | | | | $11.94 | | | | $13.32 | | | | $12.24 | | | | $12.47 | |
| | | | | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | |
Net investment income (loss) (d)(l) | | | $0.24 | | | | $0.26 | | | | $0.27 | | | | $0.22 | | | | $0.21 | (c) |
Net realized and unrealized gain (loss) | | | 1.54 | | | | 2.28 | | | | (0.75 | ) | | | 1.60 | | | | 0.54 | |
Total from investment operations | | | $1.78 | | | | $2.54 | | | | $(0.48 | ) | | | $1.82 | | | | $0.75 | |
| | | | | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $(0.29 | ) | | | $(0.31 | ) | | | $(0.25 | ) | | | $(0.24 | ) | | | $(0.33 | ) |
From net realized gain | | | (0.85 | ) | | | (0.95 | ) | | | (0.65 | ) | | | (0.50 | ) | | | (0.65 | ) |
Total distributions declared to shareholders | | | $(1.14 | ) | | | $(1.26 | ) | | | $(0.90 | ) | | | $(0.74 | ) | | | $(0.98 | ) |
Net asset value, end of period (x) | | | $13.86 | | | | $13.22 | | | | $11.94 | | | | $13.32 | | | | $12.24 | |
Total return (%) (k)(s)(x) | | | 14.08 | | | | 21.90 | | | | (4.13 | ) | | | 15.23 | | | | 5.87 | (c) |
| | | | | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f)(h) | | | 0.26 | | | | 0.26 | | | | 0.26 | | | | 0.26 | | | | 0.27 | (c) |
Expenses after expense reductions (f)(h) | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | |
Net investment income (loss) (l) | | | 1.81 | | | | 1.98 | | | | 2.02 | | | | 1.66 | | | | 1.71 | (c) |
Portfolio turnover | | | 7 | | | | 1 | | | | 1 | | | | 0 | (b) | | | 0 | (b) |
Net assets at end of period (000 omitted) | | | $1,426,271 | | | | $1,414,989 | | | | $1,364,874 | | | | $1,686,004 | | | | $1,721,397 | |
See Notes to Financial Statements
12
MFS Moderate Allocation Portfolio
Financial Highlights – continued
| (c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
| (d) | Per share data is based on average shares outstanding. |
| (f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (h) | In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying affiliated funds in which the fund invests. Accordingly, the expense ratio for the fund reflects only those fees and expenses borne directly by the fund. Because the underlying affiliated funds have varied expense and fee levels and the fund may own different proportions of the underlying affiliated funds at different times, the amount of fees and expenses incurred indirectly by the fund will vary. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (l) | The ratios and per share amounts do not include net investment income of the underlying affiliated funds in which the fund invests. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
13
MFS Moderate Allocation Portfolio
NOTES TO FINANCIAL STATEMENTS
| (1) | | Business and Organization |
MFS Moderate Allocation Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust III (the trust). The trust is organized as a Delaware statutory 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, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
| (2) | | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. 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 increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.
The fund is a “fund of funds”, which invests the majority of its assets in other MFS mutual funds (hereafter referred to as “underlying affiliated funds” or “underlying funds”), which may have different fiscal year ends than the funds. The underlying funds, in turn, may engage in a number of investment techniques and practices, which involve certain risks. Certain underlying funds invest their portfolio in high-yield securities rated below investment grade. Investments in below investment grade quality securities can involve a substantially greater risk of default or can already be in default, and their values can decline significantly. Below investment grade quality securities tend to be more sensitive to adverse news about the issuer, or the market or economy in general, than higher quality debt instruments. Certain underlying funds invest a significant portion of their assets in asset-backed and/or mortgage-backed securities. For these securities, the value of the debt instrument also depends on the credit quality and adequacy of the underlying assets or collateral as well as whether there is a security interest in the underlying assets or collateral. Enforcing rights, if any, against the underlying assets or collateral may be difficult. U.S. Government securities not supported as to the payment of principal or interest by the U.S. Treasury, such as those issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, are subject to greater credit risk than are U.S. Government securities supported by the U.S. Treasury, such as those issued by Ginnie Mae. Certain underlying funds invest in foreign securities, including securities of emerging market issuers. 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 market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions. Investments in emerging markets can involve additional and greater risks than the risks associated with investments in developed foreign markets. Emerging markets can have less developed markets, greater custody and operational risk, less developed legal, regulatory, and accounting, and auditing systems, and greater political, social, and economic instability than developed markets.
The accounting policies of the underlying funds in which the fund invests are outlined in the underlying funds’ shareholder reports, which are available without charge by calling 1-800-225-2606, at mfs.com and on the Securities and Exchange Commission (SEC) web site at http://www.sec.gov. The underlying funds’ shareholder reports are not covered by this report.
In March 2020, the FASB issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional, temporary relief with respect to the financial reporting of contracts subject to certain types of modifications due to the planned discontinuation of the London Interbank Offered Rate (LIBOR) and other IBOR-based reference rates as of the end of 2021. The temporary relief provided by ASU 2020-04 is effective for certain reference rate-related contract modifications that occur during the period from March 12, 2020 through December 31, 2022. Management is evaluating the impact of ASU 2020-04 on the fund’s investments, derivatives, debt and other contracts that will undergo reference rate-related modifications as a result of the reference rate reform.
Investment Valuations – Open-end investment companies (underlying funds) are generally valued at their net asset value per share. The investments of underlying funds managed by the adviser are valued as described below. For purposes of this policy disclosure, “fund” also refers to the underlying funds in which the fund-of-funds invests.
Equity securities, including restricted equity securities and equity securities sold short, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Equity securities sold short, for which there were no sales reported that day, are generally valued at the last quoted daily ask quotation on their primary market or exchange as provided by a third-party pricing service. Debt instruments and floating rate loans, including restricted debt instruments, are generally valued at an evaluated or composite bid as
14
MFS Moderate Allocation Portfolio
Notes to Financial Statements – continued
provided by a third-party pricing service. Debt instruments sold short are generally valued at an evaluated or composite mean as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price on their primary exchange as provided by a third-party pricing service. Exchange-traded options for which there were no sales reported that day are generally valued at the last daily bid quotation on their primary exchange as provided by a third-party pricing service. For put options, the position may be valued at the last daily ask quotation if there are no trades reported during the day. Options not traded on an exchange are generally valued at a broker/dealer bid quotation. Foreign currency options are generally valued at valuations provided by a third-party pricing service. Futures contracts are generally valued at last posted settlement price on their primary exchange as provided by a third-party pricing service. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation on their primary exchange as provided by a third-party pricing service. Forward foreign currency exchange contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates provided by a third-party pricing service for proximate time periods. Swap agreements are generally valued using valuations provided by a third-party pricing service, which for cleared swaps includes an evaluation of any trading activity at the clearinghouses. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of December 31, 2020 in valuing the fund’s assets or liabilities:
| | | | | | | | | | | | | | | | |
| Financial Instruments | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Mutual Funds | | | $1,434,236,526 | | | | $— | | | | $— | | | | $1,434,236,526 | |
For further information regarding security characteristics, see the Portfolio of Investments. Please refer to the underlying funds’ shareholder reports for further information regarding the levels used in valuing the underlying funds’ assets or liabilities.
15
MFS Moderate Allocation Portfolio
Notes to Financial Statements – continued
Derivatives – The fund does not invest in derivatives directly. The fund does invest in underlying funds that may use derivatives primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate or currency exposure, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the underlying funds use derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. Distributions of income and capital gains from the underlying funds are recorded on the ex-dividend date. Recognition of net investment income by the fund is affected by the timing of the declaration of distributions by the underlying funds in which the fund invests. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
The fund and/or the underlying funds may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | | | | | | | |
| | | Year ended
12/31/20 | | | Year ended
12/31/19 | |
| Ordinary income (including any short-term capital gains) | | | $31,753,653 | | | | $31,668,625 | |
| Long-term capital gains | | | 80,990,101 | | | | 98,016,020 | |
| Total distributions | | | $112,743,754 | | | | $129,684,645 | |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| | | | |
| As of 12/31/20 | | | | |
| |
| Cost of investments | | | $1,096,525,860 | |
| Gross appreciation | | | 341,539,164 | |
| Gross depreciation | | | (3,828,498 | ) |
| Net unrealized appreciation (depreciation) | | | $337,710,666 | |
| |
| Undistributed ordinary income | | | 31,405,717 | |
| Undistributed long-term capital gain | | | 55,692,174 | |
16
MFS Moderate Allocation Portfolio
Notes to Financial Statements – continued
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | | | | | | | |
| | |
| | | Year ended
12/31/20 | | | Year ended
12/31/19 | |
| Initial Class | | | $623,766 | | | | $563,100 | |
| Service Class | | | 112,119,988 | | | | 129,121,545 | |
| Total | | | $112,743,754 | | | | $129,684,645 | |
| (3) | | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. MFS receives no compensation under this agreement; however MFS receives management fees from the underlying MFS funds.
The investment adviser has agreed in writing to pay a portion of the fund’s operating expenses, excluding distribution and/or service fees, interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses such as fees and expenses associated with investments in investment companies and other similar investment vehicles such that fund operating expenses do not exceed 0.20% annually of the fund’s average daily net assets. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2022. For the year ended December 31, 2020, the fund’s actual operating expenses did not exceed the limit and therefore, the investment adviser did not pay any portion of the fund’s expenses related to this agreement.
In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the fund invests. Accordingly, the expense ratio for the fund reflects only those fees and expenses borne directly by the fund.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2020, the fee was $18,836, which equated to 0.0014% annually of the fund’s average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2020, these costs amounted to $178.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund pays an annual fixed amount of $17,500. The administrative services fee incurred for the year ended December 31, 2020 was equivalent to an annual effective rate of 0.0013% of the fund’s average daily net assets.
Trustees’ and Officers’ Compensation – The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
(4) Portfolio Securities
For the year ended December 31, 2020, purchases and sales of shares of underlying funds, excluding the MFS Institutional Money Market Portfolio, aggregated $88,280,389 and $258,105,093, respectively.
17
MFS Moderate Allocation Portfolio
Notes to Financial Statements – continued
| (5) | | Shares of Beneficial Interest |
The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
| | | | | | | | | | | | | | | | |
| | | Year ended 12/31/20 | | | Year ended 12/31/19 | |
| | | | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares sold | | | | | | | | | | | | | | | | |
Initial Class | | | 73,652 | | | | $1,010,328 | | | | 27,059 | | | | $351,818 | |
Service Class | | | 671,675 | | | | 7,815,165 | | | | 133,868 | | | | 1,765,070 | |
| | | 745,327 | | | | $8,825,493 | | | | 160,927 | | | | $2,116,888 | |
| | | | |
| Shares issued to shareholders in reinvestment of distributions | | | | | | | | | | | | | | | | |
Initial Class | | | 48,354 | | | | $623,766 | | | | 45,048 | | | | $563,100 | |
Service Class | | | 8,684,740 | | | | 112,119,988 | | | | 10,329,723 | | | | 129,121,545 | |
| | | 8,733,094 | | | | $112,743,754 | | | | 10,374,771 | | | | $129,684,645 | |
| | | | |
| Shares reacquired | | | | | | | | | | | | | | | | |
Initial Class | | | (40,060 | ) | | | $(529,008 | ) | | | (30,872 | ) | | | $(397,056 | ) |
Service Class | | | (13,418,043 | ) | | | (174,597,951 | ) | | | (17,736,864 | ) | | | (232,608,066 | ) |
| | | (13,458,103 | ) | | | $(175,126,959 | ) | | | (17,767,736 | ) | | | $(233,005,122 | ) |
| | | | |
| Net change | | | | | | | | | | | | | | | | |
Initial Class | | | 81,946 | | | | $1,105,086 | | | | 41,235 | | | | $517,862 | |
Service Class | | | (4,061,628 | ) | | | (54,662,798 | ) | | | (7,273,273 | ) | | | (101,721,451 | ) |
| | | (3,979,682 | ) | | | $(53,557,712 | ) | | | (7,232,038 | ) | | | $(101,203,589 | ) |
The fund and certain other funds managed by MFS participate in a $1.25 billion unsecured committed line of credit of which $1 billion is reserved for use by the fund and certain other U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2020, the fund’s commitment fee and interest expense were $7,314 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
18
MFS Moderate Allocation Portfolio
Notes to Financial Statements – continued
| (7) | | Investments in Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| | | | | | | | | | | | | | | | | | | | | | | | |
| Affiliated Issuers | | Beginning
Value | | | Purchases | | | Sales
Proceeds | | | Realized
Gain
(Loss) | | | Change in
Unrealized
Appreciation or
Depreciation | | | Ending
Value | |
| MFS Global Governments Portfolio | | | $69,188,179 | | | | $6,857,004 | | | | $12,668,110 | | | | $(234,016 | ) | | | $5,923,381 | | | | $69,066,438 | |
| MFS Global Real Estate Portfolio | | | 42,213,211 | | | | 6,732,342 | | | | 3,816,046 | | | | 392,316 | | | | (1,614,876 | ) | | | 43,906,947 | |
| MFS Government Securities Portfolio | | | 139,648,867 | | | | 18,521,626 | | | | 29,559,414 | | | | (1,449,004 | ) | | | 5,764,617 | | | | 132,926,692 | |
| MFS Growth Series | | | 129,207,879 | | | | 8,261,537 | | | | 33,761,439 | | | | 13,834,399 | | | | 13,537,479 | | | | 131,079,855 | |
| MFS High Yield Portfolio | | | 71,116,166 | | | | 5,040,026 | | | | 5,204,473 | | | | (688,292 | ) | | | 302,427 | | | | 70,565,854 | |
| MFS Inflation-Adjusted Bond Portfolio | | | 69,697,879 | | | | 2,688,585 | | | | 8,924,782 | | | | (71,926 | ) | | | 7,185,509 | | | | 70,575,265 | |
| MFS Institutional Money Market Portfolio | | | 1,570,637 | | | | 5,409,739 | | | | 5,449,680 | | | | (82 | ) | | | 28 | | | | 1,530,642 | |
| MFS International Growth Portfolio | | | 43,028,167 | | | | 2,960,799 | | | | 7,115,193 | | | | 829,794 | | | | 4,542,693 | | | | 44,246,260 | |
| MFS International Intrinsic Value Portfolio | | | 42,910,215 | | | | 2,011,025 | | | | 7,378,836 | | | | 2,408,032 | | | | 4,137,716 | | | | 44,088,152 | |
| MFS Limited Maturity Portfolio | | | 56,322,769 | | | | 3,141,857 | | | | 5,791,637 | | | | (128,014 | ) | | | 506,537 | | | | 54,051,512 | |
| MFS Mid Cap Growth Series | | | 100,114,910 | | | | 11,618,285 | | | | 32,049,750 | | | | 6,085,827 | | | | 18,864,086 | | | | 104,633,358 | |
| MFS Mid Cap Value Portfolio | | | 100,501,786 | | | | 21,686,555 | | | | 21,108,380 | | | | (2,265,203 | ) | | | 5,219,197 | | | | 104,033,955 | |
| MFS New Discovery Series | | | 21,505,233 | | | | 4,048,736 | | | | 9,414,597 | | | | 1,759,045 | | | | 5,115,141 | | | | 23,013,558 | |
| MFS New Discovery Value Portfolio | | | 21,487,891 | | | | 6,202,671 | | | | 5,064,357 | | | | (827,734 | ) | | | 1,114,763 | | | | 22,913,234 | |
| MFS Research International Portfolio | | | 100,432,483 | | | | 11,038,663 | | | | 15,672,540 | | | | 1,775,484 | | | | 5,966,899 | | | | 103,540,989 | |
| MFS Research Series | | | 114,795,342 | | | | 11,482,440 | | | | 22,455,634 | | | | 3,018,206 | | | | 10,413,761 | | | | 117,254,115 | |
| MFS Total Return Bond Series | | | 168,792,734 | | | | 9,647,266 | | | | 21,222,574 | | | | (208,455 | ) | | | 7,593,750 | | | | 164,602,721 | |
| MFS Value Series | | | 128,988,929 | | | | 20,221,401 | | | | 16,897,332 | | | | 1,603,906 | | | | (1,709,925 | ) | | | 132,206,979 | |
| | | $1,421,523,277 | | | | $157,570,557 | | | | $263,554,774 | | | | $25,834,283 | | | | $92,863,183 | | | | $1,434,236,526 | |
| | | | | | |
| Affiliated Issuers | | | | | | | | | | | | | | Dividend
Income | | | Capital Gain
Distributions | |
| MFS Global Governments Portfolio | | | | | | | | | | | | | | | | | | | $881,234 | | | | $— | |
| MFS Global Real Estate Portfolio | | | | | | | | | | | | | | | | | | | 2,231,302 | | | | 803,733 | |
| MFS Government Securities Portfolio | | | | | | | | | | | | | | | | | | | 3,832,712 | | | | — | |
| MFS Growth Series | | | | | | | | | | | | | | | | | | | — | | | | 7,622,474 | |
| MFS High Yield Portfolio | | | | | | | | | | | | | | | | | | | 3,768,547 | | | | — | |
| MFS Inflation-Adjusted Bond Portfolio | | | | | | | | | | | | | | | | | | | 400,469 | | | | 787,580 | |
| MFS Institutional Money Market Portfolio | | | | | | | | | | | | | | | | | | | 8,439 | | | | — | |
| MFS International Growth Portfolio | | | | | | | | | | | | | | | | | | | 693,411 | | | | 412,388 | |
| MFS International Intrinsic Value Portfolio | | | | | | | | | | | | | | | | | | | 447,158 | | | | 764,034 | |
| MFS Limited Maturity Portfolio | | | | | | | | | | | | | | | | | | | 1,673,434 | | | | — | |
| MFS Mid Cap Growth Series | | | | | | | | | | | | | | | | | | | 359,512 | | | | 6,607,433 | |
| MFS Mid Cap Value Portfolio | | | | | | | | | | | | | | | | | | | 1,896,539 | | | | 3,398,606 | |
| MFS New Discovery Series | | | | | | | | | | | | | | | | | | | 571,073 | | | | 1,329,736 | |
| MFS New Discovery Value Portfolio | | | | | | | | | | | | | | | | | | | 548,386 | | | | 1,516,137 | |
| MFS Research International Portfolio | | | | | | | | | | | | | | | | | | | 2,026,068 | | | | 3,211,168 | |
| MFS Research Series | | | | | | | | | | | | | | | | | | | 1,173,067 | | | | 3,921,153 | |
| MFS Total Return Bond Series | | | | | | | | | | | | | | | | | | | 5,508,475 | | | | — | |
| MFS Value Series | | | | | | | | | | | | | | | | | | | 2,107,532 | | | | 5,387,067 | |
| | | | | | | | | | | | | | | | | | | $28,127,358 | | | | $35,761,509 | |
The pandemic related to the global spread of novel coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to global business activity and the global economy, as well as the economies of individual countries, the financial performance of individual companies and sectors, and the securities and commodities markets in general. This pandemic, the full effects of which are still unknown, has resulted in substantial market volatility and may have adversely impacted the prices and liquidity of the fund’s investments and the fund’s performance.
19
MFS Moderate Allocation Portfolio
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of MFS Variable Insurance Trust III and the Shareholders of MFS Moderate Allocation Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Moderate Allocation Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2020, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2020, and 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 accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2020, by correspondence with the transfer agent. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 16, 2021
We have served as the auditor of one or more of the MFS investment companies since 1924.
20
MFS Moderate Allocation Portfolio
TRUSTEES AND OFFICERS – IDENTIFICATION AND BACKGROUND
The Trustees and Officers of the Trust, as of February 1, 2021, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| | | | | | | | | | |
Name, Age | | Position(s)
Held with Fund | | Trustee/Officer
Since (h) | | Number of MFS Funds
overseen by the
Trustee | | Principal Occupations During the Past Five Years | | Other Directorships During the Past Five Years (j) |
| INTERESTED TRUSTEES |
Robert J. Manning (k)
(age 57) | | Trustee | | February 2004 | | 134 | | Massachusetts Financial Services Company, Non-Executive Chairman (since January 2021); Director; Chairman of the Board; Executive Chairman (January 2017-2020); Co-Chief Executive Officer (2015-2016) | | N/A |
| | | | | |
Michael W. Roberge (k) (age 54) | | Trustee | | January 2021 | | 134 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; President (until December 2018); Chief Investment Officer (until December 2018); Co-Chief Executive Officer (until December 2016) | | N/A |
|
| INDEPENDENT TRUSTEES |
John P. Kavanaugh (age 66) | | Trustee and Chair of Trustees | | January 2009 | | 134 | | Private investor | | N/A |
| | | | | |
Steven E. Buller (age 69) | | Trustee | | February 2014 | | 134 | | Private investor | | N/A |
| | | | | |
John A. Caroselli (age 66) | | Trustee | | March 2017 | | 134 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
| | | | | |
Maureen R. Goldfarb (age 65) | | Trustee | | January 2009 | | 134 | | Private investor | | N/A |
| | | | | |
Peter D. Jones
(age 65) | | Trustee | | January 2019 | | 134 | | Private investor | | N/A |
| | | | | |
James W. Kilman, Jr.
(age 59) | | Trustee | | January 2019 | | 134 | | Burford Capital Limited (finance and investment management), Chief Financial Officer (since 2019); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016); Morgan Stanley & Co. (financial services), Vice Chairman of Investment Banking, Co-Head of Diversified Financials Coverage – Financial Institutions Investment Banking Group (until 2016) | | Alpha-En Corporation, Director (2016-2019) |
| | | | | |
Clarence Otis, Jr. (age 64) | | Trustee | | March 2017 | | 134 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
| | | | | |
Maryanne L. Roepke (age 64) | | Trustee | | May 2014 | | 134 | | Private investor | | N/A |
| | | | | |
Laurie J. Thomsen
(age 63) | | Trustee | | March 2005 | | 134 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
21
MFS Moderate Allocation Portfolio
Trustees and Officers – continued
| | | | | | | | |
Name, Age | | Position(s)
Held with Fund | | Trustee/Officer
Since (h) | | Number of
MFS Funds
for which the
Person is an
Officer | | Principal Occupations During the Past Five Years |
| OFFICERS | | | | | | |
Christopher R. Bohane (k)
(age 47) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 134 | | Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel |
| | | | |
Kino Clark (k) (age 52) | | Assistant Treasurer | | January 2012 | | 134 | | Massachusetts Financial Services Company, Vice President |
| | | | |
John W. Clark, Jr. (k) (age 53) | | Assistant Treasurer | | April 2017 | | 134 | | Massachusetts Financial Services Company, Vice President (since March 2017); Deutsche Bank (financial services), Department Head – Treasurer’s Office (until February 2017) |
| | | | |
Thomas H. Connors (k) (age 61) | | Assistant Secretary and Assistant Clerk | | September 2012 | | 134 | | Massachusetts Financial Services Company, Vice President and Senior Counsel |
| | | | |
David L. DiLorenzo (k)
(age 52) | | President | | July 2005 | | 134 | | Massachusetts Financial Services Company, Senior Vice President |
| | | | |
Heidi W. Hardin (k)
(age 53) | | Secretary and Clerk | | April 2017 | | 134 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel (since March 2017); Harris Associates (investment management), General Counsel (until January 2017) |
| | | | |
Brian E. Langenfeld (k) (age 47) | | Assistant
Secretary and Assistant Clerk | | June 2006 | | 134 | | Massachusetts Financial Services Company, Vice President and Senior Counsel |
| | | | |
Amanda S. Mooradian (k)
(age 41) | | Assistant
Secretary and Assistant Clerk | | September 2018 | | 134 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
| | | | |
Susan A. Pereira (k)
(age 50) | | Assistant
Secretary and Assistant Clerk | | July 2005 | | 134 | | Massachusetts Financial Services Company, Vice President and Assistant General Counsel |
| | | | |
Kasey L. Phillips (k) (age 50) | | Assistant Treasurer | | September 2012 | | 134 | | Massachusetts Financial Services Company, Vice President |
| | | | |
Matthew A. Stowe (k) (age 46) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 134 | | Massachusetts Financial Services Company, Vice President and Assistant General Counsel |
| | | | |
Martin J. Wolin (k)
(age 53) | | Chief Compliance Officer | | July 2015 | | 134 | | Massachusetts Financial Services Company, Senior Vice President and Chief Compliance Officer |
| | | | |
James O. Yost (k)
(age 60) | | Treasurer | | September 1990 | | 134 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. For the period from December 15, 2004 until February 22, 2005, Mr. Manning served as Advisory Trustee. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board’s retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Messrs. Buller, Kilman and Otis and Ms. Roepke are members of the Trust’s Audit Committee.
22
MFS Moderate Allocation Portfolio
Trustees and Officers – continued
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| | |
Investment Adviser Massachusetts Financial Services Company 111 Huntington Avenue Boston, MA 02199-7618 | | Custodian State Street Bank and Trust Company 1 Lincoln Street Boston, MA 02111-2900 |
| |
Distributor MFS Fund Distributors, Inc. 111 Huntington Avenue Boston, MA 02199-7618 | | Independent Registered Public Accounting Firm Deloitte & Touche LLP 200 Berkeley Street Boston, MA 02116 |
| |
Portfolio Manager(s) Joseph Flaherty Natalie Shapiro | | |
23
MFS Moderate Allocation Portfolio
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
MFS Moderate Allocation Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times by videoconference (in accordance with Securities and Exchange Commission relief) over the course of three months beginning in May and ending in July, 2020 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2019 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s fees and expenses and the fees and expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information as to whether and to what extent applicable expense waivers and reimbursements are observed for the Fund, (iv) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (v) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vi) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (vii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2019, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 1st quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 1st quintile for each of the one- and three-year periods ended December 31, 2019 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
24
MFS Moderate Allocation Portfolio
Board Review of Investment Advisory Agreement – continued
The Trustees considered that MFS does not charge an advisory fee for providing investment advisory services to the Fund, but that the Fund pays its pro rata share of the advisory fees paid by the underlying funds in which it invests (the “Underlying Funds”).
In assessing the reasonableness of the Fund’s expenses, the Trustees considered, among other information, the Fund’s total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s total expense ratio was lower than the Broadridge expense group median. Because the Fund does not pay an advisory fee, the Trustees did not consider the extent to which economies of scale would be realized due to the Fund’s growth of assets, whether fee levels reflect economies of scale for shareholders, or the fees paid by similar funds to other investment advisers or by similar clients of MFS.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s or the Underlying Funds’ behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2020.
25
MFS Moderate Allocation Portfolio
PROXY VOTING POLICIES AND INFORMATION
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund’s fiscal year at mfs.com/vit3 by choosing the fund’s name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit3 by choosing the fund’s name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
INFORMATION ABOUT FUND CONTRACTS AND LEGAL CLAIMS
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
FEDERAL TAX INFORMATION (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates $89,090,000 as capital gain dividends paid during the fiscal year.
For corporate shareholders, 20.64% of the ordinary income dividends paid during the fiscal year qualify for the corporate dividends received deduction.
The fund intends to pass through the maximum amount allowable as Section 163(j) Interest Dividends as defined in Treasury Regulation §1.163(j)-1(b).
26
rev. 3/16
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| FACTS | | WHAT DOES MFS DO WITH YOUR
PERSONAL INFORMATION? | |  |
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| Why? | | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
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| What? | | The types of personal information we collect and share depend on the product or service you have with us. This information can include: • Social Security number and account balances • Account transactions and transaction history • Checking account information and wire transfer instructions When you are no longer our customer, we continue to share your information as described in this notice. |
| | |
| How? | | All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
| | | | |
Reasons we can share your
personal information | | Does MFS share? | | Can you limit this
sharing? |
For our everyday business purposes – such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus | | Yes | | No |
For our marketing purposes – to offer our products and services to you | | No | | We don’t share |
| For joint marketing with other financial companies | | No | | We don’t share |
For our affiliates’ everyday business purposes – information about your transactions and experiences | | No | | We don’t share |
For our affiliates’ everyday business purposes – information about your creditworthiness | | No | | We don’t share |
| For nonaffiliates to market to you | | No | | We don’t share |
| | |
| | |
| Questions? | | Call 800-225-2606 or go to mfs.com. |
27
| | |
| Who we are |
| Who is providing this notice? | | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| | |
| What we do |
| How does MFS protect my personal information? | | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal information? | | We collect your personal information, for example, when you • open an account or provide account information • direct us to buy securities or direct us to sell your securities • make a wire transfer We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can’t I limit all sharing? | | Federal law gives you the right to limit only • sharing for affiliates’ everyday business purposes – information about your creditworthiness • affiliates from using your information to market to you • sharing for nonaffiliates to market to you State laws and individual companies may give you additional rights to limit sharing. |
| | |
| Definitions |
| Affiliates | | Companies related by common ownership or control. They can be financial and nonfinancial companies. • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | | Companies not related by common ownership or control. They can be financial and nonfinancial companies. • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. • MFS doesn’t jointly market. |
| | |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
28
Annual Report
December 31, 2020
MFS® New Discovery Value Portfolio
MFS® Variable Insurance Trust III
VDV-ANN
MFS® New Discovery Value Portfolio
CONTENTS
The report is prepared for the general information of contract owners. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE • NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS New Discovery Value Portfolio
LETTER FROM THE CEO
Dear Contract Owners:
Markets experienced dramatic swings this year as the coronavirus pandemic brought the global economy to a standstill for several months early in the year. The speedy development of vaccines and therapeutics later brightened the economic and market outlook, but a great deal of uncertainty remains as case counts remain high, new variants of the virus are appearing and questions persist over how fast the vaccine can be made widely available. In the United States, political uncertainty eased after former Vice President Joe Biden won the presidential election and the Democrats gained control of a closely divided Senate.
Global central banks have taken aggressive steps to cushion the economic and market fallout related to the virus, and governments are deploying unprecedented levels of fiscal support. Additional U.S. stimulus is anticipated with the Democrats in the White House and in control of both houses of Congress. The measures already put in place have helped build a supportive environment and are encouraging economic recovery; however, if markets disconnect from fundamentals, they can sow the seeds of instability. As such, dramatic increases in speculative retail trading bear watching.
In the aftermath of the crisis, we could see societal changes as households, businesses, and governments adjust to a new reality, and any such alterations could affect the investment landscape. For investors, events such as the COVID-19 outbreak demonstrate the importance of having a deep understanding of company fundamentals, and we have built our global research platform to do just that.
At MFS®, we put our clients’ assets to work responsibly by carefully navigating the increasing complexity of our global markets and economies. Guided by our long-term philosophy and adhering to our commitment to sustainable investing, we tune out the noise and aim to uncover what we believe are the best, most durable investment opportunities in the market. Our unique global investment platform combines collective expertise, long-term discipline and thoughtful risk management to create sustainable value for investors.
Respectfully,
Michael W. Roberge
Chief Executive Officer
MFS Investment Management
February 16, 2021
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
1
MFS New Discovery Value Portfolio
PORTFOLIO COMPOSITION
Portfolio structure
| | | | |
| Top ten holdings | | | | |
| KBR, Inc. | | | 1.7% | |
| Element Solutions, Inc. | | | 1.7% | |
| WESCO International, Inc. | | | 1.7% | |
| Graphic Packaging Holding Co. | | | 1.6% | |
| UMB Financial Corp. | | | 1.5% | |
| East West Bancorp, Inc. | | | 1.5% | |
| Cathay General Bancorp, Inc. | | | 1.4% | |
| Umpqua Holdings Corp. | | | 1.4% | |
| SLM Corp. | | | 1.4% | |
| Verint Systems, Inc. | | | 1.4% | |
| | | | |
| GICS equity sectors (g) | | | | |
| Financials | | | 25.2% | |
| Industrials | | | 15.1% | |
| Consumer Discretionary | | | 13.3% | |
| Materials | | | 10.3% | |
| Information Technology | | | 9.5% | |
| Real Estate | | | 8.1% | |
| Utilities | | | 5.4% | |
| Energy | | | 5.1% | |
| Health Care | | | 3.4% | |
| Consumer Staples | | | 3.1% | |
| Communication Services | | | 0.6% | |
| (g) | The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and S&P Global Market Intelligence Inc. (“S&P Global Market Intelligence”). GICS is a service mark of MSCI and S&P Global Market Intelligence and has been licensed for use by MFS. MFS has applied its own internal sector/industry classification methodology for equity securities and non-equity securities that are unclassified by GICS. |
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of December 31, 2020.
The portfolio is actively managed and current holdings may be different.
2
MFS New Discovery Value Portfolio
MANAGEMENT REVIEW
Summary of Results
For the twelve months ended December 31, 2020, Initial Class shares of the MFS New Discovery Value Portfolio (fund) provided a total return of 4.19%, while Service Class shares of the fund provided a total return of 3.73%. These compare with a return of 4.63% over the same period for the fund’s benchmark, the Russell 2000® Value Index.
Market Environment
Markets experienced an extraordinarily sharp selloff early in the period and, in many cases, an unusually rapid recovery later. Central banks and fiscal authorities undertook astonishing levels of stimulus to offset the economic effects of government-imposed social-distancing measures implemented to slow the spread of the COVID-19 virus. At this point, the global economy looks to have experienced the shortest – albeit the deepest and steepest – recession in the postwar period. However, the recovery remains subject to more than the usual number of uncertainties due to questions about the evolution of the virus, what its continued impact will be and how quickly vaccines to guard against it can be manufactured and distributed at scale. There are also worries over the public’s willingness to be inoculated.
Around the world, central banks responded quickly and massively to the crisis with programs to improve liquidity and support markets. These programs proved largely successful in helping to restore market function, ease volatility and stimulate a continued market rebound. Late in the period, the US Federal Reserve adopted a new, flexible, average-inflation-targeting framework, which is expected to result in the federal funds rate remaining at low levels longer than under its previous model. In developed countries, monetary easing measures were complemented by unusually large fiscal stimulus initiatives. Due to relatively manageable external liabilities and balances of payments in many countries and persistently low inflation, even emerging market countries were able to implement countercyclical policies – a departure from the usual market-dictated response to risk-off crises.
Compounding market uncertainty earlier in the pandemic was a crash in the price of crude oil due to a sharp drop in global demand and a disagreement between Saudi Arabia and Russia over production cuts, which resulted in an oil price war. The subsequent decline in prices undercut oil exporters, many of which are in emerging markets, as well as a large segment of the high-yield credit market. The OPEC+ group later agreed on output cuts, with shale oil producers in the US also decreasing production, which, along with the gradual reopening of some major economies and the resultant boost in demand, helped stabilize the price of crude oil.
In the immediate aftermath of the market disruption that accompanied the initial phases of the pandemic, many companies that had added significant leverage to their balance sheets in recent years by borrowing to fund dividend payments and stock buybacks halted those activities, and some companies were forced to recapitalize. As markets and the economy stabilized later in the period, in many cases dividend payments and buybacks resumed. Conversely, some companies found themselves flush with liquidity, having borrowed preemptively during the worst of the crisis only to end up with excess cash on their balance sheets.
Detractors from Performance
Stock selection within both the consumer discretionary and utilities sectors held back the fund’s performance relative to the Russell 2000® Value Index. Within the consumer discretionary sector, not owning shares of strong-performing gaming services provider Penn National Gaming, and the fund’s overweight position in beauty salons operator Regis, weighed on relative returns. Within the utilities sector, an overweight position in energy provider South Jersey Industries weakened relative performance.
Although security selection and an underweight position in the health care sector dampened relative performance, there were no individual stocks within this sector, either in the fund or in the benchmark, that were among the fund’s largest relative detractors for the reporting period.
Elsewhere, the fund’s overweight positions in onshore contract drilling company Patterson-UTI Energy (h), oil and gas services provider Frank’s International and commercial banking and financial services provider Hanmi Financial held back relative returns. The timing of the fund’s ownership in shares of real estate investment trust Two Harbors Investment, its holdings of oil transportation and storage company Plains GP Holdings (b) and independent natural gas and oil WPX Energy (b), and not owning shares of strong-performing natural ingredients company Darling Ingredients further hindered relative performance.
Contributors to Performance
Stock selection and an underweight position in the financials sector contributed to relative returns, led by the fund’s holdings of financial data services firm TMX Group (b)(h) (Canada).
Stock selection within both the real estate and industrials sectors further supported relative results. Within the real estate sector, holdings of real estate investment trust Equity Commonwealth (b)(h) were among the fund’s top contributors. Within the industrials sector, holdings of electric and gas infrastructure services provider Quanta Services (b) and industrial distributor HD Supply Holdings (b)(h), and an overweight position in intermodal container lessor Textainer Group (China), further strengthened relative performance.
3
MFS New Discovery Value Portfolio
Management Review – continued
Elsewhere, individual stocks that were among the fund’s top relative contributors during the reporting period included its overweight holdings of strong-performing Internet-based mailing and shipping solutions company Stamps.com and warehouse club operator BJ’s Wholesale Club (h). Holding shares of enterprise communication solutions provider 8X8 (b), specialty chemical company Element Solutions (b) and frozen food manufacturer Nomad Foods (b) (United Kingdom) also aided relative returns.
Respectfully,
Portfolio Manager(s)
Richard Offen and Kevin Schmitz
| (b) | Security is not a benchmark constituent. |
| (h) | Security was not held in the portfolio at period end. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
4
MFS New Discovery Value Portfolio
PERFORMANCE SUMMARY THROUGH 12/31/20
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your units, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a contract holder would pay on fund distributions or the redemption of contract units. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/20
Average annual total returns
| | | | | | | | | | | | |
| | | Share Class | | Class Inception Date | | 1-yr | | 5-yr | | 10-yr | | |
| | | Initial Class | | 10/01/08 | | 4.19% | | 12.73% | | 10.20% | | |
| | | Service Class | | 10/01/08 | | 3.73% | | 12.42% | | 9.92% | | |
| | | | |
| Comparative benchmark(s) | | | | | | | | |
| | | Russell 2000® Value Index (f) | | 4.63% | | 9.65% | | 8.66% | | |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
Russell 2000® Value Index (h) – a market-capitalization-weighted, value-oriented index that measures the performance of small-capitalization stocks that have relatively low price-to-book ratios and lower forecasted growth values.
It is not possible to invest directly in an index.
| (h) | Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and/or Russell ratings or underlying data and no party may rely on any Russell Indexes and/or Russell ratings and/or underlying data contained in this document. No further distribution of Russell Data is permitted without Russell’s express written consent. Russell does not promote, sponsor, or endorse the content of this document. |
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund’s performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
5
MFS New Discovery Value Portfolio
Performance Summary – continued
Performance prior to close of business December 7, 2012, reflects time periods when another adviser or subadviser was responsible for selecting investments for the fund under a different investment objective and different investment strategies.
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
6
MFS New Discovery Value Portfolio
EXPENSE TABLE
Fund Expenses Borne by the Contract Holders during the Period,
July 1, 2020 through December 31, 2020
As a contract holder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2020 through December 31, 2020.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund’s ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
| | | | | | | | | | | | | | | | | | |
| Share Class | | | | Annualized
Expense Ratio | | | Beginning
Account Value
7/01/20 | | | Ending
Account Value
12/31/20 | | | Expenses Paid
During Period (p)
7/01/20-12/31/20 | |
| Initial Class | | Actual | | | 0.88% | | | | $1,000.00 | | | | $1,303.05 | | | | $5.09 | |
| | Hypothetical (h) | | | 0.88% | | | | $1,000.00 | | | | $1,020.71 | | | | $4.47 | |
| Service Class | | Actual | | | 1.13% | | | | $1,000.00 | | | | $1,300.13 | | | | $6.53 | |
| | Hypothetical (h) | | | 1.13% | | | | $1,000.00 | | | | $1,019.46 | | | | $5.74 | |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). |
7
MFS New Discovery Value Portfolio
PORTFOLIO OF INVESTMENTS – 12/31/20
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| COMMON STOCKS – 99.1% | | | | | | | | |
| Aerospace – 3.9% | | | | | |
| CACI International, Inc., “A” (a) | | | 2,006 | | | $ | 500,156 | |
| KBR, Inc. | | | 30,816 | | | | 953,139 | |
| PAE, Inc. (a) | | | 76,476 | | | | 702,050 | |
| | | | | | | | |
| | | | | | $ | 2,155,345 | |
| | | | | | | | |
| Apparel Manufacturers – 2.4% | | | | | |
| PVH Corp. | | | 7,613 | | | $ | 714,784 | |
| Skechers USA, Inc., “A” (a) | | | 16,940 | | | | 608,824 | |
| | | | | | | | |
| | | | | | $ | 1,323,608 | |
| | | | | | | | |
| Automotive – 3.3% | | | | | |
| LKQ Corp. (a) | | | 18,041 | | | $ | 635,765 | |
| Methode Electronics, Inc. | | | 14,265 | | | | 546,064 | |
| Stoneridge, Inc. (a) | | | 9,034 | | | | 273,098 | |
| Visteon Corp. (a) | | | 2,785 | | | | 349,573 | |
| | | | | | | | |
| | | | | | $ | 1,804,500 | |
| | | | | | | | |
| Business Services – 1.0% | | | | | |
| Stamps.com, Inc. (a) | | | 1,685 | | | $ | 330,580 | |
| WNS (Holdings) Ltd., ADR (a) | | | 3,221 | | | | 232,073 | |
| | | | | | | | |
| | | | | | $ | 562,653 | |
| | | | | | | | |
| Chemicals – 1.7% | | | | | |
| Element Solutions, Inc. | | | 51,945 | | | $ | 920,985 | |
| | | | | | | | |
| Computer Software – 1.8% | | | | | |
| 8x8, Inc. (a) | | | 19,078 | | | $ | 657,619 | |
| ACI Worldwide, Inc. (a) | | | 9,296 | | | | 357,245 | |
| | | | | | | | |
| | | | | | $ | 1,014,864 | |
| | | | | | | | |
| Computer Software – Systems – 1.4% | | | | | |
| Verint Systems, Inc. (a) | | | 11,085 | | | $ | 744,690 | |
| | | | | | | | |
| Construction – 2.0% | | | | | |
| Armstrong World Industries, Inc. | | | 2,727 | | | $ | 202,862 | |
| GMS, Inc. (a) | | | 13,657 | | | | 416,265 | |
| Toll Brothers, Inc. | | | 11,444 | | | | 497,471 | |
| | | | | | | | |
| | | | | | $ | 1,116,598 | |
| | | | | | | | |
| Consumer Products – 2.2% | | | | | |
| Energizer Holdings, Inc. | | | 11,256 | | | $ | 474,778 | |
| Newell Brands, Inc. | | | 17,737 | | | | 376,557 | |
| Prestige Brands Holdings, Inc. (a) | | | 11,129 | | | | 388,068 | |
| | | | | | | | |
| | | | | | $ | 1,239,403 | |
| | | | | | | | |
| Consumer Services – 2.2% | | | | | |
| BrightView Holdings, Inc. (a) | | | 18,705 | | | $ | 282,820 | |
| Grand Canyon Education, Inc. (a) | | | 7,303 | | | | 679,982 | |
| Regis Corp. (a) | | | 30,079 | | | | 276,426 | |
| | | | | | | | |
| | | | | | $ | 1,239,228 | |
| | | | | | | | |
| Containers – 5.5% | | | | | |
| Berry Global Group, Inc. (a) | | | 12,878 | | | $ | 723,615 | |
| Graphic Packaging Holding Co. | | | 50,990 | | | | 863,771 | |
| Owens Corning | | | 6,567 | | | | 497,516 | |
| Pactiv Evergreen, Inc. (a) | | | 28,668 | | | | 520,037 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| COMMON STOCKS – continued | | | | | |
| Containers – continued | | | | | |
| Silgan Holdings, Inc. | | | 10,780 | | | $ | 399,722 | |
| | | | | | | | |
| | | | | | $ | 3,004,661 | |
| | | | | | | | |
| Electrical Equipment – 3.3% | | | | | |
| Littlefuse, Inc. | | | 1,109 | | | $ | 282,418 | |
| TriMas Corp. (a) | | | 19,566 | | | | 619,655 | |
| WESCO International, Inc. (a) | | | 11,574 | | | | 908,559 | |
| | | | | | | | |
| | | | | | $ | 1,810,632 | |
| | | | | | | | |
| Electronics – 1.8% | | | | | |
| nLIGHT, Inc. (a) | | | 11,068 | | | $ | 361,370 | |
| Plexus Corp. (a) | | | 7,883 | | | | 616,530 | |
| | | | | | | | |
| | | | | | $ | 977,900 | |
| | | | | | | | |
| Energy – Independent – 2.6% | | | | | |
| Magnolia Oil & Gas Corp., “A” (a) | | | 56,108 | | | $ | 396,123 | |
| Parsley Energy, Inc., “A” | | | 38,431 | | | | 545,720 | |
| WPX Energy, Inc. (a) | | | 63,056 | | | | 513,906 | |
| | | | | | | | |
| | | | | | $ | 1,455,749 | |
| | | | | | | | |
| Engineering – Construction – 2.2% | | | | | |
| APi Group, Inc. (a) | | | 26,936 | | | $ | 488,888 | |
| Construction Partners, Inc., “A” (a) | | | 6,589 | | | | 191,806 | |
| Quanta Services, Inc. | | | 7,138 | | | | 514,079 | |
| | | | | | | | |
| | | | | | $ | 1,194,773 | |
| | | | | | | | |
| Entertainment – 1.2% | | | | | |
| IMAX Corp. (a) | | | 17,533 | | | $ | 315,945 | |
| Six Flags Entertainment Corp. | | | 9,713 | | | | 331,213 | |
| | | | | | | | |
| | | | | | $ | 647,158 | |
| | | | | | | | |
| Food & Beverages – 2.3% | | | | | |
| Hostess Brands, Inc. (a) | | | 36,856 | | | $ | 539,572 | |
| Nomad Foods Ltd. (a) | | | 10,613 | | | | 269,782 | |
| Sanderson Farms, Inc. | | | 3,295 | | | | 435,599 | |
| | | | | | | | |
| | | | | | $ | 1,244,953 | |
| | | | | | | | |
| Gaming & Lodging – 0.7% | | | | | |
| Wyndham Hotels & Resorts, Inc. | | | 6,078 | | | $ | 361,276 | |
| | | | | | | | |
| Insurance – 4.2% | | | | | |
| CNO Financial Group, Inc. | | | 29,238 | | | $ | 649,961 | |
| Everest Re Group Ltd. | | | 1,269 | | | | 297,060 | |
| Hanover Insurance Group, Inc. | | | 4,187 | | | | 489,544 | |
| Selective Insurance Group, Inc. | | | 6,585 | | | | 441,063 | |
| Third Point Reinsurance Ltd. (a) | | | 48,522 | | | | 461,930 | |
| | | | | | | | |
| | | | | | $ | 2,339,558 | |
| | | | | | | | |
| Leisure & Toys – 1.2% | | | | | |
| Brunswick Corp. | | | 4,875 | | | $ | 371,670 | |
| Funko, Inc., “A” (a)(l) | | | 29,105 | | | | 302,110 | |
| | | | | | | | |
| | | | | | $ | 673,780 | |
| | | | | | | | |
| Machinery & Tools – 2.4% | | | | | |
| Enerpac Tool Group Corp. | | | 13,911 | | | $ | 314,528 | |
| ITT, Inc. | | | 3,471 | | | | 267,336 | |
8
MFS New Discovery Value Portfolio
Portfolio of Investments – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| COMMON STOCKS – continued | | | | | |
| Machinery & Tools – continued | | | | | | | | |
| Kennametal, Inc. | | | 8,470 | | | $ | 306,953 | |
| Regal Beloit Corp. | | | 3,348 | | | | 411,168 | |
| | | | | | | | |
| | | | | | $ | 1,299,985 | |
| | | | | | | | |
| Major Banks – 1.2% | | | | | | | | |
| TCF Financial Corp. | | | 18,286 | | | $ | 676,948 | |
| | | | | | | | |
| Medical & Health Technology & Services – 2.7% | |
| PRA Health Sciences, Inc. (a) | | | 5,567 | | | $ | 698,325 | |
| Premier, Inc., “A” | | | 17,934 | | | | 629,483 | |
| Syneos Health, Inc. (a) | | | 2,331 | | | | 158,811 | |
| | | | | | | | |
| | | | | | $ | 1,486,619 | |
| | | | | | | | |
| Natural Gas – Distribution – 2.3% | | | | | | | | |
| New Jersey Resources Corp. | | | 18,892 | | | $ | 671,611 | |
| South Jersey Industries, Inc. | | | 27,860 | | | | 600,383 | |
| | | | | | | | |
| | | | | | $ | 1,271,994 | |
| | | | | | | | |
| Natural Gas – Pipeline – 1.2% | | | | | | | | |
| Plains GP Holdings LP | | | 75,716 | | | $ | 639,800 | |
| | | | | | | | |
| Oil Services – 1.3% | | | | | | | | |
| ChampionX Corp. (a) | | | 27,717 | | | $ | 424,070 | |
| Frank’s International N.V. (a) | | | 103,583 | | | | 283,817 | |
| | | | | | | | |
| | | | | | $ | 707,887 | |
| | | | | | | | |
| Other Banks & Diversified Financials – 20.4% | |
| Air Lease Corp. | | | 8,476 | | | $ | 376,504 | |
| Bank of Hawaii Corp. | | | 7,672 | | | | 587,829 | |
| Brookline Bancorp, Inc. | | | 39,949 | | | | 480,986 | |
| Cathay General Bancorp, Inc. | | | 24,689 | | | | 794,739 | |
| East West Bancorp, Inc. | | | 16,331 | | | | 828,145 | |
| Element Fleet Management Corp. | | | 46,278 | | | | 486,448 | |
| Encore Capital Group, Inc. (a) | | | 18,370 | | | | 715,511 | |
| First Hawaiian, Inc. | | | 29,756 | | | | 701,646 | |
| Hanmi Financial Corp. | | | 25,370 | | | | 287,696 | |
| Lakeland Financial Corp. | | | 9,429 | | | | 505,206 | |
| Prosperity Bancshares, Inc. | | | 8,692 | | | | 602,877 | |
| Sandy Spring Bancorp, Inc. | | | 7,718 | | | | 248,442 | |
| Signature Bank | | | 4,964 | | | | 671,580 | |
| SLM Corp. | | | 60,180 | | | | 745,630 | |
| Textainer Group Holdings Ltd. (a) | | | 32,814 | | | | 629,372 | |
| UMB Financial Corp. | | | 12,032 | | | | 830,088 | |
| Umpqua Holdings Corp. | | | 51,674 | | | | 782,344 | |
| Wintrust Financial Corp. | | | 9,862 | | | | 602,470 | |
| Zions Bancorp NA | | | 8,097 | | | | 351,734 | |
| | | | | | | | |
| | | | | | $ | 11,229,247 | |
| | | | | | | | |
| Pollution Control – 0.8% | | | | | | | | |
| U.S. Ecology, Inc. | | | 11,622 | | | $ | 422,227 | |
| | | | | | | | |
| Real Estate – 9.2% | | | | | |
| Brixmor Property Group, Inc., REIT | | | 22,105 | | | $ | 365,838 | |
| Broadstone Net Lease, Inc. | | | 22,460 | | | | 439,767 | |
| Corporate Office Properties Trust, REIT | | | 10,826 | | | | 282,342 | |
| Douglas Emmett, Inc. | | | 7,643 | | | | 223,023 | |
| Empire State Realty Trust, REIT, “A” | | | 45,061 | | | | 419,969 | |
| Industrial Logistics Properties Trust, REIT | | | 30,584 | | | | 712,301 | |
| Lexington Realty Trust, REIT | | | 41,096 | | | | 436,439 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| COMMON STOCKS – continued | | | | | |
| Real Estate – continued | | | | | | | | |
| Life Storage, Inc., REIT | | | 3,804 | | | $ | 454,160 | |
| Office Properties Income Trust, REIT | | | 16,988 | | | | 385,967 | |
| STAG Industrial, Inc., REIT | | | 10,057 | | | | 314,985 | |
| Two Harbors Investment Corp., REIT | | | 101,041 | | | | 643,631 | |
| Urban Edge Properties, REIT | | | 31,324 | | | | 405,333 | |
| | | | | | | | |
| | | | | | $ | 5,083,755 | |
| | | | | | | | |
| Specialty Chemicals – 4.8% | | | | | | | | |
| Avient Corp. | | | 16,721 | | | $ | 673,522 | |
| Axalta Coating Systems Ltd. (a) | | | 12,298 | | | | 351,108 | |
| Compass Minerals International, Inc. | | | 8,283 | | | | 511,227 | |
| Ferro Corp. (a) | | | 46,692 | | | | 683,104 | |
| Univar Solutions, Inc. (a) | | | 22,838 | | | | 434,150 | |
| | | | | | | | |
| | | | | | $ | 2,653,111 | |
| | | | | | | | |
| Specialty Stores – 2.2% | | | | | | | | |
| Urban Outfitters, Inc. (a) | | | 22,166 | | | $ | 567,449 | |
| Zumiez, Inc. (a) | | | 16,978 | | | | 624,451 | |
| | | | | | | | |
| | | | | | $ | 1,191,900 | |
| | | | | | | | |
| Trucking – 0.6% | | | | | | | | |
| Schneider National, Inc. | | | 16,627 | | | $ | 344,179 | |
| | | | | | | | |
| Utilities – Electric Power – 3.1% | | | | | | | | |
| ALLETE, Inc. | | | 4,158 | | | $ | 257,546 | |
| Black Hills Corp. | | | 11,804 | | | | 725,356 | |
| Portland General Electric Co. | | | 16,618 | | | | 710,752 | |
| | | | | | | | |
| | | | | | $ | 1,693,654 | |
| | | | | | | | |
Total Common Stocks
(Identified Cost, $38,774,605) | | | | | | $ | 54,533,620 | |
| | | | | | | | |
| |
| INVESTMENT COMPANIES (h) – 0.9% | | | | | |
| Money Market Funds – 0.9% | | | | | | | | |
| MFS Institutional Money Market Portfolio, 0.1% (v) (Identified Cost, $497,322) | | | 497,322 | | | $ | 497,322 | |
| | | | | | | | |
OTHER ASSETS, LESS
LIABILITIES – 0.0% | | | | | | | 17,449 | |
| | | | | | | | |
| NET ASSETS – 100.0% | | | | | | $ | 55,048,391 | |
| | | | | | | | |
| (a) | | Non-income producing security. |
| (h) | | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund’s investments in affiliated issuers and in unaffiliated issuers were $497,322 and $54,533,620, respectively. |
| (l) | | A portion of this security is on loan. See Note 2 for additional information. |
| (v) | | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. |
The following abbreviations are used in this report and are defined:
| ADR | | American Depositary Receipt |
| REIT | | Real Estate Investment Trust |
See Notes to Financial Statements
9
MFS New Discovery Value Portfolio
FINANCIAL STATEMENTS | STATEMENT OF ASSETS AND LIABILITIES
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| | | | |
At 12/31/20 | | | | |
| |
Assets | | | | |
Investments in unaffiliated issuers, at value, including $150,946 of securities on loan (identified cost, $38,774,605) | | | $54,533,620 | |
Investments in affiliated issuers, at value (identified cost, $497,322) | | | 497,322 | |
Receivables for | | | | |
Fund shares sold | | | 35,083 | |
Interest and dividends | | | 86,571 | |
Receivable from investment adviser | | | 11,421 | |
Other assets | | | 533 | |
Total assets | | | $55,164,550 | |
| |
Liabilities | | | | |
Payables for | | | | |
Fund shares reacquired | | | $76,164 | |
Payable to affiliates | | | | |
Administrative services fee | | | 98 | |
Shareholder servicing costs | | | 22 | |
Distribution and/or service fees | | | 139 | |
Payable for independent Trustees’ compensation | | | 45 | |
Accrued expenses and other liabilities | | | 39,691 | |
Total liabilities | | | $116,159 | |
Net assets | | | $55,048,391 | |
| |
Net assets consist of | | | | |
Paid-in capital | | | $41,296,263 | |
Total distributable earnings (loss) | | | 13,752,128 | |
Net assets | | | $55,048,391 | |
Shares of beneficial interest outstanding | | | 6,291,446 | |
| | | | | | | | | | | | |
| | | |
| | | Net assets | | | Shares outstanding | | | Net asset value
per share | |
Initial Class | | | $44,833,811 | | | | 5,113,737 | | | | $8.77 | |
Service Class | | | 10,214,580 | | | | 1,177,709 | | | | 8.67 | |
See Notes to Financial Statements
10
MFS New Discovery Value Portfolio
FINANCIAL STATEMENTS | STATEMENT OF OPERATIONS
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| | | | |
Year ended 12/31/20 | | | | |
| |
Net investment income (loss) | | | | |
Income | | | | |
Dividends | | | $849,911 | |
Dividends from affiliated issuers | | | 5,345 | |
Other | | | 5,126 | |
Income on securities loaned | | | 257 | |
Foreign taxes withheld | | | (1,765 | ) |
Total investment income | | | $858,874 | |
Expenses | | | | |
Management fee | | | $432,139 | |
Distribution and/or service fees | | | 22,865 | |
Shareholder servicing costs | | | 3,692 | |
Administrative services fee | | | 17,614 | |
Independent Trustees’ compensation | | | 2,494 | |
Custodian fee | | | 6,105 | |
Shareholder communications | | | 5,022 | |
Audit and tax fees | | | 56,153 | |
Legal fees | | | 591 | |
Miscellaneous | | | 26,261 | |
Total expenses | | | $572,936 | |
Reduction of expenses by investment adviser | | | (126,779 | ) |
Net expenses | | | $446,157 | |
Net investment income (loss) | | | $412,717 | |
| |
Realized and unrealized gain (loss) | | | | |
Realized gain (loss) (identified cost basis) | | | | |
Unaffiliated issuers | | | $(1,737,282 | ) |
Affiliated issuers | | | 117 | |
Foreign currency | | | (1,418 | ) |
Net realized gain (loss) | | | $(1,738,583 | ) |
Change in unrealized appreciation or depreciation | | | | |
Unaffiliated issuers | | | $6,776,699 | |
Translation of assets and liabilities in foreign currencies | | | (7 | ) |
Net unrealized gain (loss) | | | $6,776,692 | |
Net realized and unrealized gain (loss) | | | $5,038,109 | |
Change in net assets from operations | | | $5,450,826 | |
See Notes to Financial Statements
11
MFS New Discovery Value Portfolio
FINANCIAL STATEMENTS | STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | | | | | | | |
| | | Year ended | |
| | | 12/31/20 | | | 12/31/19 | |
Change in net assets | | | | | | | | |
| | |
From operations | | | | | | | | |
Net investment income (loss) | | | $412,717 | | | | $479,827 | |
Net realized gain (loss) | | | (1,738,583 | ) | | | 3,851,791 | |
Net unrealized gain (loss) | | | 6,776,692 | | | | 9,877,996 | |
Change in net assets from operations | | | $5,450,826 | | | | $14,209,614 | |
Total distributions to shareholders | | | $(4,690,161 | ) | | | $(8,140,140 | ) |
Change in net assets from fund share transactions | | | $3,672,055 | | | | $(506,413 | ) |
Total change in net assets | | | $4,432,720 | | | | $5,563,061 | |
| | |
Net assets | | | | | | | | |
At beginning of period | | | 50,615,671 | | | | 45,052,610 | |
At end of period | | | $55,048,391 | | | | $50,615,671 | |
See Notes to Financial Statements
12
MFS New Discovery Value Portfolio
FINANCIAL STATEMENTS | FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund’s financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | | | | | | | | | | | | | | | | | |
| Initial Class | | Year ended | |
| | | | | |
| | | 12/31/20 | | | 12/31/19 | | | 12/31/18 | | | 12/31/17 | | | 12/31/16 | |
| | | | | |
Net asset value, beginning of period | | | $9.33 | | | | $8.45 | | | | $11.13 | | | | $10.79 | | | | $9.44 | |
| | | | | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | |
Net investment income (loss) (d) | | | $0.07 | | | | $0.10 | | | | $0.08 | | | | $0.05 | | | | $0.09 | (c) |
Net realized and unrealized gain (loss) | | | 0.14 | | | | 2.46 | | | | (0.94 | ) | | | 1.44 | | | | 2.34 | |
Total from investment operations | | | $0.21 | | | | $2.56 | | | | $(0.86 | ) | | | $1.49 | | | | $2.43 | |
| | | | | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $(0.08 | ) | | | $(0.08 | ) | | | $(0.06 | ) | | | $(0.11 | ) | | | $(0.10 | ) |
From net realized gain | | | (0.69 | ) | | | (1.60 | ) | | | (1.76 | ) | | | (1.04 | ) | | | (0.98 | ) |
Total distributions declared to shareholders | | | $(0.77 | ) | | | $(1.68 | ) | | | $(1.82 | ) | | | $(1.15 | ) | | | $(1.08 | ) |
Net asset value, end of period (x) | | | $8.77 | | | | $9.33 | | | | $8.45 | | | | $11.13 | | | | $10.79 | |
Total return (%) (k)(r)(s)(x) | | | 4.19 | | | | 33.65 | | | | (10.78 | ) | | | 15.24 | | | | 27.03 | (c) |
| | | | | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 1.14 | | | | 1.13 | | | | 1.11 | | | | 1.08 | | | | 1.05 | (c) |
Expenses after expense reductions (f) | | | 0.88 | | | | 0.88 | | | | 0.88 | | | | 0.88 | | | | 0.87 | (c) |
Net investment income (loss) | | | 0.90 | | | | 1.02 | | | | 0.72 | | | | 0.48 | | | | 0.91 | (c) |
Portfolio turnover | | | 84 | | | | 38 | | | | 55 | | | | 52 | | | | 48 | |
Net assets at end of period (000 omitted) | | | $44,834 | | | | $41,098 | | | | $36,665 | | | | $45,470 | | | | $46,635 | |
| |
| Service Class | | Year ended | |
| | | | | |
| | | 12/31/20 | | | 12/31/19 | | | 12/31/18 | | | 12/31/17 | | | 12/31/16 | |
| | | | | |
Net asset value, beginning of period | | | $9.25 | | | | $8.38 | | | | $11.05 | | | | $10.72 | | | | $9.38 | |
| | | | | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | |
Net investment income (loss) (d) | | | $0.05 | | | | $0.07 | | | | $0.05 | | | | $0.03 | | | | $0.06 | (c) |
Net realized and unrealized gain (loss) | | | 0.12 | | | | 2.45 | | | | (0.93 | ) | | | 1.43 | | | | 2.33 | |
Total from investment operations | | | $0.17 | | | | $2.52 | | | | $(0.88 | ) | | | $1.46 | | | | $2.39 | |
| | | | | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $(0.06 | ) | | | $(0.05 | ) | | | $(0.03 | ) | | | $(0.09 | ) | | | $(0.07 | ) |
From net realized gain | | | (0.69 | ) | | | (1.60 | ) | | | (1.76 | ) | | | (1.04 | ) | | | (0.98 | ) |
Total distributions declared to shareholders | | | $(0.75 | ) | | | $(1.65 | ) | | | $(1.79 | ) | | | $(1.13 | ) | | | $(1.05 | ) |
Net asset value, end of period (x) | | | $8.67 | | | | $9.25 | | | | $8.38 | | | | $11.05 | | | | $10.72 | |
Total return (%) (k)(r)(s)(x) | | | 3.73 | | | | 33.43 | | | | (11.00 | ) | | | 15.01 | | | | 26.73 | (c) |
| | | | | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 1.39 | | | | 1.38 | | | | 1.36 | | | | 1.33 | | | | 1.30 | (c) |
Expenses after expense reductions (f) | | | 1.13 | | | | 1.13 | | | | 1.13 | | | | 1.13 | | | | 1.12 | (c) |
Net investment income (loss) | | | 0.66 | | | | 0.78 | | | | 0.45 | | | | 0.24 | | | | 0.66 | (c) |
Portfolio turnover | | | 84 | | | | 38 | | | | 55 | | | | 52 | | | | 48 | |
Net assets at end of period (000 omitted) | | | $10,215 | | | | $9,518 | | | | $8,387 | | | | $10,907 | | | | $8,376 | |
See Notes to Financial Statements
13
MFS New Discovery Value Portfolio
Financial Highlights – continued
| (c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
| (d) | Per share data is based on average shares outstanding. |
| (f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
14
MFS New Discovery Value Portfolio
NOTES TO FINANCIAL STATEMENTS
| (1) | | Business and Organization |
MFS New Discovery Value Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust III (the trust). The trust is organized as a Delaware statutory 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, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
| (2) | | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. 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 increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund will generally focus on securities of small size companies which may be more volatile than those of larger companies.
In March 2020, the FASB issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional, temporary relief with respect to the financial reporting of contracts subject to certain types of modifications due to the planned discontinuation of the London Interbank Offered Rate (LIBOR) and other IBOR-based reference rates as of the end of 2021. The temporary relief provided by ASU 2020-04 is effective for certain reference rate-related contract modifications that occur during the period from March 12, 2020 through December 31, 2022. Management is evaluating the impact of ASU 2020-04 on the fund’s investments, derivatives, debt and other contracts that will undergo reference rate-related modifications as a result of the reference rate reform.
Balance Sheet Offsetting – The fund’s accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund’s right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser
15
MFS New Discovery Value Portfolio
Notes to Financial Statements – continued
generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of December 31, 2020 in valuing the fund’s assets or liabilities:
| | | | | | | | | | | | | | | | |
| Financial Instruments | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Equity Securities | | | $54,533,620 | | | | $— | | | | $— | | | | $54,533,620 | |
| Mutual Funds | | | 497,322 | | | | — | | | | — | | | | 497,322 | |
| Total | | | $55,030,942 | | | | $— | | | | $— | | | | $55,030,942 | |
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation – 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 or on the reporting date for foreign denominated receivables and payables. 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 receivables, payables, 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.
Security Loans – Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. On loans collateralized by cash, the cash collateral is invested in a money market fund. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. The lending agent provides the fund with indemnification against Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the loaned securities. In return, the lending agent assumes the fund’s rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the extent that such shortfall is not due to a decline in collateral value resulting from collateral reinvestment for which the fund bears the risk of loss. At period end, the fund had investment securities on loan, all of which were classified as equity securities in the fund’s Portfolio of Investments, with a fair value of $150,946. The fair value of the fund’s investment securities on loan is presented gross in the Statement of Assets and Liabilities. These loans were collateralized by U.S. Treasury Obligations of $159,960 held by the lending agent. The collateral on securities loaned exceeded the value of securities on loan at period end. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is separately reported in the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
16
MFS New Discovery Value Portfolio
Notes to Financial Statements – continued
Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend payments received in additional securities are recorded on the ex-dividend date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | | | | | | | |
| | | Year ended
12/31/20 | | | Year ended
12/31/19 | |
| Ordinary income (including any short-term capital gains) | | | $1,229,747 | | | | $1,970,102 | |
| Long-term capital gains | | | 3,460,414 | | | | 6,170,038 | |
| Total distributions | | | $4,690,161 | | | | $8,140,140 | |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| | | | |
| As of 12/31/20 | | | | |
| |
| Cost of investments | | | $42,847,814 | |
| Gross appreciation | | | 12,808,028 | |
| Gross depreciation | | | (624,900 | ) |
| Net unrealized appreciation (depreciation) | | | $12,183,128 | |
| |
| Undistributed ordinary income | | | 1,293,331 | |
| Undistributed long-term capital gain | | | 275,665 | |
| Other temporary differences | | | 4 | |
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | | | | | | | |
| | |
| | | Year ended
12/31/20 | | | Year ended
12/31/19 | |
| Initial Class | | | $3,822,814 | | | | $6,657,895 | |
| Service Class | | | 867,347 | | | | 1,482,245 | |
| Total | | | $4,690,161 | | | | $8,140,140 | |
17
MFS New Discovery Value Portfolio
Notes to Financial Statements – continued
| (3) | | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund’s average daily net assets:
| | | | |
| Up to $250 million | | | 0.90% | |
| In excess of $250 million | | | 0.85% | |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund’s Board of Trustees. For the year ended December 31, 2020, this management fee reduction amounted to $5,282, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2020 was equivalent to an annual effective rate of 0.89% of the fund’s average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 0.88% of average daily net assets for the Initial Class shares and 1.13% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2022. For the year ended December 31, 2020, this reduction amounted to $121,497, which is included in the reduction of total expenses in the Statement of Operations.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2020, the fee was $3,286, which equated to 0.0068% annually of the fund’s average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2020, these costs amounted to $406.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the year ended December 31, 2020 was equivalent to an annual effective rate of 0.0366% of the fund’s average daily net assets.
Trustees’ and Officers’ Compensation – The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
The fund is permitted to engage in purchase and sale transactions with funds and accounts for which MFS serves as investment adviser or sub-adviser (“cross-trades”) pursuant to a policy adopted by the Board of Trustees. This policy has been designed to ensure that cross-trades conducted by the fund comply with Rule 17a-7 under the Investment Company Act of 1940. During the year ended December 31, 2020, the fund engaged in purchase transactions pursuant to this policy, which amounted to $9,773.
The adviser has voluntarily undertaken to reimburse the fund from its own resources on a quarterly basis for the cost of investment research embedded in the cost of the fund’s securities trades. This agreement may be rescinded at any time. For the year ended December 31, 2020, this reimbursement amounted to $5,110, which is included in “Other” income in the Statement of Operations.
For the year ended December 31, 2020, purchases and sales of investments, other than short-term obligations, aggregated $39,594,110 and $39,684,774, respectively.
18
MFS New Discovery Value Portfolio
Notes to Financial Statements – continued
| (5) | | Shares of Beneficial Interest |
The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
| | | | | | | | | | | | | | | | |
| | | Year ended 12/31/20 | | | Year ended 12/31/19 | |
| | | | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares sold | | | | | | | | | | | | | | | | |
Initial Class | | | 2,799,875 | | | | $18,594,474 | | | | 189,404 | | | | $1,751,071 | |
Service Class | | | 490,466 | | | | 3,256,939 | | | | 124,339 | | | | 1,127,071 | |
| | | 3,290,341 | | | | $21,851,413 | | | | 313,743 | | | | $2,878,142 | |
| | | | |
| Shares issued to shareholders in reinvestment of distributions | | | | | | | | | | | | | | | | |
Initial Class | | | 534,659 | | | | $3,822,814 | | | | 832,237 | | | | $6,657,895 | |
Service Class | | | 122,507 | | | | 867,347 | | | | 186,916 | | | | 1,482,245 | |
| | | 657,166 | | | | $4,690,161 | | | | 1,019,153 | | | | $8,140,140 | |
| | | | |
| Shares reacquired | | | | | | | | | | | | | | | | |
Initial Class | | | (2,623,597 | ) | | | $(19,254,515 | ) | | | (957,300 | ) | | | $(8,904,637 | ) |
Service Class | | | (464,712 | ) | | | (3,615,004 | ) | | | (282,688 | ) | | | (2,620,058 | ) |
| | | (3,088,309 | ) | | | $(22,869,519 | ) | | | (1,239,988 | ) | | | $(11,524,695 | ) |
| | | | |
| Net change | | | | | | | | | | | | | | | | |
Initial Class | | | 710,937 | | | | $3,162,773 | | | | 64,341 | | | | $(495,671 | ) |
Service Class | | | 148,261 | | | | 509,282 | | | | 28,567 | | | | (10,742 | ) |
| | | 859,198 | | | | $3,672,055 | | | | 92,908 | | | | $(506,413 | ) |
Effective at the close of business on August 14, 2019, the fund is closed to new investors subject to certain exceptions. Please see the fund’s prospectus for details.
The fund is one of several mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Moderate Allocation Portfolio, the MFS Growth Allocation Portfolio, and the MFS Conservative Allocation Portfolio were the owners of record of approximately 42%, 13%, and 8%, respectively, of the value of outstanding voting shares of the fund.
The fund and certain other funds managed by MFS participate in a $1.25 billion unsecured committed line of credit of which $1 billion is reserved for use by the fund and certain other U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2020, the fund’s commitment fee and interest expense were $251 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
| (7) | | Investments in Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| | | | | | | | | | | | | | | | | | | | | | | | |
| Affiliated Issuers | | Beginning
Value | | | Purchases | | | Sales
Proceeds | | | Realized
Gain
(Loss) | | | Change in
Unrealized
Appreciation or
Depreciation | | | Ending
Value | |
| MFS Institutional Money Market Portfolio | | | $954,852 | | | | $34,718,717 | | | | $35,176,364 | | | | $117 | | | | $— | | | | $497,322 | |
| | | | | | |
| Affiliated Issuers | | | | | | | | | | | | | | Dividend
Income | | | Capital Gain
Distributions | |
| MFS Institutional Money Market Portfolio | | | | | | | | | | | | | | | | | | | $5,345 | | | | $— | |
The pandemic related to the global spread of novel coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to global business activity and the global economy, as well as the economies of individual countries, the financial performance of individual companies and sectors, and the securities and commodities markets in general. This pandemic, the full effects of which are still unknown, has resulted in substantial market volatility and may have adversely impacted the prices and liquidity of the fund’s investments and the fund’s performance.
19
MFS New Discovery Value Portfolio
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of MFS Variable Insurance Trust III and the Shareholders of
MFS New Discovery Value Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS New Discovery Value Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2020, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2020, and 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 accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2020, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 16, 2021
We have served as the auditor of one or more of the MFS investment companies since 1924.
20
MFS New Discovery Value Portfolio
TRUSTEES AND OFFICERS – IDENTIFICATION AND BACKGROUND
The Trustees and Officers of the Trust, as of February 1, 2021, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| | | | | | | | | | |
Name, Age | | Position(s)
Held with Fund | | Trustee/Officer
Since (h) | | Number of
MFS Funds
overseen by the
Trustee | | Principal Occupations During the Past Five Years | | Other Directorships During the Past Five Years (j) |
| INTERESTED TRUSTEES |
Robert J. Manning (k)
(age 57) | | Trustee | | February 2004 | | 134 | | Massachusetts Financial Services Company, Non-Executive Chairman (since January 2021); Director; Chairman of the Board; Executive Chairman (January 2017-2020); Co-Chief Executive Officer (2015-2016) | | N/A |
| | | | | |
Michael W. Roberge (k)
(age 54) | | Trustee | | January 2021 | | 134 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; President (until December 2018); Chief Investment Officer (until December 2018); Co-Chief Executive Officer (until December 2016) | | N/A |
|
| INDEPENDENT TRUSTEES |
John P. Kavanaugh
(age 66) | | Trustee and Chair of Trustees | | January 2009 | | 134 | | Private investor | | N/A |
| | | | | |
Steven E. Buller (age 69) | | Trustee | | February 2014 | | 134 | | Private investor | | N/A |
| | | | | |
John A. Caroselli (age 66) | | Trustee | | March 2017 | | 134 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
| | | | | |
Maureen R. Goldfarb (age 65) | | Trustee | | January 2009 | | 134 | | Private investor | | N/A |
| | | | | |
Peter D. Jones
(age 65) | | Trustee | | January 2019 | | 134 | | Private investor | | N/A |
| | | | | |
James W. Kilman, Jr.
(age 59) | | Trustee | | January 2019 | | 134 | | Burford Capital Limited (finance and investment management), Chief Financial Officer (since 2019); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016); Morgan Stanley & Co. (financial services), Vice Chairman of Investment Banking, Co-Head of Diversified Financials Coverage – Financial Institutions Investment Banking Group (until 2016) | | Alpha-En Corporation, Director (2016-2019) |
| | | | | |
Clarence Otis, Jr. (age 64) | | Trustee | | March 2017 | | 134 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
| | | | | |
Maryanne L. Roepke (age 64) | | Trustee | | May 2014 | | 134 | | Private investor | | N/A |
| | | | | |
Laurie J. Thomsen
(age 63) | | Trustee | | March 2005 | | 134 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
21
MFS New Discovery Value Portfolio
Trustees and Officers – continued
| | | | | | | | |
Name, Age | | Position(s)
Held with Fund | | Trustee/Officer
Since (h) | | Number of
MFS Funds
for which the
Person is an
Officer | | Principal Occupations During the Past Five Years |
| OFFICERS | | | | | | |
Christopher R. Bohane (k)
(age 47) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 134 | | Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel |
| | | | |
Kino Clark (k) (age 52) | | Assistant Treasurer | | January 2012 | | 134 | | Massachusetts Financial Services Company, Vice President |
| | | | |
John W. Clark, Jr. (k) (age 53) | | Assistant Treasurer | | April 2017 | | 134 | | Massachusetts Financial Services Company, Vice President (since March 2017); Deutsche Bank (financial services), Department Head – Treasurer’s Office (until February 2017) |
| | | | |
Thomas H. Connors (k) (age 61) | | Assistant Secretary and Assistant Clerk | | September 2012 | | 134 | | Massachusetts Financial Services Company, Vice President and Senior Counsel |
| | | | |
David L. DiLorenzo (k)
(age 52) | | President | | July 2005 | | 134 | | Massachusetts Financial Services Company, Senior Vice President |
| | | | |
Heidi W. Hardin (k) (age 53) | | Secretary and Clerk | | April 2017 | | 134 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel (since March 2017); Harris Associates (investment management), General Counsel (until January 2017) |
| | | | |
Brian E. Langenfeld (k) (age 47) | | Assistant
Secretary and Assistant Clerk | | June 2006 | | 134 | | Massachusetts Financial Services Company, Vice President and Senior Counsel |
| | | | |
Amanda S. Mooradian (k) (age 41) | | Assistant
Secretary and Assistant Clerk | | September 2018 | | 134 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
| | | | |
Susan A. Pereira (k)
(age 50) | | Assistant
Secretary and Assistant Clerk | | July 2005 | | 134 | | Massachusetts Financial Services Company, Vice President and Assistant General Counsel |
| | | | |
Kasey L. Phillips (k) (age 50) | | Assistant Treasurer | | September 2012 | | 134 | | Massachusetts Financial Services Company, Vice President |
| | | | |
Matthew A. Stowe (k) (age 46) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 134 | | Massachusetts Financial Services Company, Vice President and Assistant General Counsel |
| | | | |
Martin J. Wolin (k) (age 53) | | Chief Compliance Officer | | July 2015 | | 134 | | Massachusetts Financial Services Company, Senior Vice President and Chief Compliance Officer |
| | | | |
James O. Yost (k)
(age 60) | | Treasurer | | September 1990 | | 134 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. For the period from December 15, 2004 until February 22, 2005, Mr. Manning served as Advisory Trustee. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board’s retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Messrs. Buller, Kilman and Otis and Ms. Roepke are members of the Trust’s Audit Committee.
22
MFS New Discovery Value Portfolio
Trustees and Officers – continued
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| | |
Investment Adviser Massachusetts Financial Services Company 111 Huntington Avenue Boston, MA 02199-7618 | | Custodian State Street Bank and Trust Company 1 Lincoln Street Boston, MA 02111-2900 |
| |
Distributor MFS Fund Distributors, Inc. 111 Huntington Avenue Boston, MA 02199-7618 | | Independent Registered Public Accounting Firm Deloitte & Touche LLP 200 Berkeley Street Boston, MA 02116 |
| |
Portfolio Manager(s) Richard Offen Kevin Schmitz | | |
23
MFS New Discovery Value Portfolio
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
MFS New Discovery Value Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times by videoconference (in accordance with Securities and Exchange Commission relief) over the course of three months beginning in May and ending in July, 2020 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2019 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2019, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 1st quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 1st quintile for each of the one- and three-year periods ended December 31, 2019 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
24
MFS New Discovery Value Portfolio
Board Review of Investment Advisory Agreement – continued
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate was approximately at the Broadridge expense group median and the Fund’s total expense ratio was higher than the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to a contractual breakpoint that reduces the Fund’s advisory fee rate on average daily net assets over $250 million. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoint and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2020.
25
MFS New Discovery Value Portfolio
PROXY VOTING POLICIES AND INFORMATION
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund’s fiscal year at mfs.com/vit3 by choosing the fund’s name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit3 by choosing the fund’s name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
INFORMATION ABOUT FUND CONTRACTS AND LEGAL CLAIMS
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
FEDERAL TAX INFORMATION (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates $3,807,000 as capital gain dividends paid during the fiscal year.
For corporate shareholders, 47.05% of the ordinary income dividends paid during the fiscal year qualify for the corporate dividends received deduction.
26
rev. 3/16
| | | | |
| | | |
| FACTS | | WHAT DOES MFS DO WITH YOUR
PERSONAL INFORMATION? | |  |
| | |
| Why? | | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| | |
| What? | | The types of personal information we collect and share depend on the product or service you have with us. This information can include: • Social Security number and account balances • Account transactions and transaction history • Checking account information and wire transfer instructions When you are no longer our customer, we continue to share your information as described in this notice. |
| | |
| How? | | All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
| | | | |
Reasons we can share your
personal information | | Does MFS share? | | Can you limit this
sharing? |
For our everyday business purposes – such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus | | Yes | | No |
For our marketing purposes – to offer our products and services to you | | No | | We don’t share |
| For joint marketing with other financial companies | | No | | We don’t share |
For our affiliates’ everyday business purposes – information about your transactions and experiences | | No | | We don’t share |
For our affiliates’ everyday business purposes – information about your creditworthiness | | No | | We don’t share |
| For nonaffiliates to market to you | | No | | We don’t share |
| | |
| | |
| Questions? | | Call 800-225-2606 or go to mfs.com. |
27
| | |
| Who we are |
| Who is providing this notice? | | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| | |
| What we do |
| How does MFS protect my personal information? | | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal information? | | We collect your personal information, for example, when you • open an account or provide account information • direct us to buy securities or direct us to sell your securities • make a wire transfer We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can’t I limit all sharing? | | Federal law gives you the right to limit only • sharing for affiliates’ everyday business purposes – information about your creditworthiness • affiliates from using your information to market to you • sharing for nonaffiliates to market to you State laws and individual companies may give you additional rights to limit sharing. |
| | |
| Definitions |
| Affiliates | | Companies related by common ownership or control. They can be financial and nonfinancial companies. • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | | Companies not related by common ownership or control. They can be financial and nonfinancial companies. • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. • MFS doesn’t jointly market. |
| | |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
28
Item 1(b):
Not applicable.
The Registrant has adopted a Code of Ethics (the “Code”) pursuant to Section 406 of the Sarbanes-Oxley Act and as defined in Form N-CSR that applies to the Registrant’s principal executive officer and principal financial and accounting officer. During the period covered by this report, the Registrant has not amended any provision in the Code that relates to an element of the Code’s definition enumerated in paragraph (b) of Item 2 of this Form N-CSR. During the period covered by this report, the Registrant did not grant a waiver, including an implicit waiver, from any provision of the Code.
A copy of the Code is filed as an exhibit to this Form N-CSR.
| ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
Messrs. Steven E. Buller, James Kilman, and Clarence Otis, Jr. and Ms. Maryanne L. Roepke, members of the Audit Committee, have been determined by the Board of Trustees in their reasonable business judgment to meet the definition of “audit committee financial expert” as such term is defined in Form N-CSR. In addition, Messrs. Buller, Kilman, and Otis and Ms. Roepke are “independent” members of the Audit Committee (as such term has been defined by the Securities and Exchange Commission in regulations implementing Section 407 of the Sarbanes-Oxley Act of 2002). The Securities and Exchange Commission has stated that the designation of a person as an audit committee financial expert pursuant to this Item 3 on the Form N-CSR does not impose on such a person any duties, obligations or liability that are greater than the duties, obligations or liability imposed on such person as a member of the Audit Committee and the Board of Trustees in the absence of such designation or identification.
| ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
Items 4(a) through 4(d) and 4(g):
The Board of Trustees has appointed Deloitte & Touche LLP (“Deloitte”) to serve as independent accountants to the Registrant (hereinafter the “Registrant” or the “Fund”). The tables below set forth the audit fees billed to the Fund as well as fees for non-audit services provided to the Fund and/or to the Fund’s investment adviser, Massachusetts Financial Services Company (“MFS”), and to various entities either controlling, controlled by, or under common control with MFS that provide ongoing services to the Fund (“MFS Related Entities”).
For the fiscal years ended December 31, 2020 and 2019, audit fees billed to the Fund by Deloitte were as follows:
| | | | | | | | |
| | | Audit Fees | |
| | 2020 | | | 2019 | |
Fees billed by Deloitte: | | | | | | | | |
MFS Blended Research Small Cap Equity Portfolio | | | 46,480 | | | | 45,676 | |
MFS Conservative Allocation Portfolio | | | 31,662 | | | | 31,106 | |
MFS Global Real Estate Portfolio | | | 47,469 | | | | 46,649 | |
MFS Growth Allocation Portfolio | | | 31,662 | | | | 31,106 | |
MFS Inflation-Adjusted Bond Portfolio | | | 36,535 | | | | 35,898 | |
MFS Limited Maturity Portfolio | | | 58,175 | | | | 57,176 | |
MFS Mid Cap Value Portfolio | | | 47,900 | | | | 47,073 | |
MFS Moderate Allocation Portfolio | | | 31,662 | | | | 31,106 | |
MFS New Discovery Value Portfolio | | | 46,480 | | | | 45,676 | |
| | | | | | | | |
Total | | | 378,025 | | | | 371,466 | |
For the fiscal years ended December 31, 2020 and 2019, fees billed by Deloitte for audit-related, tax and other services provided to each Fund and for audit-related, tax and other services provided to MFS and MFS Related Entities were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Audit-Related Fees1 | | | Tax Fees2 | | | All Other Fees3 | |
| | 2020 | | | 2019 | | | 2020 | | | 2019 | | | 2020 | | | 2019 | |
Fees billed by Deloitte: | | | | | | | | | | | | | | | | | | | | | | | | |
To MFS Blended Research Small Cap Equity Portfolio | | | 2,400 | | | | 2,400 | | | | 5,587 | | | | 5,100 | | | | 0 | | | | 0 | |
To MFS Conservative Allocation Portfolio | | | 2,400 | | | | 2,400 | | | | 5,587 | | | | 5,100 | | | | 0 | | | | 0 | |
To MFS Global Real Estate Portfolio | | | 2,400 | | | | 2,400 | | | | 5,928 | | | | 5,436 | | | | 0 | | | | 0 | |
To MFS Growth Allocation Portfolio | | | 2,400 | | | | 2,400 | | | | 5,587 | | | | 5,100 | | | | 0 | | | | 0 | |
To MFS Inflation-Adjusted Bond Portfolio | | | 2,400 | | | | 2,400 | | | | 4,721 | | | | 4,249 | | | | 0 | | | | 0 | |
To MFS Limited Maturity Portfolio | | | 2,400 | | | | 2,400 | | | | 5,587 | | | | 5,100 | | | | 0 | | | | 0 | |
To MFS Mid Cap Value Portfolio | | | 2,400 | | | | 2,400 | | | | 5,587 | | | | 5,100 | | | | 0 | | | | 0 | |
To MFS Moderate Allocation Portfolio | | | 2,400 | | | | 2,400 | | | | 5,587 | | | | 5,100 | | | | 0 | | | | 0 | |
To MFS New Discovery Value Portfolio | | | 2,400 | | | | 2,400 | | | | 5,587 | | | | 5,100 | | | | 0 | | | | 0 | |
Total fees billed by Deloitte To above Funds: | | | 21,600 | | | | 21,600 | | | | 49,758 | | | | 45,385 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Audit-Related Fees1 | | | Tax Fees2 | | | All Other Fees3 | |
| | 2020 | | | 2019 | | | 2020 | | | 2019 | | | 2020 | | | 2019 | |
Fees billed by Deloitte: | | | | | | | | | | | | | | | | | | | | | | | | |
To MFS and MFS Related Entities of MFS Blended Research Small Cap Equity Portfolio* | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 5,390 | | | | 3,790 | |
To MFS and MFS Related Entities of MFS Conservative Allocation Portfolio* | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 5,390 | | | | 3,790 | |
To MFS and MFS Related Entities of MFS Global Real Estate Portfolio* | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 5,390 | | | | 3,790 | |
To MFS and MFS Related Entities of MFS Growth Allocation Portfolio* | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 5,390 | | | | 3,790 | |
To MFS and MFS Related Entities of MFS Inflation-Adjusted Bond Portfolio* | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 5,390 | | | | 3,790 | |
To MFS and MFS Related Entities of MFS Limited Maturity Portfolio* | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 5,390 | | | | 3,790 | |
To MFS and MFS Related Entities of MFS Mid Cap Value Portfolio* | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 5,390 | | | | 3,790 | |
To MFS and MFS Related Entities of MFS Moderate Allocation Portfolio* | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 5,390 | | | | 3,790 | |
To MFS and MFS Related Entities of MFS New Discovery Value Portfolio* | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 5,390 | | | | 3,790 | |
| | | | | | | | |
| | | Aggregate fees for non-audit
services: | |
| | 2020 | | | 2019 | |
Fees billed by Deloitte: | | | | | | | | |
To MFS Blended Research Small Cap Equity Portfolio, MFS and MFS Related Entities# | | | 557,127 | | | | 361,290 | |
To MFS Conservative Allocation Portfolio, MFS and MFS Related Entities# | | | 557,127 | | | | 361,290 | |
To MFS Global Real Estate Portfolio, MFS and MFS Related Entities# | | | 557,468 | | | | 361,626 | |
To MFS Growth Allocation Portfolio, MFS and MFS Related Entities# | | | 557,127 | | | | 361,290 | |
To MFS Inflation-Adjusted Bond Portfolio, MFS and MFS Related Entities# | | | 556,261 | | | | 360,439 | |
To MFS Limited Maturity Portfolio, MFS and MFS Related Entities# | | | 557,127 | | | | 361,290 | |
To MFS Mid Cap Value Portfolio, MFS and MFS Related Entities# | | | 557,127 | | | | 361,290 | |
To MFS Moderate Allocation Portfolio, MFS and MFS Related Entities# | | | 557,127 | | | | 361,290 | |
To MFS New Discovery Value Portfolio, MFS and MFS Related Entities# | | | 557,127 | | | | 361,290 | |
| * | This amount reflects the fees billed to MFS and MFS Related Entities for non-audit services relating directly to the operations and financial reporting of the Fund (portions of which services also related to the operations and financial reporting of other funds within the MFS Funds complex). |
| # | This amount reflects the aggregate fees billed by Deloitte for non-audit services rendered to the Fund and for non-audit services rendered to MFS and the MFS Related Entities. |
| 1 | The fees included under “Audit-Related Fees” are fees related to assurance and related services that are reasonably related to the performance of the audit or review of financial statements, but not reported under “Audit Fees,” including accounting consultations, agreed-upon procedure reports, attestation reports, comfort letters and internal control reviews. |
| 2 | The fees included under “Tax Fees” are fees associated with tax compliance, tax advice and tax planning, including services relating to the filing or amendment of federal, state or local income tax returns, regulated investment company qualification reviews and tax distribution and analysis. |
| 3 | The fees included under “All Other Fees” are fees for products and services provided by Deloitte other than those reported under “Audit Fees,” “Audit-Related Fees” and “Tax Fees”. |
Item 4(e)(1):
Set forth below are the policies and procedures established by the Audit Committee of the Board of Trustees relating to the pre-approval of audit and non-audit related services:
To the extent required by applicable law, pre-approval by the Audit Committee of the Board is needed for all audit and permissible non-audit services rendered to the Fund and all permissible non-audit services rendered to MFS or MFS Related Entities if the services relate directly to the operations and financial reporting of the Registrant. Pre-approval is currently on an engagement-by-engagement basis. In the event pre-approval of such services is necessary between regular meetings of the Audit Committee and it is not practical to wait to seek pre-approval at the next regular meeting of the Audit Committee, pre-approval of such services may be referred to the Chair of the Audit Committee for approval; provided that the Chair may not pre-approve any individual engagement for such services exceeding $50,000 or multiple engagements for such services in the aggregate exceeding $100,000 between such regular meetings of the Audit Committee. Any engagement pre-approved by the Chair between regular meetings of the Audit Committee shall be presented for ratification by the entire Audit Committee at its next regularly scheduled meeting.
Item 4(e)(2):
None, or 0%, of the services relating to the Audit-Related Fees, Tax Fees and All Other Fees paid by the Fund and MFS and MFS Related Entities relating directly to the operations and financial reporting of the Registrant disclosed above were approved by the audit committee pursuant to paragraphs (c)(7)(i)(C) of Rule 2-01 of Regulation S-X (which permits audit committee approval after the start of the engagement with respect to services other than audit, review or attest services, if certain conditions are satisfied).
Item 4(f):
Not applicable.
Item 4(h):
The Registrant’s Audit Committee has considered whether the provision by a Registrant’s independent registered public accounting firm of non-audit services to MFS and MFS Related Entities that were not pre-approved by the Committee (because such services were provided prior to the effectiveness of SEC rules requiring pre-approval or because such services did not relate directly to the operations and financial reporting of the Registrant) was compatible with maintaining the independence of the independent registered public accounting firm as the Registrant’s principal auditors.
| ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
Not applicable to the Registrant.
| ITEM 6. | SCHEDULE OF INVESTMENTS |
A schedule of investments of each series of the Registrant is included as part of the report to shareholders of such series under Item 1(a) of this Form N-CSR.
| ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable to the Registrant.
| ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable to the Registrant.
| ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
Not applicable to the Registrant.
| ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
There were no material changes to the procedures by which shareholders may send recommendations to the Board for nominees to the Registrant’s Board since the Registrant last provided disclosure as to such procedures in response to the requirements of Item 407 (c)(2)(iv) of Regulation S-K or this Item.
| ITEM 11. | CONTROLS AND PROCEDURES. |
| (a) | Based upon their evaluation of the effectiveness of the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)) as conducted within 90 days of the filing date of this report on Form N-CSR, the registrant’s principal financial officer and principal executive officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. |
| (b) | There were no changes in the Registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the period covered by the report that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
| ITEM 12. | DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable to the Registrant.
| (a) (1) | Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit: Attached hereto as EX-99.COE. |
| | (2) | A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2): Attached hereto as EX-99.302CERT. |
| | (3) | Any written solicitation to purchase securities under Rule 23c-1 under the Act (17 CFR 270.23c-1) sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. Not applicable. |
| | (4) | Change in the registrant’s independent public accountant. Not applicable. |
| (b) | If the report is filed under Section 13(a) or 15(d) of the Exchange Act, provide the certifications required by Rule 30a-2(b) under the Act (17 CFR 270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR 240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished pursuant to this paragraph will not be deemed “filed” for the purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. Attached hereto as EX-99.906CERT. |
Notice
Notice is hereby given that this instrument is executed on behalf of the Registrant by an officer of the Registrant as an officer and not individually and the obligations of or arising out of this instrument are not binding upon any of the Trustees or shareholders individually, but are binding only upon the assets and property of the respective constituent series of the Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) MFS VARIABLE INSURANCE TRUST III
| | |
| By (Signature and Title)* | | /S/ DAVID L. DILORENZO |
| | David L. DiLorenzo, President |
Date: February 16, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | |
| By (Signature and Title)* | | /S/ DAVID L. DILORENZO |
| | David L. DiLorenzo, President (Principal Executive Officer) |
Date: February 16, 2021
| | |
| By (Signature and Title)* | | /S/ JAMES O. YOST |
| | James O. Yost, Treasurer (Principal Financial Officer and Accounting Officer) |
Date: February 16, 2021
| * | Print name and title of each signing officer under his or her signature. |
